Lessons from Warren Buffett’s Annual Letter 2024 Edition: Part 3

Every year, Warren Buffett writes an annual letter to shareholders of Berkshire Hathaway. This letter typically holds some commentary and reflection by Buffett, and it accompanies the report being provided by the team at Berkshire Hathaway. Usually, the letter is full of gems and wisdom. This year was no different.

In my first read, several things jumped out to me. Each concept is simple enough to understand yet important enough to be singled out. This is my 3rd and final article on this topic. You can read Part 1 or Part 2 on my website.

Thank You, Uncle Sam

If you’re a frequent reader of Buffett, you’ll know that he’s not shy about his appreciation for America. That appreciation remains in this latest missive. He writes-

“... except Berkshire would not have achieved its results in any locale except America whereas America would have been every bit the success it has been if Berkshire had never existed. So thank you, Uncle Sam.”

Buffett is very open about the role that America and capitalism have played in his long-term success. He even admits that America would have been successful even if his company never existed. That’s a pretty strong statement.

Investing and Consumption

One of the oldest financial maxims is “Spend less than you make.” I’m sure you’ve heard it or a version of it somewhere along the way. For Americans, this is so simple…but not easy.

Our culture has created champion consumers. Everywhere we go, we are bombarded with messages that urge us to spend more and more. This really hits home for me when I hear one of my children reciting a commercial line for line.

Consumers drive our economy. This is important for us to understand, as it plays a role in how our economy functions. However, it also plays a role in our personal economics.

There’s something referred to as the “Wealth Effect.” This topic probably deserves more than a few sentences, but I’ll try to summarize it this way–

When people are feeling flush because their investments are up and their incomes are secure, they tend to spend more. Vacations may become more lavish. Home projects get off the back burner and start happening. Status purchases become more commonplace.

I bring this up because Buffett gives a nod to Berkshire shareholders for being disciplined with company profits. He writes–

"In a very minor way, Berkshire shareholders have participated in the American miracle by foregoing dividends, thereby electing to reinvest rather than consume. Originally, this reinvestment was tiny, almost meaningless, but over time, it mushroomed, reflecting the mixture of a sustained culture of savings, combined with the magic of long-term compounding."

Warren outlines the blueprint right here in this paragraph. Simply put– investing when you could consume and give it time to compound in your favor. Again, this is simple, but not easy.

Stay Bullish on America

Our culture today is quite divided over politics and government. This division can charge us emotionally and distort our ability to think clearly about the economic machine that is capitalism. Good investors know when to check their emotions at the door.

Millions–possibly billions–in wealth has never materialized for some investors because they allow personal feelings to interrupt their investment planning. Yes, this can be hard at times. So, let’s look at some perspective:

This chart from Dimensional should be reviewed every time when have a presidential election. At least, that is something that I would recommend. When you zoom out, it can restore perspective.

Here’s what Buffett has to say:

"This system is called capitalism. It has its faults and abuses – in certain respects more egregious now than ever – but it also can work wonders unmatched by other economic systems.

America is Exhibit A. Our country’s progress over its mere 235 years of existence could not have been imagined by even the most optimistic colonists in 1789, when the Constitution was adopted and the country’s energies were unleashed."

Warren Buffett is considered by many to be the greatest investor of all time. He certainly belongs on the Mount Rushmore as one of the greats. He’s got some of the brightest minds in finance on speed dial, teams of analysts, and decades more experience than any of us (he’s 94). If he can remain bullish on America and capitalism, we should too.

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