Warren Buffett’s final masterclass: How to survive a 50% drop in portfolio and more

In his final letter to Berkshire Hathaway shareholders, Buffett left valuable lessons for them. Although the letter addresses Berkshire shareholders and answers their concerns about life after Buffett, it offers insights that any investor can apply to their financial journey.

Don't despair

While most investors keep chasing returns and often despair when their portfolio sees big corrections, Buffett suggests a simple way out of such a situation, even in the face of a 50% drop in value: "Don't despair."

"Our stock price will move capriciously, occasionally falling 50% or so as has happened three times in 60 years under present management run. Don’t despair; America will come back and so will Berkshire shares," Buffet wrote.

This approach works, especially when you invest in quality companies. Such companies generally bounce back quickly even after steep corrections, as investors see value in them.

There is not a single winner, forever

No matter how good you have been at generating returns and growing your portfolio, others can do better in the long run. There can't be a single winner forever. Sometimes, even the size of a portfolio can take its toll.

However, you can still end up well if your portfolio stays strong during a crisis and has better-than-average prospects. Buffett summarised this lesson for Berkshire shareholders, saying:

"In aggregate, Berkshire’s businesses have moderately better-than-average prospects, led by a few non-correlated and sizable gems. However, a decade or two from now, there will be many companies that have done better than Berkshire; our size takes its toll."

He further said, "Berkshire has less chance of a devastating disaster than any business I know. And, Berkshire has a more shareholder-conscious management and board than almost any company with which I am familiar (and I’ve seen a lot)."

Don't beat yourself for past mistakes

If you have made mistakes in your financial journey in the past, don't keep beating yourself up over them. Instead, Buffet suggests learning at least a little from mistakes and moving on. He advises picking the right heroes and copying them, saying it is never too late to improve.

"One perhaps self-serving observation. I’m happy to say I feel better about the second half of my life than the first. My advice: Don’t beat yourself up over past mistakes – learn at least a little from them and move on. It is never too late to improve. Get the right heroes and copy them."