Warren Buffett's Advice for Investors for 2024

I don't know if you guys have noticed, but Warren Buffett has kept very quiet over the past six months. No media interviews, very few changes to his portfolio. The guy has been keeping well out of the spotlight. So much so that when his longtime business partner Charlie Munger sadly passed away in November of last year, Buffett put out a two-line statement simply thanking Charlie for his inspiration, wisdom, and participation. That was it.

But today, the time has come. Warren Buffett has broken his silence, as he recently published his annual letter to shareholders, including a proper tribute to Charlie Munger and also some very interesting bits of advice for investors for the year ahead. But first order of business: the whole first page of this document is actually just a tribute to Charlie Munger, and Buffett has some really kind words about his former business partner. Remember, these guys were basically best friends; they've been close buddies since 1959.

So this is what Warren Buffett had to say about his friend. He starts off by talking about how they met and Charlie's early advice to Warren around focusing on the quality of the business rather than the Ben Graham cigar butt approach. But then he moves on and talks about Charlie's actual involvement in Berkshire, saying, "In reality, Charlie was the architect of the present Berkshire, and I acted as the general contractor to carry out the day-by-day construction of his vision. Charlie never sought to take credit for his role as Creator, but instead let me take the bows and receive the accolades. 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. In the physical world, great buildings are linked to their architect, while those who poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company, though I have long been in charge of the construction crew. Charlie should forever be credited with being the architect."

I find that a really nice tribute to Charlie. I think Charlie never got very much credit for his work at Berkshire, but he definitely deserves it, so Buffett's words are really nice to hear. With that said, we then move on to the actual contents of the letter itself, and there was a lot to take away from it. He started by taking his usual dig at the relatively recent update to the accounting standards, which necessitate unrealized capital gains be included in net income. For most companies, this is fine, but for a business like Berkshire, which is mostly wholly-owned business operations plus a giant stock portfolio, it means the month-to-month bouncing of the stock market can really make it hard to assess the actual results of the underlying business operations.

He says, "You seek guidance and are told that the procedures for calculating these earnings are promulgated by a sober and credentialed Financial Accounting Standards Board, mandated by a dedicated and hardworking Securities and Exchange Commission, and audited by the world-class professionals at Deloitte and Touche. We, however, are left uncomfortable at Berkshire. Our view is that earnings should be a sensible concept that 'Birdie' will find somewhat useful but only as a starting point in evaluating a business." Now, that reference to 'Birdie' is simply Buffett saying that he likes to write these letters to be easily understandable to the common shareholder.

But from that passage, you can definitely see just how annoyed he gets at these rules. For example, if you had a company that generates $10 billion one year, then $20 billion, and then $30 billion, that's pretty great. But if they hold an investment portfolio that bounces up $5 billion in the first year, drops $5 billion in the next, and then falls another $10 billion in year three, it will look like the company's earnings are going nowhere when, in fact, the company itself has grown its business operations really well. It's just stock prices bouncing around in the short term.

Now, with companies that don't really hold too many investments and just make and sell gizmos and gadgets, then this rule doesn't really impact them. But for a business like Berkshire, which has a lot of wholly-owned businesses as well as a $350 billion stock portfolio, then simple unrealized capital gains can actually swing the official numbers quite a lot. In fact, Buffett notes that this can swing Berkshire's net income by up to $5 billion per day. So the solution, Buffett says, is you should always watch operating income—how much money the business operations are actually making.

So that's what he spoke about first. But Buffett also took the time to really run through his investment strategy and what he specifically looks for when buying a stock. He noted two important points: that he's always looking for businesses that enjoy good economics that are fundamental and enduring, and they also hope these favored businesses are run by able and trustworthy managers. So, as always with Buffett, it's analyze the company for a moat and then check that this company is run by trustworthy managers.

But he also notes just how hard this completely simple strategy is actually getting for Berkshire, and this was probably the most interesting part of the letter for me. He says, "This combination of the two necessities I've described for acquiring businesses has for long been our goal in purchases, and for a while, we had an abundance of candidates to evaluate. If I missed one—and I missed plenty—another always came along. But listen to this: those days are long behind us. Size did us in, though increased competition for purchases was also a factor."

Yes, you heard me right! This is Warren Buffett, the oracle of Omaha, admitting that Berkshire's amazing run is probably over. They're simply too big! But what does he mean by this? Why is scale such a problem? Well, he notes, "There remain only a handful of companies in this country that are capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value, some we can't, and if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at all. In all, we have no possibility of eye-popping performance."

Firstly, how crazy is that level of honesty from a CEO? But on the point Buffett raises, we have to remember that Berkshire is the seventh largest company in the S&P 500 at a market cap of $868 billion. Their stock portfolio alone is worth $350 billion, and they've got $167 billion of cash sitting on the sidelines. Realistically, they want to be investing tens of billions of dollars into businesses at a time. But there are only so many companies that you can do that to while still remaining less than a 10% shareholder, as Buffett likes to do.

Immediately, you need a business with a market cap of over $100 billion for Buffett to even take notice. And despite us talking about, you know, these days multi-trillion-dollar companies, there still aren't that many businesses with a market cap in the hundreds of billions. In fact, as of the time of recording, there are only 92 companies in America with a market cap that high. And obviously, as you go international, once you drift away from the biggest stock market in the world, these opportunities become less and less.

But that's not to say Buffett has given up hope at finding these opportunities, because there is one more factor that will always remain that gives investors infrequent yet amazing opportunities, and that is psychology. Buffett says, "Occasionally, markets and/or the economy will cause stocks and bonds of some large and fundamentally good businesses to be strikingly mispriced. Indeed, markets can and will unpredictably seize up or even vanish, as they did for four months in 1914 and for a few days in 2001. If you believe that American investors are now more stable than in the past, think back to September 2008. The speed of communication and the wonders of technology facilitate instant worldwide paralysis. And we have come a long way since smoke signals. Such instant panics won't happen often, but they will happen."

A lot of people say that the stock market could never crash again like it did in the 1920s or like 2008. But I do agree with Buffett: I think it's actually easier for the stock market to suffer heavy losses very quickly in today's environment because of the accessibility of the markets to everyone. Panic can ensue faster than ever before, and it will certainly cause market crashes in the future. But the key is to remain calm, understand where the high-quality businesses lie, and keep a close eye on them in your watch list.

Then, when the markets do inevitably fall off a cliff, you can take decisive action for the long term. Buffett notes, "Though the stock market is massively larger than it was in our early years, today's active participants are neither more emotionally stable nor better taught than when I was at school. For whatever reason, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants." And ultimately, that highlights the game we're playing as long-term investors: wait for Wall Street and the gamblers to panic, buy the great stuff in the short-term drop, and hold it for the long-term recovery. That's really all there is to it, but you have to stay rational.

Buffett goes on in this letter to talk about his rule number one of investing. He says, "One investment rule at Berkshire has not and will not change: never risk permanent loss of capital. 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." Essentially, don't get sucked in with the gamblers and always make long-term minded decisions.

But that quote in particular brings up a concept that I've been yammering on about a lot lately, which is to also focus on staying with those few good decisions, sticking to the long-term compounders. Buffett goes on to talk at length about the power of holding on to the long-term compounders through two examples: Coke and American Express. He says, "American Express began operations in 1850, and Coca-Cola was launched in an Atlanta drugstore in 1886. Berkshire is not big on newcomers. Both companies tried expanding into unrelated areas over the years and both found little success in these attempts in the past, but definitely not now. Both were even mismanaged, but each was hugely successful in its base business, reshaped here and there as conditions called for. And crucially, their products traveled. Both Coke and AEX became recognizable names worldwide, as did their core products. The consumption of liquids and the need for unquestioned financial trust are timeless essentials of our world."

"During 2023, we did not buy or sell a share of either AEX or Coke, extending our own Rip Van Winkle slumber that has now lasted well over two decades. Both companies again rewarded us in action last year by increasing their earnings and their dividends. Indeed, our share of AEX earnings in 2023 considerably exceeded the $1.3 billion cost of our long-ago purchase. Both AEX and Coke will almost certainly increase their dividends in 2024—about 16% in the case of AEX—and we will most certainly leave our holdings untouched throughout the year. Could I create a better worldwide business than these two enjoy? As 'Birdie' will tell you, no way."

The lesson from AEX: when you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable. Straight from the horse's mouth: no trading signals, no options bets, no earnings plays, no stock tips from Jono. That passage is essentially Buffett saying, "Find businesses with an intrinsic and durable competitive advantage." So there's something about your business that keeps it ahead of the competitors. And then from there, buy it at a fair price, and if it stays good, keep it locked in your portfolio. That's really it.

The success of your entire investing career will most likely come down to three or four stocks that you just held on to through thick and thin. Those stocks, if held for a long time, will take care of all the other mediocre decisions that you make. Remember, Buffett has made hundreds of investment decisions over the years, but he says his entire success comes down to roughly 12 of them. That's the way Buffett is telling us to think.

And overall, guys, they are my takeaways from Buffett's annual shareholder letter. One last thing I want to mention is that if you're still here, hopefully that means that you, too, follow the Warren Buffett investment approach. Well, if you wanted to get serious about it, learn how to read financial statements properly, understand how you can calculate whether a company has a moat, and also learn three stock valuation techniques, please check out "Introduction to Stock Analysis" on New Money Education. That is a full 6-hour step-by-step tutorial of the entire Warren Buffett strategy—literally start to end. It's the whole thing!

So if you're interested, check it out, and you can also use the code SAVE50 for $50 off your purchase if you want. So thank you very much if you do decide to check it out. Of course, all proceeds go towards creating more content here for free on YouTube, so I really appreciate it. But with that said, guys, that will do us for today. Leave a like on the video if you did enjoy, subscribe if you haven't done so already, and I'll see you guys in the next one.