I'm a huge Warren Buffett nerd.

So I've read all of his letters.

Here are 5 lessons from 5 years of Berkshire Hathaway letters & meetingS:

1. Your greatest asset is, you.

Warren Buffett posed a question at the 2002 annual shareholder meeting:

"Imagine you offered a 17-year old a free car, any car they wanted. But the caveat was that it had to last them a lifetime."

They’d likely read the owner’s manual dozens of times and change the oil twice as often as recommended.

We each receive one body and one mind. You can’t wreck it by age 60 and expect to be able to repair it.

2. Learn Accounting.

Buffett told shareholders in 2003 to learn accounting by reading as many annual reports as possible. If you understand accounting, you’ll understand how to invest.

If you can’t understand the accounting, it’s because management is hiding something.

3. How to Hedge Inflation.

Buffett’s 2005 letter warned of a declining dollar. While gold is often cited as the best inflation hedge, Buffett noted that almost any physical asset works as a good hedge.

However...

Buffett prefers physical assets that produce something, like fertile land and oil wells.

Gold could act as a hedge, but in the long-term it’s not producing any economic value.

The best inflation hedge is a product or brand where you can raise prices to keep up with inflation.

4. The Root of Evil.

Buffett sat on the board of Salomon Brothers, where he learned a lesson about money: Greed is not the root of all evil. Envy is.

If one guy at Solomon got a $2m bonus, he’d be happy until he saw a colleague got a $2.1m bonus. Then, he’d be miserable.

5. On Leverage.

Buffett made a prescient prediction in 2007: The amount of leverage created by derivatives would end in disaster.

However, the lesson is not to time a downfall.

Buffett had actually said something similar in every letter for at least the previous 4 years.

If he had tried shorting the Housing Bubble, he would have lost a lot of money.

Instead, the lesson is to keep your own leverage manageable.

You can have 10 great years, but if you get wiped out in the 11th year, your overall return is -100%.

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