Warren Buffett has been leading holding company Berkshire Hathaway (BRK.A 0.33%)(BRK.B 0.33%) since 1965. That's 60 years of market trouncing.
As of the end of 2024, Berkshire Hathaway had gained 5,502,284% in per-share market value since Buffett took over, whereas the S&P 500 had gained 39,054% at the same time. When he leaves at the end of the year, it will be with an unmatched legacy and a trove of wisdom for investors.
Buffett may still weigh in about market dynamics and the right approach to investing from a different perch, but he will no longer be writing the company's annual letters, chock-full of his nuggets of wisdom. Here are three of his gems to guide you as you continue your own investing journey.
Image source: The Motley Fool.
"No matter how serene today may be, tomorrow is always uncertain."
Buffett wrote this in his 2010 shareholder letter, not too long after the mortgage crisis and subsequent market implosion. He reminded investors that no one saw what was coming in 1987 or 2001, two other times in history when the market crashed.
Although that sounds like a dour take on the market, he actually meant it in a positive way. "Don't let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America," a statement eerily reminiscent of today's political scene. And that was precisely his point: "America's best days lie ahead."
We live in uncertain times, too. There could be an artificial intelligence (AI) bubble, or a cryptocurrency bubble, or a general stock market bubble -- or not. But as Buffett pointed out 15 years ago, that's par for the course. The short term is always uncertain, but the long-term arc has always been upward. Buffett will always bet on America, and don't let the uncertainty keep you out of the markets.
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"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Buffett is known as a value investor, but he isn't just searching for cheap stocks. Stocks are by definition only bargains if they're valuable; otherwise, they're value traps.
It's the great companies that can withstand market volatility and create shareholder value. So while you don't want to overpay, the more important part of choosing a stock is focusing on a wonderful company.
That doesn't mean Buffett isn't looking for the incredible opportunity of a great company at a cheap price. He demonstrated that when Berkshire Hathaway bought shares of UnitedHealth Group when they dropped a few months ago. The one trait he pointed out about incoming CEO Greg Abel in the most recent shareholder letter is his ability to act when opportunities present themselves.
"When investing, pessimism is your friend, euphoria the enemy."
This is a crucial lesson for investors to keep in mind during strong bull markets -- like today. The S&P 500 continues to rise, posting double-digit gains for the third year in a row, but the market appears to be driven by an AI-based euphoria.
Large hyperscalers are sinking billions of dollars into AI development, and the results have yet to be seen. Berkshire itself invested in Alphabet in the third quarter, so Buffett still sees value in some AI development. He also owns shares of Amazon.
He has warned investors about buying stocks when the market is at a high, noting that "Unfortunately...stocks can't outperform businesses indefinitely." The stock market is highly valued today, which might be why Berkshire Hathaway has been a net seller of stocks for the past 12 quarters and has built up record levels of cash and short-term Treasury bills.
Warren Buffett would counsel investors to stay in the market and keep buying the right stocks under the right circumstances, but be wary of euphoria and embrace pessimism. If you expect the market to rise over the long term, pessimistic markets can offer the greatest opportunities.
