5 Lessons from Warren Buffett’s Letters

Berkshire Hathaway's chairman has a reputation for eloquence in his annual shareholder letters. Here are five gems from over the years.

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For decades, the unflappable chairman of Berkshire Hathaway has addressed shareholders in an annual letter that is part economics manual, part philosophical musing, and part conversation between friends.

Warren Buffett‘s reports on Berkshire’s earnings and losses over the years have transitioned smoothly between lessons in basic accounting, anecdotes from his personal life, and metaphors equating Woody Allen’s sex life to a clever investment strategy.

In April, editor Max Olson published a complete anthology of Buffett’s letters, billing it as a “lesson plan” covering the Omaha businessman’s views on business and investing. There are no guarantees these five lessons will help you replicate the Oracle of Omaha’s exact path to success, but they can’t hurt.

Be optimistic about the challenges you face…

Buffett’s optimism, like that of many entrepreneurs, was tested in 2008 following the onset of the financial crisis. Berkshire Hathaway’s net worth decreased by nearly $12 billion that year, yet the chairman offered up this reassurance:

“Amid this bad news, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation in 1980; and the Great Depression of the 1930s. America has had no shortage of challenges. Without fail, however, we’ve overcome them.”

…And realistic about your successes.

Buffett acknowledges dumb luck as much as he discourages blind panic.

“This was a year in which any fool could make a bundle in the stock market,” wrote Buffett in 1995. “And we did. To paraphrase President Kennedy, a rising tide lifts all yachts.”

Similarly, in 2006, Buffett credited the weather for a $16.9 billion gain. The lack of natural disasters boosted insurance payments–a business in which Berkshire is heavily invested.

“Mother Nature, bless her heart, went on vacation. After hammering us with hurricanes… she just vanished,” he wrote, “Last year the red ink from this [insurance] activity turned black–very black.”

Thank those who feed your success.

Buffett may be the third richest man in the United States, but he knows when to thank the little people–and the not so little people. Buffett’s praises of his support team and business superstars might just deserve a book of their own.

In 2006, Buffett praised GEICO’s then-CEO Tony Nicely for his “staggering” productivity the year before. “Last year I told you that if you had a new son or grandson to be sure to name him Tony,” Buffett wrote. “But Don Keough, a Berkshire director, recently had a better idea. He wrote me, ‘Forget births. Tell the shareholders to immediately change the names of their present children to Tony or Antoinette.’ Don signed his letter ‘Tony.’”

Be cautious of the advice you buy.

Buffett advised his shareholders to question the wisdom of large institutions when it comes to investing–even his own. Paraphrasing a story told by economist Ben Graham, Buffett illustrated how established leaders can get caught up in their own hype.

In Buffett’s story, an oil prospector about to enter heaven is met by St. Peter and told that he is qualified for residence–but the compound for oil men is already packed. The prospector thinks for a moment and then asks if he can say just four words to the current occupants. St. Peter agrees, so the man cups his hands and shouts, “Oil discovered in Hell!” Immediately the compound empties in a flurry of prospectors racing to the underworld. Impressed, St. Peter invites the man in. “No,” says the man, “I think I’ll go along with the rest of the boys. There might be some truth to that rumor after all.”

But be patient with those who dispense it.

In 2000, Buffett addressed the subject of his own fallibility–and mortality–with characteristic poise.

“There is a negative that recurs annually,” he wrote, ”My partner [Charlie Munger] and I are a year older than when we last reported to you.”

The solution to such a problem, Buffett explained, was to appoint young talent to key positions within Berkshire’s interests. “Mitigating this adverse development is the indisputable fact that the age of your top managers is increasing at a considerably lower rate… than is the case at almost all other major corporations,” he wrote.

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