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Greg Abel wrote the 2025 letter.
That is the first time in sixty years the annual letter has arrived without Buffett’s name on it, and it turns a running commentary into something closer to a finished text.
You can now read the whole thing end to end and see which ideas he held from 1977 to the finish, which ones he changed his mind about, and which ones he admitted, in print, that he got badly wrong.
The performance table at the front of that 2025 letter still reads: 19.7% compounded annually since 1965, against 10.5% for the S&P 500. Sixty years of a nine-point gap.
Compounded out, that is 6,099,294% versus 46,061%.
I’ve picked ten lessons from the letters.
Not the ten most quoted - the ten that actually change what I do on a Tuesday morning when I’m looking at a company.
Most of them cost Buffett money to learn.
1. Time is the friend of the wonderful business and the enemy of the mediocre
This is the one everything else hangs off, and the proof is the company whose name is on the letterhead.
Buffett bought Berkshire Hathaway because it was cheap. A failing New England textile mill, available below what he thought it was worth, on the assumption that some temporary improvement would let him sell it on at a profit.
By 1989 he was calling it his first big mistake as an investor. By 2010 he had upgraded that to his biggest mistake ever, estimating that buying the textile business rather than putting the money directly into insurance had cost roughly $200 billion over the following forty-five years.
The mechanism is simple and most investors underrate it.
A mediocre business doesn’t sit still while you wait for the re-rating. It consumes capital, earns below its cost of capital, and every month you hold it your money is compounding at the business’s rate rather than yours.
A great business does the opposite. Time is doing work for you or against you the entire time you own something - there is no neutral setting.
“In both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult.”
2. Cheap is not a thesis
The clearest example of this in the letters is Waumbec Mills, a New Hampshire textile business Buffett bought in the mid-1970s.
The price was below the working capital of the business. He acquired, as he put it in the 1979 letter, “very substantial amounts of machinery and real estate for less than nothing.” On a spreadsheet it was free money.
It didn’t work.
The textile industry was going into a structural downturn and nothing he or anyone else did could arrest it.
From the 1985 letter:
“In the end nothing worked and I should be faulted for not quitting sooner. A recent Business Week article stated that 250 textile mills have closed since 1980. Their owners were not privy to any information that was unknown to me; they simply processed it more objectively.”
That last sentence is the useful one. He had the same facts as everyone who left the industry earlier. The discount was doing his thinking for him.
The conclusion he drew, in the 2014 letter, is the version worth writing down:
“It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.”
3. Growth and value are joined at the hip
Buffett spent decades being claimed by people who think value means low multiples.
He rejected the whole framing in the 1992 letter, and he included himself in the criticism:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago)… Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.”
Note the last clause, because it’s the half nobody quotes.
Growth can be negative to value. A business growing quickly at returns below its cost of capital is destroying value faster the faster it grows.
His own formulation of value investing is “finding an outstanding company at a sensible price” rather than a mediocre company at a cheap one.
Those are different activities requiring different skills, and the second is much more crowded than it looks.
4. The assets that matter often aren’t on the balance sheet
Buffett was trained by Graham to trust tangible assets and distrust goodwill. He says plainly in the 1983 letter that this cost him:
“I was taught to favor tangible assets and to shun businesses whose value depended largely upon economic Goodwill. This bias caused me to make many important business mistakes of omission, although relatively few of commission.”
What changed his mind was See’s Candy.
In the early 1970s See’s produced about $2M a year after tax on $8M of net tangible assets - around 25% after tax on tangible capital, which is not a candy-shop number. By 1982 it was $13M after tax on $20M of net tangible assets, roughly 65%.
There was no plant, no patent, no scale advantage.
The source of the returns was what Buffett called “a pervasive favorable reputation with consumers based upon countless pleasant experiences they have had with both product and personnel.”
The second-order point is about inflation, and it’s the reason this lesson has aged well.
Asset-heavy businesses have to keep funding replacement capital at higher and higher prices just to stand still.
Asset-light businesses with real pricing power don’t.
“During inflation,” he concludes, “Goodwill is the gift that keeps giving.”
5. Judge management by the incentive, not the CV
When Berkshire bought H. H. Brown Shoe in 1991, Buffett wrote that the compensation plan “warms my heart.”
Managers took $7,800 a year in salary - a token - plus a share of profits after those profits had been reduced by a charge for the capital employed.
That is the whole of capital allocation discipline written into one payslip. A manager who wants a bigger bonus by expanding working capital or building a facility has to clear the cost of that capital first. There is no way to look busy and get paid.
Compare it to what he describes as the norm.
In the 2005 letter, on how comp committees actually work:
“Three or so directors - not chosen by chance - are bombarded for a few hours before a board meeting with pay statistics that perpetually ratchet upwards. Additionally, the committee is told about new perks that other managers are receiving. In this manner, outlandish ‘goodies’ are showered upon CEOs simply because of a corporate version of the argument we all used when children: ‘But, Mom, all the other kids have one.’”
And on options, from the 2018 letter:
“Managements sometimes assert that their company’s stock-based compensation shouldn’t be counted as an expense. What else could it be - a gift from shareholders?”
Reading the remuneration report before the strategy section is not cynicism. It’s the fastest available read on what the business is actually optimising for.
6. A company’s own shares are a currency, and management has to price it
Two lessons in the letters point at the same underlying skill, from opposite directions.
Buying. Buffett is more enthusiastic about buybacks than most value investors, but only under one condition: the shares have to be below intrinsic value. From the 1999 letter: “Buying dollar bills for $1.10 is not good business for those who stick around.” He is explicit that a board announcing it will repurchase a fixed number of shares over a fixed period, regardless of price, is doing something he’d consider foolish in a retail investor. It’s “buy when it’s cheap,” never “buy just because.”
Issuing. The other side of that is his worst deal, and he says so himself. Berkshire acquired Dexter Shoe in 1993 for what looked like $400M - except he paid in Berkshire stock rather than cash. The competitive advantage he thought he’d bought vanished within a few years as cheap imports arrived. The business went to roughly zero.
“By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6% of a wonderful business - one now valued at $220 billion - to buy a worthless business.”
He later added:
“Today, I would rather prep for a colonoscopy than issue Berkshire shares.”
For anyone who owns serial acquirers, this is the single most important test.
The acquisition multiple matters less than the currency it’s paid in.
Cash or cheap debt buying a good business at a fair price compounds.
Undervalued equity buying anything at all is a permanent transfer from you to the seller.
💡 Finding this valuable? Share it with someone who’d benefit.
7. If you can’t underwrite the durability, you don’t own it
The version of this lesson people repeat is “stay in your circle of competence,” which is vague enough to be useless.
The letters are more precise: the thing you have to be able to predict is not the industry’s growth, it’s the durability of one company’s advantage.
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”
His example is the automobile.
If you had foreseen in 1900 exactly how big cars would become, you would have thought you’d found the road to riches. At one point there were around 2,000 separate car brands in the United States. By the 1990s there were three American car companies left. Aviation was worse - by 1992 the entire US airline industry had produced, cumulatively, no profit at all.
Being right about the technology and wrong about the economics is the most expensive kind of correct.
The same instinct shows up in what he refuses to hold.
When Berkshire bought General Re in 1998 it inherited a derivatives book of 23,218 contracts with 884 counterparties. It took five years and more than $400M to unwind.
His comment: he could have hired fifteen of the smartest maths PhDs available and given them free rein to build any reporting system they liked, and he still wouldn’t have been able to see his own exposure.
If the disclosure can’t tell you what you own, the position size is the only risk control you have left.
8. Inactivity is a position, not an absence of one
From the 2005 letter, on Isaac Newton losing a fortune in the South Sea Bubble:
“If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”
The gap this describes is real and measurable.
Over 1997 to 2016, the average active stock investor earned roughly 4% a year while the S&P 500 returned about 10%. Almost all of that gap is behaviour, not analysis.
The specific behaviour he singles out is trimming winners because they’ve become large:
“To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.”
I’d add one honest caveat that Buffett doesn’t, because he’s had a permanent capital base and most of us haven’t.
Trimming for risk management is sometimes correct and it usually costs you money. Both things are true. What’s not defensible is trimming because a position “feels rich” while the business is doing exactly what you underwrote it to do.
His summary, from 1990:
“Lethargy bordering on sloth remains the cornerstone of our investment style.”
9. Never own stocks with borrowed money
Buffett has been unusually blunt about this, and he supports it with the one table that makes the argument better than any paragraph could.
Berkshire - a business that has compounded at nearly 20% for sixty years, run conservatively, with no existential threat to its solvency at any point - has seen its own shares fall by 37% or more on four separate occasions:
March 1973 – January 1975: 93 to 38
October 1987: 4,250 to 2,675
June 1998 – March 2000: 80,900 to 41,300
September 2008 – March 2009: 147,000 to 72,400
“There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”
The second sentence is the real risk.
Leverage doesn’t only threaten you with a margin call - it degrades your judgement at precisely the moment good judgement is worth the most.
“We believe it is insane to risk what you have and need in order to obtain what you don’t need.”
Worth noting he is not against debt in general.
He’ll borrow at modest rates when credit is cheap, so that the money is already in hand when it isn’t.
The objection is specifically to borrowing against a mark-to-market portfolio you don’t control.
10. Save in peacetime so you can spend in war
In 1973 the Washington Post was widely thought to be worth somewhere between $400M and $500M. The market was pricing it at about $100M.
Buffett put in roughly $10M for more than 1.7 million shares.
Then it kept falling.
By the end of 1974 the position was down - his $10.6M of value had become $8M - in the middle of a bear market that took the Dow from 1020 at the start of 1973 to 616 by the end of 1974.
By the time Jeff Bezos bought the paper in 2013, the stake was worth around $1.01B.
The reason the story is instructive isn’t the multiple.
It’s that the opportunity and the capacity to act on it arrived at the same moment, and the capacity had to be built beforehand. From the 2016 letter:
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”
Nobody is short of ideas at the bottom.
They’re short of cash and nerve.
Both are decisions you make years earlier, when neither feels like it’s costing you anything.
The Takeaway
What strikes me most, reading forty years of letters as one document, is how much of the value is in the admissions.
The textile mill. Waumbec. Dexter. General Re. The bias against goodwill that cost him decades of good businesses he could have owned.
Each of those has a lesson attached that he could not have written without first paying for it.
The letters give you the wrong turn, the cost, and the reasoning that changed - which is the part you can use, because your own mistakes will look nothing like the conclusions and quite a lot like the wrong turns.
The letters are free. All of them, at berkshirehathaway.com, going back to 1977.
Have a great week ahead,
Dom
Schwar Capital
Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. To read our full disclaimer, click here.