In his recently released letter to shareholders, Warren Buffett once again showcases his timeless wisdom, blending sharp business acumen with candid reflections on success and failure. From challenging the overuse of EBITDA as a profitability metric to emphasizing the true value of paying taxes, Buffett's letter is a masterclass in pragmatic investing and ethical business practices.

Here are few nuggets of wisdom from what we like from his later shareholders letter.

 

1. Embracing Mistakes

In his recently released letter to shareholders, Warren Buffett underscores the vital role of acknowledging mistakes in the world of business and investing. Buffett, known for his transparency and humility, revealed that he has used the words “mistake” or “error” 16 times in his letters between 2019 and 2023.

This candid approach is not merely self-reflective but serves as a broader lesson for investors and managers alike.

"I've made plenty of mistakes, and I'll make plenty more. But I've learned from them, and that's what matters," Buffett writes, encapsulating his belief in the constructive power of failure. 

Buffett’s philosophy is grounded in the idea that mistakes are inevitable but not futile. He advocates for a culture where managers are encouraged to own their errors openly, seeing them as learning opportunities rather than setbacks.

By fostering this culture at Berkshire Hathaway, he ensures that decision-making processes are continually refined. This approach also mitigates the dangers of ego and denial, which can exacerbate poor decisions and lead to larger business pitfalls.

• The letter, released just days ago, reiterates that learning from mistakes contributes to long-term success. Buffett’s acknowledgment of his own missteps serves as a reminder that even the most seasoned investors are not infallible.
• His advice to managers—embrace mistakes, analyze them, and pivot strategies accordingly—is a testament to his enduring wisdom.
• By normalizing the discussion of errors, Buffett not only strengthens Berkshire’s internal practices but also sets a powerful example for the entire business community.

 

2. The Power of Great Decisions

In his latest letter to shareholders, Warren Buffett emphasizes the profound impact of a few well-chosen decisions on long-term success.

Buffett, who released this letter just a few days ago, reiterates that not every decision needs to be a home run, but a single outstanding choice can generate exponential returns over time.

Highlighting this principle, he states, "GEICO, for example, was a $7 million company when we bought it in 1996. Today, it's worth over $50 billion. That's the power of a great decision.

Buffett points to pivotal choices, such as investing in GEICO, recruiting Ajit Jain to lead Berkshire’s insurance operations, and collaborating with Charlie Munger, as cornerstone moves that shaped Berkshire Hathaway's success.

• These decisions weren't merely lucky breaks but were built on a foundation of deep analysis, patience, and a long-term perspective.
• The recent letter illustrates how these calculated risks, combined with discipline and foresight, have consistently yielded substantial gains.
• A crucial takeaway from Buffett’s latest insights is his advice to investors: prioritize quality over quantity. Rather than making numerous mediocre decisions, focus on a few high-quality ones.
• This philosophy aligns with his broader strategy of avoiding unnecessary trades and resisting the impulse to react to market noise.Instead, he suggests waiting patiently for the right opportunity and acting decisively when it arises.
• Buffett's wisdom, freshly articulated in his latest shareholder letter, reinforces the idea that exceptional results often stem from a handful of extraordinary decisions.

 

 

3. Education vs. Ability

Warren Buffett sheds light on the misconception that formal education is a prerequisite for success. Buffett, always an advocate for real-world wisdom over academic credentials, recounts the story of Ben Rosner, a retailing genius who never went beyond the sixth grade. 

"Ben Rosner was a brilliant retailer who built a successful business from scratch. He never finished elementary school, but he had a natural talent for business," Buffett writes, highlighting how innate ability and street smarts can often outshine academic accolades.

Buffett’s message, reiterated in this new letter, is clear: talent, work ethic, and integrity often trump formal education. He points out that while education can provide valuable knowledge, it is not the sole determinant of a person's potential.

• Instead, Buffett values a strong work ethic, an unyielding passion for learning, and the courage to take risks. He believes that these attributes are often more indicative of success than degrees or diplomas.
• The letter also emphasizes how Berkshire Hathaway's hiring philosophy reflects this belief.
• Buffett and his long-time business partner Charlie Munger often look beyond resumes, seeking out individuals who demonstrate grit, curiosity, and ethical standards. 
• For Buffett, real-world experience, practical wisdom, and the ability to adapt are invaluable traits. As he underscores in the letter, by focusing on character and capability rather than credentials, Berkshire has built a team that consistently drives the company’s long-term growth and success.

 

4. Insurance and Climate Change

Buffett addresses the evolving challenges that climate change presents to the insurance industry. He acknowledges that while environmental catastrophes are becoming more frequent and severe, insurers can still thrive if they adapt wisely.

"Climate change is a real and growing threat, but it's also a manageable risk for insurers. We're working hard to price our policies correctly and to prepare for the challenges ahead," Buffett writes.

His letter emphasizes the critical need for insurance companies to remain agile and resilient. Properly pricing policies is key, as it ensures that insurers maintain profitability even in the face of rising claims from natural disasters.

Buffett's insights reflect a pragmatic approach—accepting climate change as an inevitable factor while focusing on strategic adaptation.

His message to investors and industry leaders is clear: vigilance, smart underwriting, and a forward-looking mindset are essential to navigating the uncertainties of a changing climate.

 

5. EBITDA Limitations

Buffett once again challenges the widespread use of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measure of profitability. He argues that EBITDA can present an overly optimistic view of a company’s financial health by ignoring critical expenses.

"EBITDA is a flawed metric that can lead investors astray. We focus on earnings after all expenses, including depreciation and taxes," Buffett writes, underscoring his preference for a more conservative and realistic approach to evaluating business performance.

Buffett’s criticism is rooted in the belief that depreciation and interest expenses are not mere accounting formalities but real costs that affect a company’s bottom line.

Depreciation, for instance, represents the wear and tear on physical assets, which eventually need replacement—an undeniable cash outflow. Ignoring such expenses, he suggests, can create a misleading picture of profitability, especially in capital-intensive industries.

By focusing on net earnings after all expenses, including depreciation, amortization, and taxes, Buffett aims to provide shareholders with a more accurate assessment of a company’s true earning power.

This approach not only offers a clearer picture of sustainable profitability but also aligns with Berkshire Hathaway’s broader philosophy of valuing businesses based on tangible, cash-generating abilities.

As Buffett highlights in his letter, this disciplined approach has helped Berkshire avoid overvalued investments and maintain a robust portfolio grounded in financial reality. His perspective serves as a reminder to investors to look beyond surface metrics and dig deeper into financial statements.

 

6. Tax Payments and Company Value

In his letter, Warren reinforces the idea that paying substantial taxes is not a detriment to a company's value but rather a testament to its success.

Highlighting Berkshire Hathaway’s impressive $26.8 billion tax contribution last year, Buffett writes, "Paying taxes is a sign of prosperity, not a burden.

We're happy to pay our fair share and contribute to the country's growth." This statement underscores his belief that thriving businesses can create immense value while fulfilling their civic responsibilities.

 

• Buffett’s perspective challenges the common corporate narrative that prioritizes tax minimization as a strategic objective. 
• Instead, he argues that companies should focus on sustainable growth, operational excellence, and value creation for shareholders. 
• His letter emphasizes that an overemphasis on tax avoidance can distract from building long-term business strength and contributing positively to the broader economy. 
• For Buffett, taxes are a natural outcome of profitable operations and a healthy sign of robust earnings.By paying taxes responsibly, Berkshire not only supports public infrastructure and social programs but also reinforces its reputation as a principled corporate citizen. 
• Buffett's approach reflects his broader investment philosophy: prioritize real economic gains and ethical practices over short-term financial maneuvers.
• His latest letter serves as a reminder to investors and corporate leaders alike that enduring value comes from building prosperous businesses that contribute to society, not just maximizing net profits through aggressive tax strategies.

 

7. Public and Private Companies

It is his long-held view that public and private companies are fundamentally the same in his eyes—they are both ownership stakes in businesses.

"We don't distinguish between public and private companies. We look for great businesses with strong fundamentals, regardless of whether they're publicly traded or not," Buffett writes, underscoring his pragmatic approach to investing.

Buffett's investment philosophy is rooted in evaluating businesses based on their intrinsic value, not their market status.

Whether a company is listed on the stock exchange or privately held is secondary to its competitive advantages, consistent earnings power, and strong management.

• He emphasizes that the focus should always be on the business's fundamentals, such as its profitability, return on equity, and ability to generate free cash flow.
• In his letter, Buffett points to Berkshire Hathaway’s diverse portfolio, which includes both publicly traded stocks like Apple and wholly owned private businesses such as See’s Candies and BNSF Railway.
• This approach allows Berkshire to capitalize on opportunities across the investment spectrum, maintaining flexibility and discipline. 
• By not being swayed by the public market's volatility or the allure of private equity exclusivity, Buffett demonstrates the power of a consistent, value-driven strategy.
• His recent letter serves as a reminder to investors that the ultimate goal is to own pieces of great businesses—regardless of their public or private status—where long-term growth and shareholder value are the primary metrics of success.

 

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