SIMON BROWN: Build a Buffett buffer

Warren Buffett released his annual letter to Berkshire Hathaway shareholders on the last Saturday of February, as is his custom.

He releases it on a Saturday so that we can read it without having the noise of the market around us. It’s always worth reading, and is published on the company website (where all the back issues are also

available).

Buffett starts this year’s letter by mentioning mistakes he’s made, stressing that everybody will make some; we are, after all, human. He says very few listed companies ever admit to mistakes, and that this only serves to make matters worse. The point he drives home is that what really matters is what you do when you realise you’ve made a mistake.

In the case of Berkshire Hathaway, correcting mistakes is hard due to the large size of its investments. But we individual investors have a lot more flexibility; we can usually get into or out of a stock with relative ease, as the number of shares we own is seldom material to the volume being traded in the market.

We need to remember this flexibility, and use it to our advantage. If you buy something with great expectations and it all goes south, first dig into what went wrong. Consider whether correcting the mistake will be a quick fix for the company, or a longer-term issue. Further, could it be fatal for the business? If it’s big and dangerous, admit your mistake and take the quick loss rather than hanging on in hope.

Buffett also writes that he doesn’t care where a person was educated. Sure, fancy degrees from fancy institutions look great on a CV, but they’re largely performative; it depends on what the person does with their education. Further, the school of life is often a much better teacher, and for most of us that’s exactly how we learn to invest. We read a lot, we try different approaches to our investing, and over time we hone our strategy to one that fits our needs, skills and, frankly, the time we have available.

Being a fancy CA with more than 40 hours a week to analyse companies is great, but that’s for the pros. We need to get by with fewer direct skills and a lot less time. This means we need to invest smarter — and a lot of it is about knowing what we don’t know and staying away from that.

This means we need to have an initial filter that excludes most investment options, thereby reducing our workload. I am finding AI very useful for doing a lot of time-consuming legwork that it can do much faster than I can, freeing me to spend the time on other areas of the research process.

Berkshire Hathaway’s AGM, at which Buffett will answer questions for almost five hours, will take place on May 3, starting at 3pm our time. The meeting will once again be broadcast and is always worth watching, even in the absence of Charlie Munger, who died in 2023.