Warren Buffett on Berkshire's success: Not just smart investing but lots of luck

Legendary investor Warren Buffett.

Ace investor Warren Buffett has served a summary of Berkshire Hathaway’s investment rigour and rigmarole in his 2022 annual letter to shareholders.

While Buffett and partner Charlie Munger are known for creating unparalleled wealth for their shareholders, they have made mistakes just like any other investor.

And Buffett has flagged his own errors in the letter. In fact, he highlights that Berkshire was a one-trick pony 68 years ago. Its investment in a revered textiles firm was “doomed” which Buffett realised late.

In fact, he goes on to say that investment decisions have been so-so and not spectacular. “In some cases, also, bad moves by me have been rescued by very large doses of luck,” he wrote.

“Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently delivering a gusher of improved goods and services.”

The annual report shows a graphic comparing annual return on $100 invested in Berkshire Hathaway versus a similar investment in the S&P 500. In the past four years, Berkshire has underperformed the S&P although annual returns have steadily increased.

Perhaps Buffett’s quip that stocks more often than not trade at foolish levels, both high and low.

Luck be ready

Buffett credits Berkshire’s success to not just smart investing but a lot to luck.

For instance, Berkshire invested in insurance firm National Indemnity in 1967, the first step towards Berkshire’s well tested insurance bets, was a stroke of luck according to Buffett.

He goes on to say that Berkshire benefited immensely from the “American Tailwind”. In other words, the economy’s prospects were directly indicative of how Berkshire would fare.

“America would have done fine without Berkshire. The reverse is not true,” Buffett wrote.

To be sure, this is classic self deprecating moments of Buffett. As a Bloomberg article points out, Buffett has flagged off many investment mistakes in the past letters as well. In fact, a 25th Annual review was titled ‘ Mistakes of the First Twenty-five Years.’

Buffett has many times attributed investment success to luck and being boring. “The world is full of foolish gamblers, and they will not do as well as the patient investor,” Buffett quotes Munger in his letter.

Part of Berkshire’s returns can also be attributed to playing safe. Indeed, Buffett reiterated that the company will continue to hold a “boatload” of cash and treasury bills.

Above all, Berkshire is driven by the philosophy that betting against American economy never pays. From Coca Cola to Burlington Northern Santa Fe, the Oracle of Omaha’s investment decisions are nothing but American.