Success

5 timeless lessons for success from the early years of Warren Buffett's annual shareholder letters

Warren Buffett, Chairman and CEO of Berkshire Hathaway.
David A. Grogan | CNBC

Warren Buffett took over Berkshire Hathaway in 1965. At the time, the company was a struggling textile mill in New Bedford, Mass. Today, the investing conglomerate has a market cap of more than $500 billion and the 88-year-old CEO and chairman is himself worth $87 billion, according to Bloomberg's Billionaire Index.

Each year, Buffett writes a letter to his shareholders. Here are five pieces of Buffett's best advice about to be successful in business, culled from early annual letters.

Stay nimble

"We could just field a basketball team with our corporate headquarters group (which utilizes only about 1500 square feet of space)," Buffett wrote in 1979. (Basketball is played with five people on the court at a time.)

Though the approach "produces an occasional major mistake," said Buffett, it more importantly reduces costs and "dramatically speeds decision-making."

"Because everyone has a great deal to do, a very great deal gets done," he said.

"Most important of all, it enables us to attract and retain some extraordinarily talented individuals — people who simply can't be hired in the normal course of events — who find working for Berkshire to be almost identical to running their own show. We have placed much trust in them — and their achievements have far exceeded that trust," he said.

Degrees aren't everything

In his 1988 shareholder letter, Buffett praised Berkshire Hathaway's operations managers for their performance and pledged his allegiance to experience over pedigree.

"Our experience with newly-minted MBAs has not been that great," Buffett says in his 1988 shareholder letter. "Their academic records always look terrific and the candidates always know just what to say; but too often they are short on personal commitment to the company and general business savvy. It's difficult to teach a new dog old tricks."

Don't do it for the money

There are ways Berkshire Hathaway could have made more money, Buffett said in his 1989 shareholder letter. But money isn't everything.

"It is possible we could earn greater after-tax returns by moving rather frequently from one investment to another," he said. But experience taught Buffett and his longtime business partner Charlie Munger that "we would rather stay put, even if that means slightly lower returns."

"Our reason is simple," continued Buffett, "We have found splendid business relationships to be so rare and so enjoyable that we want to retain all we develop." The team knows they will get "good" even if not "optimal" results.

"Considering that, we think it makes little sense for us to give up time with people we know to be interesting and admirable for time with others we do not know and who are likely to have human qualities far closer to average. That would be akin to marrying for money — a mistake under most circumstances, insanity if one is already rich," Buffett wrote.

Avoid dragons instead of slaying them

There's no need to work through a daunting problem if you can find a way around it.

"After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them," Buffett writes in his 1989 shareholder letter. "To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers."

While not a truism for all of life, in business, Buffett says it is "far more profitable" to "stick with the easy and obvious than it is to resolve the difficult."

"Overall, however, we've done better by avoiding dragons than by slaying them."

You'll never make a good deal with a bad person

"After some other mistakes, I learned to go into business only with people whom I like, trust, and admire," Buffett wrote in 1989.

"As I noted before, this policy of itself will not ensure success: A second-class textile or department-store company won't prosper simply because its managers are men that you would be pleased to see your daughter marry," he said. "However, an owner — or investor — can accomplish wonders if he manages to associate himself with such people in businesses that possess decent economic characteristics."

"Conversely, we do not wish to join with managers who lack admirable qualities, no matter how attractive the prospects of their business. We've never succeeded in making a good deal with a bad person."

See also:

Here's how much cash Warren Buffett carries in his wallet

Warren Buffett: This is the best way to put cash in the pockets of people who need it

Warren Buffett: This is how to be successful

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Warren Buffett: We should raise taxes—it won't make the rich flee the US
Warren Buffett, Chairman and CEO of Berkshire Hathaway.
David A. Grogan | CNBC
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