Warren Buffett’s annual letter to shareholders is eagerly awaited, not just for gauging the performance of the stupendously successful Berkshire Hathaway portfolio, but also to read and imbibe the nuggets of investment advice which Buffet generously shares. In the recent annual letter, two characters find repeated mentions. One, of course, is Charlie Munger, Buffet’s friend, and partner, who died last year. The letter begins with a tribute to Munger, where Buffett calls him the real architect of Berkshire Hathaway, and the entire letter is interspersed with references to Munger.

Buffett also talks about his sister, Bertie, in this year’s letter. He has used Bertie to form the picture of the ideal investor in Berkshire Hathaway. In his words, “Bertie is smart, wise and likes to challenge my thinking. We have never, however, had a shouting match or anything close to a ruptured relationship. We never will.”

Roberta “Bertie” Buffett Elliott, Buffett’s younger sister, is well known for her philanthropic work and has been effectively used by him to show how long-term investing creates immense wealth and how the reverse is true when a short-term view is taken.

Why long-term investing

Warren Buffett and Charlie Munger are all about long-term value investing and they have not been measly about sharing their wisdom with the masses in the past. But Buffett’s letter this year seems to be addressing the analysts and media who have been critical of Berkshire’s annual underperformance or muted returns in recent years.

If the per share market value of Berkshire is compared with the total returns of S&P 500 (including dividend pay-outs), the annual returns of Berkshire has not always outperformed the S&P 500. In 2023, the return from Berkshire was 15.8 per cent while the index delivered 26.3 per cent. Similar underperformance has been noticed in other years too with the Berkshire stock outperforming the index by a tiny sliver in many years.

But if the overall gain in Berkshire from 1964 to 2023 is considered, it is a whopping 4,384,748 per cent, compared to 31,223 per cent gain in the S&P 500 index. Buffett, thus, has more than adequately made his point about the virtues of value investing and remaining invested for the long-term.

And his advice to investors remains unaltered; to sit tight and trust Berkshire with their savings without any expectation of resale. Much like Bertie, and her three daughters who have a large portion of their savings in Berkshire shares, with their ownership spanning decades.

What Bertie did

It is increasingly seen in India that retail investors are turning to speculation and data analysed by SEBI showed that 90 per cent of investors lost money trading derivatives. Buffett has also pointed towards this increasing tendency towards trading and speculation, “For whatever reasons, markets now exhibit far more casino-like behaviour than they did when I was young. The casino now resides in many homes and daily tempts the occupants.”

But the trick is to be like Bertie, who Buffett calls “one of the country’s great investors.” Bertie too believed that active management of stocks and investments was the way to generate wealth initially. She was an active investor for 20 years, holding bonds, putting one-third of her funds in a mutual fund and trading stocks with some frequency. Then, in 1980, at the age of 46, Bertie changed her investment style. She retained only the mutual fund and Berkshire; she made no new trades in the next 43 years. And in that period, she became very rich, even after donating millions towards philanthropy.

Bertie’s experience is mirrored by most other investors in Berkshire. Traders in India will also agree that if they had purchased a blue-chip and held it for a decade, it may have given far superior returns than that generated by trading in the stock.

Investing lessons

Besides the pervasive advice to think long-term, Buffett also hands out some important investing lessons, through Bertie.

One, investors should always do their own due diligence and research before investing. Bertie understands many accounting terms related to investing. She tracks business news by reading four newspapers daily, but doesn’t consider herself an economic expert. She trusts her fund managers to generate returns for her.

Two, beware of self-styled gurus and influencers peddling stocks. In Buffett’s words Bertie knows that “pundits should always be ignored. After all, if she could reliably predict tomorrow’s winners, would she freely share her valuable insights and thereby increase competitive buying? That would be like finding gold and then handing a map to the neighbours showing its location.”

Three, be watchful about mis-selling of investment products. Humans have a weakness for incentives and like Bertie, investors should learn to recognise who is “selling” and who can be trusted.

Stock selection

Buffett was, as ever, candid about the difficulty in stock selection process and how it can often go wrong. “Some businesses will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen.”

But he also adds that the goal should be to continue to look for companies which use capital to consistently generate high returns in the future. He says that if you can identify and manage to own even one of such companies and simply sitting tight, it can deliver wealth almost beyond measure. “Even heirs to such a holding can — ugh! — sometimes live a lifetime of leisure.”

Buffett used the example of American Express and Coca-Cola to show companies which delivered sustained gains to investors. AMEX began operations in 1850, and Coca-Cola was launched in 1886. Their core business has been stable over the years and has grown. Both own brands which are recognised internationally.

“The lesson from Coke and AMEX? When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.”

The growing number of Indian traders and short-term investors will do well to heed the sage of Omaha. While feverish trading activity can get juices to flow, investing in the right place and sitting tight is the way to build wealth, as Bertie did.