Investors around the world turn to Berkshire Hathaway's (BRK.A 1.66%) (BRK.B 1.35%) annual letters for guidance. And while Warren Buffett's letters tend to include a great deal of wisdom, they also include mistakes to avoid -- especially during treacherous markets.

Here are three big mistakes to avoid in 2023 and beyond.

Berkshire Hathaway CEO Warren Buffett.

Image source: The Motley Fool.

Avoid major mistakes

Buffett believes that Berkshire has posted merely "satisfactory" results over its history. "Our satisfactory results have been the product of about a dozen truly good decisions -- that would be about one every five years -- and a sometimes-forgotten advantage that favors long-term investors such as Berkshire," said Buffett.

However, one thing that Buffett has done exceptionally well is to avoid a big mistake. And that characteristic makes Buffett and his team some of the greatest investors ever.

Avoiding major mistakes takes patience and an understanding of what you own and why you own it. The good news is that Buffett believes that both of these skills can be developed over time.

One way to avoid mistakes is by keeping a diversified portfolio. Yet even then, 80% of Berkshire Hathaway's public equity holdings are highly concentrated in just seven stocks. All seven companies are industry-leading businesses with wide moats and key advantages. Apple stock makes up over a third of Berkshire's public equity holdings. Yet Apple is also the largest U.S.-based public company with an entrenched position in the modern economy. So while Apple stock could fall in a significant way, it's unlikely it would become a major mistake in the same way as having a third of a portfolio in a small, unproven, unprofitable company.

Refrain from using leverage

Buffett and Charlie Munger are the most iconic duo in the investing world. Buffett's tangents pair nicely with Munger's short and humorous one-liners and simple explanations of complex topics.

In the 2022 shareholder letter, Buffett addresses the importance of having a great partner in Munger and cites several of Munger's recent thoughts. One of the quotes is on the topic of using leverage:

There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don't count on getting rich twice.

The point is that anyone can get lucky. But to foster compounded gains over time, an investor must have a process that avoids all-or-nothing gambles.

Buffett and Munger have long warned about the use of leverage. Leverage can amplify gains to the upside and losses to the downside.

And they're not alone. When Tesla stock was close to its 52-week low in December, Elon Musk warned investors not to buy Tesla stock on margin even though he continues to believe Tesla will grow to become the most valuable company over time. 

Avoiding leverage gives an investor a better chance of enduring market volatility.

Be an investor, not a stock picker

Throughout the financial world, the word "stock" is often used instead of "business" or "company." But Buffett prefers not to think of his investments as stocks but as businesses.

If you characterize a company as a stock, it becomes merely a number on a screen that can be bought and sold. This approach can lead the stock's price action to eclipse the true value of the business.

Another relevant quote from Buffett's letter is the following:

In our second category of ownership, we buy publicly traded stocks through which we passively own pieces of businesses. Holding these investments, we have no say in management. Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers. Please note particularly that we own publicly traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.

The best way to go several years or even decades without trading in and out of positions is to think of a stock as partial ownership in a company. Stocks are unique because they are highly liquid and trade on a sophisticated market with real-time offers to buy and sell. Instead of reading too much into this marketplace, it is better to use the liquidity as an advantage only when necessary instead of as a yardstick for the market to tell you what it thinks your company is worth at a given moment.

Focus on what matters most

Buffett's recent letter to Berkshire Hathaway shareholders is a fresh reminder not to get caught up in market volatility. If you're a long-term investor, you likely care much more about where a company will be five or 10 years from now than if it trades up or down by the end of 2023.

Avoiding big mistakes has helped Buffett post impressive returns over a 57-year period. Buffett and his team's ability to avoid a major mistake, paired with consistency over a long stretch of time is the differentiating factor that separates Buffett from other famous investors. Like any investor, Buffett will take his losses. But these losses often end up being recoverable because the vast majority of Berkshire's holdings are concentrated in quality businesses that Buffett and his team have spent numerous hours researching and vetting.