Good year, bad year: Here is Warren Buffett, Charlie Munger's secret to success

If you landed on this page after reading the names of legendary investors Warren Buffett and Charlie Munger in the headline, chances are high you must be looking for some words of wisdom that may help you tide over the ongoing uncertainty in the financial world. Of late, a couple of factors including geopolitical tensions between Russia and Ukraine and rising inflation have put the global economies and stock markets in dilemma for 2022.

For example, India Ratings has revised downwards its GDP growth forecast for 2021-22 to 8.6 per cent for the country from the consensus 9.2 per cent projected earlier. On the other hand, the benchmark BSE Sensex has lost over 4 per cent on a year-to-date (YTD) basis till February 25.

A letter written by Warren Buffett to Berkshire’s shareholders in 2008 holds a secret to getting success in any market condition. He admitted that neither he nor his partner Charlie Munger can predict winning and losing years in advance. Instead, they focus on four goals in good as well as bad years. Munger is an American billionaire investor, businessman, and former real estate attorney. He is also a vice-chairman of Berkshire Hathaway, the conglomerate controlled by Buffett.

While sharing the success of his business, The Oracle of Omaha in 2008 said that they focus on maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash. Of late,
the 91-year-old investor in a recent letter to shareholders, sent on February 26 2022, said that Berkshire’s balance sheet holds $144 billion of cash and cash equivalents,

Buffett in 2008 further added that they also zero in on widening the “moats” around operating businesses that give them durable competitive advantages. To simply put, a moat supports any company to retain competitive advantages to protect its long-term profits and market share from competitors. In the letter, he further added that they acquire and develop a new and varied stream of earnings.

In hard times like this, spotting new revenue streams can be a great way to make up for the lost income and keep the company afloat.

Lastly, the ace investor said they also focus on expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results. In other words, we can say that it is important to think of the great managers who created billions in value.