Warren Buffett's annual letter for 2023

His words of wisdom span Munger's advice and the art of keeping it simple when it comes to investing

Insights from Warren Buffett’s annual letter to shareholders

If there is one thing that the world of investing unanimously waits for every single year, it is Warren Buffett's letters to shareholders. Through these letters, he shares his wisdom, reasons behind decisions and even mistakes he has made over the years.

This year, he talks about Berkshire's goal, a not-so-secret advantage it has, and most of all, how important Charlie Munger was to him and the company.

On the passing of Charlie Munger

He starts the letter by addressing the death of his friend and business partner Charlie Munger, who he refers to as the 'architect' of Berkshire. Referring to his relationship with Charlie as "part older brother, part loving father", Buffett recalls one of the earliest pieces of advice Munger gave him back in 1965:

"Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practised at a small scale."

Safe to say, Munger has shaped Buffett as an investor and person over the years that we see today.

The simple goal of Berkshire

The goal of Berkshire is to own businesses that are, as he puts it, "enjoy good economics that are fundamental and enduring". Even among them, he prefers companies that reinvest capital at high returns. Buffett continues, "Owning only one of these companies - and simply sitting tight - can deliver wealth almost beyond measure."

Then comes assessing the management, which is a beast of its own and is a more difficult judgement to make. Even Berkshire has its share of disappointments. Referring to a line written by the US comptroller back in 1863, "Never deal with a rascal under the expectation that you can prevent him from cheating you." He says it continues to remain true to date.

Two such businesses that fit Berkshire's description are American Express and Coca-Cola. The products and the brands of these companies have become well-known worldwide. "When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable," he says.

Berkshire's (not so) secret weapon

The speed of communication and information may make one think that investors are more emotionally stable than in the past, but that has not been the case. Although the stock market has grown in size, investors still panic. "For whatever reasons, markets now exhibit far more casino-like behaviour than they did when I was young. The casino now resides in many homes and daily tempts the occupants."

Wall Street's earnings get a boost whenever there is feverish activity in the market. Such activities, which Buffett refers to as foolishness, will always be marketed by someone. Berkshire's advantage has been having the ability to take advantage of these opportunities with huge sums.

No matter how much the market changes, Buffett says one rule will remain constant in Berkshire: "Never risk permanent loss of capital. The arena in which we operate has been - and will be - rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes."

Where to read the full letter?

Whether you are an amateur or an industry veteran, Buffett's letters always offer invaluable insight. You can read the latest shareholder letter here.

Also read: Timeless wisdom from Warren Buffett

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