Three timeless investing lessons from Warren Buffett

Warren Buffett is stepping back, but his investment wisdom endures

For decades, Warren Buffett’s letters have been a must-read for investors worldwide.

In his latest Thanksgiving message at age 95, Buffett announced he will no longer write Berkshire Hathaway’s annual report or speak at its annual meetings, traditions he’s continued since 1965.

But while Buffett is stepping back, his reflections over the years offer enduring wisdom for anyone focused on building wealth for the long term.

Here are three lessons from the Oracle of Omaha that every investor can apply.

Patience pays

Included in each of Berkshire Hathaway’s annual reports is a table showing the performance of Buffett’s company compared to the S&P 500 Index, including dividends.

The tables demonstrate Buffett’s phenomenal investment skill. Since 1965 until the end of 2024, Berkshire Hathaway compounded at 19.9% annually. The overall gain for 1964–2024 was a staggering 5,502,284%.

Few can match Buffett’s skill, but the table also shows that the S&P 500 Index gained 10.4% annually over that same period, which equates to an overall gain of 39,054%.

It’s a reminder of the powers of compounding, and a reminder that you don’t need to be a star stock picker to still do well with investing.

Be fearful when others are greedy and be greedy when others are fearful

Another important lesson from Buffett is the concept he learned from his mentor, Ben Graham, about the nature of markets.

When stocks are soaring, it’s easy to believe the good times will last forever. But Buffett warns that these periods of widespread optimism often signal inflated prices and are time to act with caution.

Meanwhile, when headlines are gloomy and markets are down, it may be the best time to invest for the long term at bargain prices, as Buffett has demonstrated repeatedly throughout his career.

The lesson here is to think independently and avoid getting swept up in the crowd’s emotions or the next “big thing”.

Most investors should stick to indexing

Despite Buffett’s immense success picking individual stocks, he’s repeatedly extolled the benefits of investing in index funds, like those offered by Vanguard.

“By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals,” he told Berkshire investors back in 1993.

In 2007, Buffett took it a step further, by betting $US1 million that he could outperform five “funds-of-funds” managed by experts over a 10-year period by investing in a Vanguard fund tracking the S&P 500 Index.

The results? As Buffett wrote in his annual report to Berkshire Hathaway shareholders in 2017:

“The five funds-of-funds got off to a fast start, each beating the index fund in 2008. Then the roof fell in. In every one of the nine years that followed, the funds-of-funds as a whole trailed the index fund.”

One big factor? Fees. As Buffett says: “Performance comes, performance goes. Fees never falter.”

Final thoughts

Buffett’s lessons are clear: stay patient, think independently and keep costs low. One simple way to do that is to build a well-diversified portfolio using low-cost index funds and letting time do the work.

Of course, past performance is not a reliable indicator of future results, and all investing involves risk, including the potential loss of principal. Always consider your personal objectives and circumstances before making any investment decisions.

By Vanguard
19 November
vanguard.com.au

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