It is fitting that Warren Buffett should be replacing his famously wise and witty letters to Berkshire Hathaway shareholders with an annual Thanksgiving message. Humility and gratitude are the defining characteristics of the Sage of Omaha.
At the age of 95, Buffett acknowledges that he may not have many more letters in him. So, we should hang onto every pearl of Nebraskan wisdom. If you haven’t seen his latest public epistle - published on Monday - you’ll find it at berkshirehathaway.com. It really is worth a read.
As time has gone by, the world’s most famous investor has written less about the markets and more about life. That, I guess, is what happens in your tenth decade. But what struck me about the new missive is the overlap between the two. He has always lived as he invested, and vice versa.
Buffett may never have actually said ‘pay your taxes and be grateful’ but it’s one of his key messages. As he did say this week, ‘the centre of the United States was a very good place to be born, to raise a family, and to build a business. Through dumb luck, I drew a ridiculously long straw at birth.’
The role of luck in investment is underestimated. Buffett’s luck was to be ‘born in 1930, healthy, reasonably intelligent, white, male and in America. Wow! Thank you, Lady Luck.’ His lifetime has been an American century, coinciding with the dominance of the US economy and stock market. He did not need to look very far afield, and for most of his career he has not.
Buffett’s luck gave him easy access to the compound growth of a string of remarkable American success stories, from Coca Cola to Gillette and American Express. In his new letter he tells the three children to whom he has passed on the responsibility of disbursing his great wealth that ‘they do not need to perform miracles nor fear failures or disappointments.’ This is the lesson he learned from decades of investing in the relentless growth of simple businesses run by honest people.
These are the kinds of people who, he wryly notes, do not wish ‘to retire at 65, to become look-at-me rich, or to initiate a dynasty’. Thirty years after Buffett hit 65, he still goes into the office five days a week. That is not everyone’s choice, but I reckon it has been a contributor to his longevity. He still lives in the same house he bought at the age of 28. And he is happy to hand on the baton to a non-family member, Greg Abel, who picks up the onerous task of running Berkshire Hathaway at the end of the year (and, perhaps more daunting, writing those letters in the annual report).
Looking back on his long and successful career, Buffett remembers the times that he and business partner Charlie Munger ‘failed to act’. He is referring to the times he allowed sentimental support for ‘a wonderful and loyal CEO’ of one of his businesses to blind him to the fact that, perhaps through dementia or other debilitating disease, an individual was no longer delivering. That is true of our investments, too. Sometimes, you just have to cut your losses and reset. We cannot afford to fall in love with our portfolio.
One of the problems of success is that, as Buffett says in the letter, ‘size takes its toll’. Between 1965 and 2024, Berkshire Hathaway has delivered a compound annual rise in shareholder value of 19.9pc, roughly twice the 10.4 per cent delivered by the S&P 500 over the same period. The magic of compound growth has turned that into an overall gain of 5.5 million per cent compared to 39 thousand for the US benchmark. But the years of massive outperformance of the market are, in the main, long in the past. Elephants, as they say, don’t gallop.
As a consequence, ‘a decade or two from now, there will be many companies that have done better than Berkshire’. This might be seen as a problem, but it is also a blessing. It obliges Buffett and his successors to invest in a disciplined, prudent and patient way. ‘Berkshire has less chance of a devastating disaster than any business I know’, Buffett writes. It is diversified and it is managed for the long term - ‘our stock price will move capriciously, occasionally falling 50 per cent or so as has happened three times in 60 years under present management. Don’t despair; America will come back and so will Berkshire shares.’
There aren’t many things that you can get better at as you age, but investing is one of them. ‘I’m happy to say I feel better about the second half of my life than the first’, Buffett said this week. ‘Don’t beat yourself up over past mistakes - learn at least a little from them and move on.’ There is no better mantra for an investor.
Buffett is too old and wise to make personal remarks. But it is hard not to think that he has one or more real people in mind when he concludes his letter by saying ‘greatness does not come about through accumulating great amounts of money, great amounts of publicity or great power in government. Kindness is costless but also priceless.’
It would be easy to dismiss Warren Buffett as an old man trying to come to terms with an uglier world than the one in which he learned his folksy Mid-Western values. But he hasn’t lost the ruthless edge that made him at times the world’s richest man: ‘I wish all who read this a very happy Thanksgiving. Yes, even the jerks; it’s never too late to change.’
Tom Stevenson is an investment director at Fidelity International. The views are his own.
