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While it is true that the equity portfolio of his company, Berkshire Hathaway Inc. (BRK-A), has produced impressive returns over the years, Buffett has often shied away from the perception that he’s clairvoyant at picking winning stocks and at the right time.

Berkshire Hathaway Inc. (BRK.A)

Sure, he does rigorous fundamental analysis to identify great businesses to invest in. But more than most other prominent investors, Buffett emphasizes the role of luck in his successes – and also the many mistakes he’s made along the way.

I was reminded of this when I read the letter he wrote on Monday to Berkshire shareholders. His brief, eight-page message mentioned “luck” 12 times — mostly in the context of how it has affected his personal life and relationships.

As for investing, it’s an odd exercise where you aim to pick winners, most picks often turn out to be losers, but the few winners have the potential to produce such extraordinary performance that your whole portfolio delivers market-beating returns. This is something Buffett discussed in his 2023 annual letter to shareholders.

“Over the years, I have made many mistakes,” he wrote. “Our satisfactory results have been the product of about a dozen truly good decisions — that would be about one every five years.”

At the time, he walked through examples, including Coca-Cola Co. (KO) and American Express Co. (AXP), which multiplied in value many times over while also returning massive cash dividends. This is a critical insight for investors. Because even the most successful investors make many mistakes. And market-beating portfolios often include more underperformers than outperformers.

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