Chris Farrell: Warren Buffet’s annual wisdom-sharing full of personal finance advice

Warren Buffett’s 2023 annual letter to shareholders of Berkshire Hathaway is, like his previous letters, worth reading several times.

Buffett, 93, is a legendary investor who bought his first stock on March 11, 1942. Along with his close friend, the late Charlie Munger, his intellectual and investing partner, Buffett established a remarkable investment track record. The letter opens with a touching memoriam to Munger.

“Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades,” he wrote. “In a way, his relationship with me was part older brother, part loving father. Even when he knew he was right, he gave me the reins, and when I blundered he never — never — reminded me of my mistake.”

There are several themes in the letter, and I want to focus on three with personal finance implications. Yes, Berkshire Hathaway is the seventh-largest U.S. company with a market capitalization of nearly $900 billion. Still, the lessons are worth reflection.

First, embrace financial conservatism for safety and opportunity. Buffett (and Munger) have long emphasized the diversified company’s financial strength. One reason is its huge pile of cash and its equivalents (currently $167.6 billion). The cash buffer is “far in excess of what conventional wisdom deems necessary,” yet Buffett extolled the virtues of “extreme financial conservatism.” The hoard allows the company the means to cope well during financial crisis and economic downturns (think 2001, 2008 and 2020) and to seize opportunities when they emerge. The analogy to building a healthy margin of household financial safety is compelling.

Second, invest for the long haul. Frequent trading is hazardous to your wealth. He notes Wall Street thrives on the marketing opportunities feverish activity creates. Rather than chase financial fads, he recommended sticking with quality long-term investments.

“Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been — and will be — rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes,” he wrote.

Most of us own equities through retirement savings plans, and his long-term framework resonates with a low-fee low-turnover broad-based index fund strategy.

Third, find your purpose (or purposes). Buffett delighted in detailing his investing mistakes but quickly added “managing Berkshire is mostly fun and always interesting.” He loves what he does at 93. Personal finance is about designing money strategies that support the kind of life you want to live.

Chris Farrell is senior economics contributor, “Marketplace”; commentator, Minnesota Public Radio.