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For 60 years from 1965 to 2024, Berkshire Hathaway's annual letter to shareholders carried Warren Buffett's thinking. Then in November 2025, he announced he was going quiet and the next annual letter was written by his successor, Greg Ael. 60 letters containing some of the most concentrated investing wisdom ever put on paper.
Buried inside them are rules so simple that most people skip right past them. Here is what they actually say. Rule one, for almost everyone, the only investment you need is a lowcost index fund. In his 2013 letter, Buffett did something unusual. He told the world exactly what his will instructs the trustee of his wife's inheritance to do with her money.
This is a man worth well over 100 billion, a fortune built largely by picking businesses and stocks. He could have said, "Buy Berkshire." He did not. his words. My advice to the trustee could not be more simple. Put 10% of the cash in short-term government bonds and 90% in a very lowcost S&P 500 index fund.
That is it. One of the greatest stock pickers in history told the person managing his wife's money to buy one index fund and hold it. Buffett had been making this argument for years. In his 2004 letter, he wrote that American business had delivered terrific results over the prior 35 years. All investors had to do was piggyback corporate America in a diversified low expense way.
An index fund that they never touched would have done the job. Instead, he wrote, many investors had experiences ranging from mediocre to disastrous. Why? He gave three causes. high costs usually from trading too much or paying too much for investment management. Portfolio decisions based on tips and fads rather than real evaluation of businesses and a start and stop approach to the market.
Buying after an advance has long been underway and selling after periods of stagnation or decline. Buffett was so confident that he put money on it. He publicly offered a 10-year bet that a plain SNP500 index fund would beat a handpicked group of hedge funds. Only one person stepped up. Ted Situs of Protege Partners chose five funds of funds which together held interests in more than 200 hedge funds.
The bet was made in December 2007 and ran from 2008 through 2017. It was not close. Over the 10 years, Buffett's Vanguard Index Fund gained about 126%. The five funds of funds gained between roughly 3% and 88%. The charity Buffett chose, Girls, Inc. of Omaha, received more than $2.2 million. The lesson is not that every hedge fund manager is bad.
The lesson is that costs compound just like returns do. The funds of funds charged two layers of fees. The index fund charged almost nothing. Every dollar you pay in fees is a dollar that stops compounding for the rest of your life. Rule two, be fearful when others are greedy. Be greedy when others are fearful.
Buffett wrote this in his 1986 letter and the full passage reveals how he thinks. He said that occasional outbreaks of those two super contagious diseases, fear and greed, will forever occur in the investment community. the timing of these epidemics will be unpredictable. Therefore, he wrote, we never try to anticipate the arrival or departure of either disease.
Our goal is more modest. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. Notice what he is not saying. He is not saying predict the next crash. He is not saying time the market. He is saying observe the emotional state of the crowd and refuse to be carried by it.
When everyone is euphoric, be cautious. When everyone is panicking, be ready to act. He demonstrated this in 2008. Banks were failing. By midocctober, the S&P 500 was down around 40% from its 2007 peak. On October 17th, the New York Times published his op-ed titled Buy American. I am. In it, he wrote, "A simple rule dictates my buying.
be fearful when others are greedy and be greedy when others are fearful. He was buying while the world was selling. He also admitted he had no idea whether stocks would be higher or lower a month or a year later. The market did fall further before it recovered. This is not about courage. It is about structure.
The crowd buys at the top because the story is most exciting there and sells at the bottom because the story is most terrifying there. If you can separate your decisions from the crowd's mood, you give yourself an edge at both extremes. Rule three, never bet against America. In his 2020 letter published in early 2021, Buffett wrote one of his most cited lines.
In its brief 232 years of existence, there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country's economic progress has been breathtaking. And then our unwavering conclusion. Never bet against America. This is not patriotism dressed up as investing advice.
It is a historical observation. The American economy has come through a civil war, the Great Depression, two world wars, double-digit inflation, the 2008 financial crisis, and a global pandemic. Through all of it, businesses adapted, new industries emerged, and the country's productive capacity kept growing.
Betting on that has been the right call for more than two centuries. Not because the future is guaranteed, but because the incentives for building businesses are built into the system. Rule four, keep cash reserves so you can act when everyone else is forced to sell. Berkshire is famous for holding enormous amounts of cash and treasury bills.
In 2025, that pile hit a record of more than $380 billion. Critics call it wasteful. Buffett answered that in his 2010 letter. Borrowers learn, he wrote, that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that's all that is noticed. Even a short absence of credit can bring a company to its knees.
He keeps cash not because he can predict a crash, but because crashes cannot be predicted. When one happens, quality assets go on sale, and only the people with dry powder can buy. In 2008, when credit markets froze, Berkshire put $5 billion into Goldman Sachs and three billion into General Electric.
Through preferred shares, paying 10% a year plus warrants to buy common stock. He had cash when everyone else needed it. You cannot buy when prices are low if you are forced to sell when prices are low. The application for you is straightforward. Hold enough cash to cover your expenses for long enough to wait out a downturn without touching your investments.
The exact number depends on your situation. Liquidity in a crisis is one of the biggest advantages an individual investor can have. Rule five, compounding is the engine. Time is the input you cannot replace. Buffett's record is usually told as a series of brilliant stock picks, but the mechanism behind it is compounding over an extremely long period.
According to his 2024 letter, Bergkshire's market value per share compounded at 19.9% a year from 1965 to 2024. The S&P 500 with dividends compounded at 10.4%. And Buffett started early. He bought his first stock in 1942 at age 11. That head start, multiplied by decades of consistent application, produced a result that looks like pure genius.
But the same math works at ordinary returns. At 10% a year, money doubles roughly every seven years. Over 30 years, $1 grows to about $17. Over 40 years, it grows to about $45. The difference between those two numbers is not a better strategy. It is 10 more years of staying invested. Most people never feel this because the early years look boring.
Put in $10,000 at 10% and year 1 earns you a,000. Year 10, it starts to move. Year 20, it accelerates. Year 30, it becomes the dominant force in your financial life. The mistake is quitting before the curve turns steep. Here's what you do with these rules. Open your investment accounts today. Look at the expense ratio of every fund you own.
If one charges far more than a basic index fund, ask what you are getting for that money. Then check your cash position. If the market dropped 30% tomorrow, would you be a buyer or a forced seller? If the answer is forced seller, your cash reserve is too small. Then set a schedule and stop checking the portfolio every day.
In that same 2013 letter, Buffett wrote that the no nothing investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. One of the most successful investors in history is telling you to admit what you do not know and own the whole market. The hard part is not the strategy.
The hard part is doing nothing while the world panics and celebrates in alternating waves. If you can do that, the letters are clear. You win. If this changed how you think about investing, subscribe. I break down these rules every week. The mental models, the habits, and the systems of the world's best capital allocators distilled into tools you can actually use.
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