In his 2022 Berkshire Hathaway Annual Letter, Warren Buffett reflects on his mistakes and successes over 58 years of managing Berkshire Hathaway. He acknowledges that most of his capital-allocation decisions have been average, with a few standout successes and some bad decisions salvaged by luck.
Buffett highlights the dual nature of capitalism, where creative destruction creates both winners and losers. He emphasizes the occasional opportunity in publicly traded stocks to buy great businesses at attractive prices, while noting that controlled businesses are rarely available at bargain prices.
Buffett attributes Berkshire’s success to a few key decisions and a long-term investment advantage.
Here’s an excerpt from the letter:
Over the years, I have made many mistakes. Consequently, our extensive collection of businesses currently consists of a few enterprises that have truly extraordinary economics, many that enjoy very good economic characteristics, and a large group that are marginal.
Along the way, other businesses in which I have invested have died, their products unwanted by the public. Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently delivering a gusher of improved goods and services. Schumpeter called this phenomenon “creative destruction.”
One advantage of our publicly-traded segment is that — episodically — it becomes easy to buy pieces of wonderful businesses at wonderful prices.
It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.
Controlled businesses are a different breed. They sometimes command ridiculously higher prices than justified but are almost never available at bargain valuations. Unless under duress, the owner of a controlled business gives no thought to selling at a panic-type valuation.
At this point, a report card from me is appropriate: In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so. In some cases, also, bad moves by me have been rescued by very large doses of luck. (Remember our escapes from near-disasters at USAir and Salomon? I certainly do.)
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.
You can find the entire letter here:
2022 Berkshirre Hathaway Annual Letter
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