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This is what Warren Buffett, a self-described 'so-so investor,' says is his 'secret sauce'

Stocks are rebounding on the heels of a rotten week — the worst since December for the S&P 500 SPX, +1.19% and the Nasdaq Composite COMP, +1.45%. And as Wall Street analysts go dark, with talk of investor death zones at Morgan Stanley, some droplets of wisdom by one of the world’s most followed investors


Stocks are rebounding on the heels of a rotten week — the worst since December for the S&P 500 SPX, +1.19% and the Nasdaq Composite COMP, +1.45%.

And as Wall Street analysts go dark, with talk of investor death zones at Morgan Stanley, some droplets of wisdom by one of the world’s most followed investors, may have arrived in the nick of time.

In Warren Buffett’s annual letter — apparently one of his shortest ever at 4,455 words — to Berkshire Hathaway BRK.A, +0.26% BRK.B, +0.39% shareholders, he throws a bone to us mere mortals by dedicating some airtime to what he hasn’t gotten right.

“In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so. In some cases, also, bad moves by me have been rescued by very large doses of luck. (Remember our escapes from near-disasters at USAir and Salomon? I certainly do.),” Buffett said.

“Our satisfactory results have been the product of about a dozen truly good decisions –– that would be about one every five years –– and a sometimes-forgotten advantage that favors long-term investors such as Berkshire,” he said.

Buffett then waded into the merits of long-term investing and the “secret sauce” that has made the conglomerate pretty good at what they do. He discussed Coca-Cola KO, +0.65%, one of his longtime holds, noting that Berkshire completed a seven-year purchase of those 400 million shares in August 1994.

“The total cost was $1.3 billion — then a very meaningful sum at Berkshire. The cash dividend we received from Coke KO, +0.65% in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie [Munger] and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow,” he said.

Buffett noted that his Coca-Cola investment was worth $25 billion at the end of 2022, while American Express AXP, +0.30%, whose annual dividends have surged from $41 million to $302 million, was now worth $22 billion. Each holding now accounts for roughly 5% of Berkshire’s net worth, akin to its weighting long ago,” he said.

The Sage of Omaha then turned to what would have happened if he’d plugged money into a similar asset that had just retained its original value, say $1.3 billion into a “high-grade 30-year bond.” He said that would have amounted to unchanged $80 million of annual income — a drop in the bucket for Berkshire.

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“The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well,” said Buffett.

Also: ‘You can learn a lot from dead people.’ Charlie Munger, Warren Buffett’s 99-year-old partner, doles out investing wisdom.

On Twitter, eToro’s investment analyst Callie Cox said investors should pay heed to the fact that Berkshire’s top five portfolio holdings have been held for an average of 17 years. “Want to be the next Buffett? Hold a little longer,” she said on Twitter.

“Buffett is also vocal about how he thinks time is a competitive advantage. For many of us, investing is like planting an oak tree. You sow your seeds with the understanding that you won’t see sprouts for years because growing a tree takes time. As you can see, the stock market has been the rare example of something that becomes more certain with time,” she wrote in a blog post earlier this month.

While that’s not the easiest view to hold these days, Cox noted that the holder of a hypothetical, no-fee S&P 500 fund for any 20-year period since 1950, would have earned about 7% a year, rather than losing money. “Do the math — investing for 20 years at a 7% annual growth rate can nearly quadruple your initial investment.”

And investors paralyzed by inactivity should remember: “The S&P 500 has gone through 11 economic recessions over the past seven decades, and yet it’s returned an average of 8% a year since then,” said Cox.

Read: Are you nearing retirement? Here’s how to transition your portfolio from growth to income.

The markets

Stocks DJIA, +1.11% SPX, +1.19% COMP, +1.45% are higher, while bond yields TMUBMUSD10Y, 3.910% TMUBMUSD02Y, 4.815% are easing back, as the dollar DXY, -0.41% slips and crude prices CL.1, -1.40% BRN00, -1.24% turn lower.

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For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily. Also read MarketWatch’s live markets blog to keep up with the latest news.

The buzz

Seagen  SGEN, +11.78% stock is up 15% after a report that Pfizer  PFE, -0.92% is reportedly in talks to acquire the biotech for its targeted cancer therapies.

Shares of Li Auto LI, +0.73% are up over 4% after the China-based electric vehicle (EV) maker’s profit came in more than double what was expected

Chevron CVX, +0.39%, Occidental Petroleum OXY, +0.19%, Coca-Cola , American Express are among eight companies that counted Buffett’s Berkshire Hathaway as their biggest investor in late 2022. But the conglomerate at the weekend also revealed an 8% operating earnings fall due to underperformances by railroads. Speaking of, Union Pacific will hunt for a new CEO after pressure from a hedge fund.

Earnings season is not quite over, with results due this week from big names in retail — Target TGT, +1.30%, Dollar Tree DLTR, +0.29%, Lowe’s LOW, +2.40%, Best Buy BBY, -0.06%, alongside meme-favorite movie-chain owner AMC AMC, +2.07%.

And: How big is the storm in cloud software? Salesforce, Zoom and Snowflake are about to tell you.

January durable goods orders fell 4.5%, a deeper-than-expected contraction. Still o come are January pending home sales at 10 a.m., followed by remarks from Fed Governor Phillip Jefferson at 10:30 a.m.

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The chart

Here’s one look at central bank efforts over the past few years:

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker Security name
TSLA, +5.37% Tesla
BBBY, -2.71% Bed Bath & Beyond
AMC, +2.07% AMC Entertainment
GME, -0.77% GameStop
TRKA, +21.77% Troika Media
NIO, +0.91% NIO
NVDA, +2.13% Nvidia
APE, +2.08% AMC Entertainment Holdings
AAPL, +1.51% Apple
AMZN, +1.24% Amazon
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Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton

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