In his 1989 letter, Warren Buffett provided a number of key takeaways for thoughtful, long-term investors. One of the clearest lessons is his obsession with intrinsic value: “What counts, however, is intrinsic value—the figure indicating what all of our constituent businesses are rationally worth.”
He explains that value comes down to discounting future cash flows, and that, “with perfect foresight,” you could theoretically make all businesses economic equals—whether they make buggy whips or cell phones.
Buffett also shares a lesson about how Berkshire’s past returns came from a “double-dip”: first, the actual growth in the intrinsic value of great businesses, and second, the market “catch-up” and correcting their undervaluation.
“We’ll have to settle for a single-dip in the future,” he warns, noting that many of Berkshire’s investments were now fairly valued. The message? Don’t count on markets being irrational forever—you get the big returns when you buy great businesses before others recognize them.
Another standout lesson focuses on how taxes impact long-term compounding. Buffett lays out a side-by-side of what happens when you hold one great investment versus repeatedly selling and reinvesting: “If however, we made a single fantastic investment that itself doubled 20 times during the 20 years, our dollar would grow to $1,048,576.”
Sell and reinvest every year and you’d end up with just $25,250. Why the huge difference? “The sole reason… would be the timing of tax payments.” His point? Buy and hold is a tax-efficient superpower.
Buffett’s also blunt about what not to do: “Unless you are a liquidator, that kind of approach to buying businesses is foolish.” He’s referring to the cigar-butt strategy—buying a business just because it’s cheap, even if it’s not great.
Perhaps most candidly, he warns investors not to fall for flashy structures or hype. Reflecting on Wall Street’s excitement over zero-coupon bonds, he quips, “The zero-coupon or PIK bond possesses one additional attraction… the time elapsing between folly and failure can be stretched out.” Translation? Bad ideas wrapped in financial engineering still end badly—just slower.
Buffett wraps it up with humility: “Some of my worst mistakes were not publicly visible… the cost of this thumb-sucking has been huge.” It’s a reminder that even investing legends miss. But the real lesson is what he and Charlie Munger figured out over time: “Easy does it.” Look for great businesses, run by great people, and hang on.
You can read the entire letter here:
1989 Berkshire Hathaway Annual Letter
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