Warren Buffett's 10 nuggets of investing wisdom: 2020

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10. OPTIMISTIC OUTLOOK: Buffett says he and Munger base their optimism on five factors: "First, Berkshire's assets are deployed in an extraordinary variety of wholly or partly owned businesses that, averaged out, earn attractive returns on the capital they use. Second, Berkshire's positioning of its 'controlled' businesses within a single entity endows it with some important and enduring economic advantages. Third, Berkshire's financial affairs will unfailingly be managed in a manner allowing the company to withstand external shocks of an extreme nature. Fourth, we possess skilled and devoted top managers for whom running Berkshire is far more than simply having a high-paying and/or prestigious job. Finally, Berkshire's directors ... are constantly focused on both the welfare of owners and the nurturing of a culture that is rare among giant corporations." (Photo: AP)

Warren Buffett, 89, likes to wax poetic each year in his Berkshire Hathaway investment letter. Within it are dozens of tidbits on the markets, accounting, history, human behavior and much more. We highlight 10 of his latest musings here. (Image: Shutterstock/Chris Nicholls — ALM)

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1. ANYTHING CAN HAPPEN: "Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of the American Tailwind, ... and the compounding wonders described by [Adam] Smith, will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. Others? Beware!" the Sage of Omaha said. (Photo: Shutterstock)

2. MIND THE GAAP: Buffett says Berkshire's $53.7 billion gain in '19 was tied to the '18 accounting rule requiring it to include the net change in unrealized gains and losses of securities in its reports. The market movement of 2019 "led to a crazy 1,900% increase in GAAP earnings! … Charlie [Munger] and I urge you to focus on operating earnings — which were little changed in 2019." (Photo: Bloomberg)

3. GIVE RETAINED EARNINGS MORE LOVE: Buffett points to John Maynard Keynes' views: "Over [time] ... , the real value of the property of a sound industrial investment is increasing at compound interest, quite apart from the dividends." Buffett adds: "Though investors were slow to wise up, the math of retaining and reinvesting earnings is now well understood." (Photo: Shutterstock)

9. VALUE OF A TRUE ASSEMBLY: "What we see in our holdings, rather, is an assembly of companies that we partly own and that, on a weighted basis, are earning more than 20% on the net tangible equity capital required to run their businesses. These companies, also, earn their profits without employing excessive levels of debt," he said. (Photo: AP)

10. OPTIMISTIC OUTLOOK: Buffett says he and Munger base their optimism on five factors: "First, Berkshire's assets are deployed in an extraordinary variety of wholly or partly owned businesses that, averaged out, earn attractive returns on the capital they use. Second, Berkshire's positioning of its 'controlled' businesses within a single entity endows it with some important and enduring economic advantages. Third, Berkshire's financial affairs will unfailingly be managed in a manner allowing the company to withstand external shocks of an extreme nature. Fourth, we possess skilled and devoted top managers for whom running Berkshire is far more than simply having a high-paying and/or prestigious job. Finally, Berkshire's directors ... are constantly focused on both the welfare of owners and the nurturing of a culture that is rare among giant corporations." (Photo: AP)

Warren Buffett, 89, likes to wax poetic each year in his Berkshire Hathaway investment letter. Within it are dozens of tidbits on the markets, accounting, history, human behavior and much more. We highlight 10 of his latest musings here. (Image: Shutterstock/Chris Nicholls — ALM)

1. ANYTHING CAN HAPPEN: "Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of the American Tailwind, ... and the compounding wonders described by [Adam] Smith, will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. Others? Beware!" the Sage of Omaha said. (Photo: Shutterstock)

2. MIND THE GAAP: Buffett says Berkshire's $53.7 billion gain in '19 was tied to the '18 accounting rule requiring it to include the net change in unrealized gains and losses of securities in its reports. The market movement of 2019 "led to a crazy 1,900% increase in GAAP earnings! … Charlie [Munger] and I urge you to focus on operating earnings — which were little changed in 2019." (Photo: Bloomberg)

3. GIVE RETAINED EARNINGS MORE LOVE: Buffett points to John Maynard Keynes' views: "Over [time] ... , the real value of the property of a sound industrial investment is increasing at compound interest, quite apart from the dividends." Buffett adds: "Though investors were slow to wise up, the math of retaining and reinvesting earnings is now well understood." (Photo: Shutterstock)