Warren Buffett, the CEO of Berkshire Hathaway, is known for his outstanding long-term investing record. According to his 2024 letter to shareholders, Berkshire has averaged annual gains of 19.9% from 1965 to 2024. This phenomenal performance equates to turning a $1,000 investment into nearly $45 million over 59 years.
Despite widespread admiration, critiques of Buffett’s investments often arise, especially during booming markets where high-growth stocks lead the charge. Last September, an article in The Economist highlighted that from 2009 to 2023, Berkshire’s annual return averaged 13%, compared to the S&P 500’s 15%. Buffett’s strategy often involves accumulating cash and striking when opportunities arise.
Skeptics viewed his cautious moves as overly conservative, especially when the S&P 500 showed gains. However, with recent market downturns, his approach now seems prescient. Here are some key lessons we can learn from Buffett:
Be Contrarian: Buffett advises investors to “be fearful when others are greedy and greedy only when others are fearful.” This contrarian mindset helps avoid following the crowd and making irrational decisions.
Stick to What You Know: Buffett stays within his “circle of competence,” only investing in businesses he understands well. Don’t Be Afraid to Do Nothing: Buffett emphasizes the value of patience. It’s better to invest in great companies and hold them long-term rather than frequently buying and selling.
Expect Mistakes, but Learn from Them: Even Buffett makes mistakes.
Buffett’s timeless investing wisdom
Learning from errors helps in making better investment decisions in the future.
Robert Gill, portfolio manager at Fairbank Investment Management Ltd., emphasizes that Buffett’s advice transcends generations. “Buffett’s advice is timeless. What makes it most relevant is that he gives advice that can apply to more than investing—it’s relevant to running a business and even how you can lead your life,” Gill said.
Jordan Damiani, senior wealth advisor at Meridian Credit Union, notes that many young investors either aim for quick, high-risk returns or avoid investing out of fear. Both extremes can be detrimental to long-term financial health. Buffett’s approach advocates for balanced risk—holding substantial equity investments while maintaining a cautious cash reserve.
At the 2020 annual Berkshire Hathaway shareholder meeting, Buffett said that if you have credit card debt, you should pay it off before you even think about investing. “You can’t go through life borrowing money at those rates and be better off,” said Buffett. Paying off credit card debt, which often charges interest rates of 20% or more, beats investing in the stock market, which historically has returned about 10% per year before inflation.
Paying off your cards is like getting a guaranteed, risk-free return of 20% or more — an unbeatable deal. Buffett’s investing philosophy of patience, knowledge, contrarian thinking, and sound financial management continues to guide investors towards long-term success. His wisdom serves as a reminder that financial health begins with disciplined handling of liabilities before pursuing investment opportunities.
Image Credits: Photo by Kaleidico on Unsplash
