Warren Buffett‘s annual letter to Berkshire Hathaway (NYSE:BRK.B) shareholders has turn into the stuff of legend. And I feel we will study extra key classes from him than from every other particular person.

Who can ever neglect “It’s much better to purchase an exquisite firm at a good price than a good firm at an exquisite price“. That was from the 1989 letter. And it bears on one of many themes from the newest for 2024, a yr that noticed document working earnings of $47.4bn.

The market worth of Berkshire Hathaway soared 5,502,284% from 1964 to 2024, whereas the S&P 500 gained 39,054%.

There’s no rush

Berkshire Hathway has amassed an eye-watering sum of $334bn in money. Topped up from gross sales of Apple and Financial institution of America, it’s been hitting the monetary headlines all yr. So what did the good man say about it?

He stated: “Regardless of what some commentators at the moment view as a rare money place at Berkshire, the good majority of your cash stays in equities. That desire received’t change.“

So no, he hasn’t modified his thoughts that the inventory market is the absolute best long-term funding there may be. However keep in mind that factor about great corporations at honest costs? It appears easy to me — for those who’re not seeing them now, don’t purchase now.

There’s nothing fallacious with holding money when shares look too excessive, and preserving it till there are higher alternatives. One factor I’m positive all of us know from expertise is that we’ll see inventory market falls sooner or later.

“Mistakes – yes, we make them at Berkshire”

Buffett instructed us: “In the course of the 2019-23 interval, I’ve used the phrases ‘mistake’ or ‘error’ 16 instances in my letters to you. Many different big corporations have by no means used both phrase over that span.“

He identified that Amazon “made some brutally candid observations” in 2021. However apart from that, company suggestions to shareholders “has usually been comfortable discuss and photos“.

He was form sufficient to spell out the important thing lesson right here for buyers: “The cardinal sin is delaying the correction of mistakes or what Charlie Munger called ‘thumb-sucking.’ Problems, he would tell me, cannot be wished away. They require action, however uncomfortable that may be.”

Reinvest, reinvest

“In a really minor method, Berkshire shareholders have participated within the American miracle by foregoing dividends, thereby electing to reinvest moderately than eat. Initially, this reinvestment was tiny, virtually meaningless, however over time, it mushroomed, reflecting the combination of a sustained tradition of financial savings, mixed with the magic of long-term compounding.“

Does the lesson from that actually want any futher clarification? If we preserve ploughing our dividends into new shares for lengthy sufficient, the annual earnings we earn from the reinvested money can come to exceed our returns from the preliminary funding itself.

And at last, sadly, I’m reminded how good issues come to an finish: “At 94, it received’t be lengthy earlier than Greg Abel replaces me as CEO and can be writing the annual letters“. But when Warren Buffett reckons Abel is the precise man for the job, I’ll nonetheless be studying these letters.