Every year, I look forward to reading the Berkshire Hathaway Letter from Warren Buffett.

Inside one can often find significant pearls of wisdom that apply not only to investing, but to life in general.

This year’s letter was no exception. What follows are a select few highlights, in italics, followed by my commentary.

Mistakes — Yes, we make them at Berkshire

Sometimes, I’ve made mistakes in assessing the future economics of a business I’ve purchased for Berkshire — each a case of capital allocation gone wrong.

That happens with both judgments about marketable equities — we view these as partial ownership of businesses — and the 100 per cent acquisitions of companies.

At other times, I’ve made mistakes when assessing the abilities or fidelity of the managers Berkshire is hiring. The fidelity disappointments can hurt beyond their financial impact, a pain that can approach that of a failed marriage.

A decent batting average in personnel decisions is all that can be hoped for. The cardinal sin is delaying the correction of mistakes or what Charlie Munger called “thumb-sucking”.

Problems, he would tell me, cannot be wished away. They require action, however uncomfortable that may be.

Admitting you are wrong in investing is crucial for success. In this field, it is not whether you are right or wrong, but, as the saying goes, what is important is how much you make when you are right versus how much you lose when you are wrong.

Another saying also comes to mind: It’s not that you get something wrong that is the problem. The problem is “staying wrong”. Some of the greatest losses or “blow-ups” in the history of markets have come at the expense of egos or the refusal to accept small losses for fear of admitting error. “Thumb-sucking” can have dramatic consequences and derail many financial plans. If you can limit losses and ride winners, then, as Warren says, “Mistakes fade away; winners can forever blossom”.

Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities — mostly American equities although many of these will have international operations of significance. Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.

Paper money can see its value evaporate if fiscal folly prevails. In some countries, this reckless practice has become habitual, and, in our country’s short history, the US has come close to the edge. Fixed-coupon bonds provide no protection against runaway currency.

Equities remain one of the best, if not the best, forms of investment to counter the ravaging effects of inflation. Given the most recent surge of inflation and its continued pressure, it’s worth noting that over the past five years the S&P 500’s annualised gain of more than 15 per cent has far exceeded the US Consumer Price Index annualised rate of more than 4 per cent. Meanwhile “fixed income bonds” as measured by the US Aggregate Total Return Index have not offered gains more than inflation.

One way or another, the sensible — better yet, imaginative — deployment of savings by citizens is required to propel an ever-growing societal output of desired goods and services. This system is called capitalism. It has its faults and abuses — in certain respects more egregious now than ever — but it also can work wonders unmatched by other economic systems.

In my opinion, capitalism remains essential for true progress and societal advancement. It is a voluntary system that offers those participants the freedom to invest as they choose. Over the past few years, I have seen an increasing shift from the Left questioning this system — much of it misinformed and factually incorrect. As Warren said, it is not perfect, but an excessive focus on redistributive policies and anti-business rhetoric is not likely to lead to an optimal outcome for a country’s citizens.

Maybe Winston Churchill said it best: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries.”

We need to look after those less fortunate than us, but the answer lies in lifting people up, not tearing people down.

Source: www.berkshirehathaway.com/letters/2024ltr.pdf

• Nathan Kowalski CPA, CA, CFA, CIM, FCSI, is the chief financial officer of Anchor Investment Management Ltd and can be contacted at nkowalski@anchor.bm. The sole responsibility for the content of this article lies with the author. It does not necessarily reflect the opinion, policy, or position of Anchor Investment Management Ltd