Warren Buffett's annual letter reveals Berkshire's 'secret sauce,' crucial lesson for investors

Warren Buffett published his yearly finance missive Saturday, offering a glimpse into Berkshire Hathaway's portfolio and soul finances.

Buffett offered penetration into Berkshire's Coca-Cola banal purchase, which it completed successful 1994.

"In August 1994 – yes, 1994 – Berkshire completed its seven-year acquisition of nan 400 cardinal shares of Coca-Cola we now own. The full costs was $1.3 cardinal – past a very meaningful sum astatine Berkshire," Buffett wrote. "The rate dividend we received from Coke successful 1994 was $75 million."

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FILE PHOTO: Berkshire Hathaway shareholders locomotion by a video surface astatine nan company's yearly gathering successful Omaha May 4, 2013. (REUTERS/Rick Wilking/File Photo / Reuters Photos)

He continued, "By 2022, nan dividend had accrued to $704 million. Growth occurred each year, conscionable arsenic definite arsenic birthdays. All Charlie and I were required to do was rate Coke’s quarterly dividend checks. We expect that those checks are highly apt to grow."

Buffett described this acquisition of Coca-Cola banal arsenic an illustration of nan firm's "flowers" that "bloom" complete clip into higher-value assets than primitively expected.

Many investors travel nan company's moves intimately because of Buffett's remarkably successful investing record complete nan decades.

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American Express played a akin domiciled successful nan firm's portfolio.

Buffett said, "Berkshire’s purchases of Amex were fundamentally completed successful 1995 and, coincidentally, besides costs $1.3 billion. Annual dividends received from this finance person grown from $41 cardinal to $302 million. Those checks, too, look highly apt to increase."

"These dividend gains, though pleasing, are acold from spectacular. But they bring pinch them important gains successful banal prices," nan billionaire continued. "At year-end, our Coke finance was weighted astatine $25 cardinal while Amex was recorded astatine $22 billion. Each holding now accounts for astir 5% of Berkshire’s nett worth, akin to its weighting agelong ago." 

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Philanthropist Warren Buffett is joined onstage by 24 different philanthropistsw and influential business group featured connected nan Forbes database of 100 Greatest Business Minds during nan Forbes Media Centennial Celebration astatine Pier 60 connected September 19, 2017, i (Daniel Zuchnik/WireImage / Getty Images)

This, Buffett asserts, makes up Berkshire Hathaway's "secret sauce."

"Assume, for a moment, I had made a similarly-sized finance correction successful nan 1990s, 1 that flat-lined and simply retained its $1.3 cardinal worth successful 2022. (An illustration would beryllium a high-grade 30-year bond)," Buffett wrote. "That disappointing finance would now correspond an insignificant 0.3% of Berkshire’s nett worthy and would beryllium delivering to america an unchanged $80 cardinal aliases truthful of yearly income."

The billionaire summarized, "The instruction for investors: The weeds wither distant successful value arsenic nan flowers bloom. Over time, it takes conscionable a fewer winners to activity wonders. And, yes, it helps to commencement early and unrecorded into your 90s arsenic well."