What Buffett really wants you to remember (2020-24 letters)

This last instalment of our series on Buffett's annual letters shows why sticking to the basics is the best route to investing success. There have been no fireworks in the last five years of Buffett's letters. Just a relentless drilling-in of first principles—so simple, they are almost boring. But ignore them and you risk losing money hand over fist.

Here, Buffett does what he has always done best: call out the nonsense (conglomerate illusions, adjusted earnings, overpriced buybacks), double down on the obvious (character, compounding, patience), and remind you that the stock market is not a casino—unless you choose to make it one.

These last dispatches will not just inform you on how to invest better. They will also help you think clearer. Let's get into them.

The illusion of empire

Conglomerates have always had a bit of a God complex. The ambition? Build an empire, one acquisition at a time. But as Buffett laid out in his 2020 letter, most empires are built on sand. The really good businesses are those that don't want to be bought. And the not-so-good ones? They will happily accept a takeover offer as long as you overpay.

That, in turn, fuels a game of smoke and mirrors. To make overpriced deals look sensible, many conglomerates rely on an inflated stock price as currency. The result is that promoters push up their own share price through hype and creative accounting, then use that overvalued scrip to gobble up mediocre businesses (in stock-for-stock mergers). Illusions like these can last longer than you would expect, until one day, they don't. When the music stops, it turns out the emperor was not wearing any clothes after all.

Invest like an owner, not a trader

In his 2021 letter, Buffett reiterated the difference between being a stock picker and being a business owner. Berkshire doesn't buy tickers; it buys businesses. With or without a controlling stake, the question is always the same: Is this a business with a durable advantage and a great manager?

It's not about market moves or macro predictions. Buffett does not care where interest rates are headed or what GDP might do next quarter. He is buying for the long haul—so long as the business holds up. The takeaway is simple: Think like a businessperson, not a screen-scrolling speculator.

The earnings charade

Also in 2021, Buffett returned to a familiar villain: "adjusted earnings." He has always preferred good old-fashioned numbers: after interest, taxes, depreciation, amortisation, and compensation. And he is clear-eyed about what happens when managements start fiddling with these.

When CEOs begin "adjusting" away real costs to hit earnings targets, they are not being savvy, they are being deceptive. And once the top starts fudging numbers, the rot spreads. You get insurers underestimating claims, CFOs underreporting losses and analysts cheering the illusion. What starts as a small fudge to meet Street expectations can end up as a full-blown fraud.

As Buffett says, it takes no talent to manipulate numbers, just the willingness to lie.

Share repurchases: Do it right or don't do it at all

By now, we know Buffett's two conditions for buybacks: have the cash and make sure the stock is trading below intrinsic value. But in 2021, he reminded us of a third, subtler truth: repurchases are most powerful when the price is right and the opportunity cost is low.

It's not enough to say, "we have extra cash." The better question is: Are these buybacks a better use of capital than deploying it elsewhere? If not, even cheap repurchases are a distraction.

Buffett also made a quiet, sharp observation: Investors should actually hope the stock price stays low while repurchases are happening. That is how you increase ownership without paying extra. If that sounds counterintuitive, you are probably still thinking like a trader, not an owner.

Patience, dividends and the real power of compounding

Two things shone through the 2022 letter: Buffett's Coca-Cola and American Express investments—and his friendship with Charlie Munger.

Those $1.3 billion bets made in the '90s? They now spin off hundreds of millions in dividends each year. More importantly, those "ordinary" dividend increases have powered extraordinary capital appreciation. Not by clever trading or brilliant predictions. Just by sitting still.

The math is mind-blowing, yes. But the message is deeply human. Great businesses don't need babysitting. They work while you sleep. And if you start early (and live long), it only takes a few winners to change your life.

Deception is a choice

Buffett didn't mince words in the 2022 letter: manipulating earnings is not a clever workaround—it's a cultural failure. "Bold imaginative accounting" may impress the Street but it corrodes trust. And it signals to subordinates that bending the truth is not just tolerated—it's expected. That is why Buffett cares more about management's character than credentials.

Lessons from mistakes—and from Charlie

In the 2024 letter, Buffett returned to his most painful mistake: buying Berkshire Hathaway, a declining textile mill, just because it was cheap. It took him two decades to course-correct but that mistake gave birth to a new philosophy: Buy quality. Ignore the price tag. And when you realise you have messed up, don't sit around thumb-sucking. Cut your losses. Move on.

It's a lesson Buffett keeps repeating and one he credits Charlie Munger for. Charlie's gift was not just contrarian thinking, it was clarity. Whether reminding Buffett that the stock market is a weighing machine, or warning that leverage turns genius into ruin, Charlie was the partner who made complex things simple, and simple things always stick.

And one last thing: stocks > cash

Despite Berkshire's massive cash hoard, Buffett still believes that equities are the superior long-term asset class. Inflation chips away at cash. Good businesses grow and compound. And if you own just a few of the right ones, you will do just fine.

Final thought

Buffett didn't teach us anything radical in these final letters. No secret formula. No hot stock tips. Just old-school common sense, repeated until it finally sticks.

Ignore the noise. Own great businesses. Trust character over charisma. Be patient. Admit mistakes. And above all, don't overthink what works. Because in the end, wealth is not created by predicting the next move. It's created by picking your spots and staying put.

Also read: The Buffett way to surviving market storms (2008-11 letters)

This article was originally published on May 01, 2025.