Warren Buffett reflects on 50 years of running Berkshire Hathaway

In this Nov. 14, 2011, file photo, billionaire investor Warren Buffett speaks in Omaha, Neb., at an event to raise money for the Girls Inc., charity organization. (AP / Nati Harnik, File)

OMAHA, Neb. -- Billionaire Warren Buffett is proud of what he's built as Berkshire Hathaway's CEO over the past 50 years, but he's also willing to admit making a few costly mistakes along the way.

Buffett used his annual shareholder letter, released Saturday, to make the case for his conglomerate's future while also offering investing advice. Buffett dropped a few hints about his eventual successor, and though he didn't name names, another key executive did single out two people as strong executives who could lead the company well.

But no, the 84-year-old Buffett isn't retiring.

Here are some key themes from his annual report:

REPLACING BUFFETT

Buffett said his eventual successor will need to be calm, rational and decisive, and he hopes that person will be young enough to lead the company for at least a decade.

"My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency," Buffett said. "When these corporate cancers metastasize, even the strongest of companies can falter."

Vice Chairman Charlie Munger added his own letter this year, and predicted that Berkshire will be fine once he and Buffett are gone because of the management talent it already has.

Munger singled out reinsurance executive Ajit Jain and Berkshire Hathaway Energy CEO Greg Abel as two Berkshire executives who could succeed Buffett one day. Both have been noted on short lists made by investors and the media.

"In some important ways, each is a better business executive than Buffett," Munger said.

The company having mentioned specific names will only add to speculation about which Berkshire executives are on the short list to be the next CEO.

INVESTING INSIGHT

One of the best ways to build wealth over time is to own stocks, but Buffett said investors must avoid the common mistakes of trading too often and paying high investment fees.

"Most advisers, however, are far better at generating high fees than they are at generating high returns," he said.

The billionaire investor said there's every reason to expect stocks to perform well in the long term, even if prices are volatile.

But no one can predict the stock market.

"Market forecasters will fill your ear but will never fill your wallet," he said

CONGLOMERATION CELEBRATION

Buffett says Berkshire is built to stand the test of time because of the more than 80 companies it owns and its diverse investments.

Plus, its structure allows Buffett to shift money within Berkshire to generate the best return, and the company has $63.3 billion cash.

"I believe the chance of any event causing Berkshire to experience financial problems is essentially zero," Buffett said. "We will always be prepared for the thousand-year flood: in fact, if it occurs we will be selling life jackets to the unprepared."

But Buffett reiterated that Berkshire's huge size will keep it from achieving gains nearly as strong as it has in the past.

UNFORCED ERROR

Buffett has long said that buying the Berkshire Hathaway textile mill in New England in 1965 was the worst investment he'd ever made. The textile business continued to struggle for 20 more years before Buffett shut it down.

But the worst part -- that Buffett estimates cost him $100 billion or so -- came after he took control of Berkshire.

Buffett said he still doesn't know why he used Berkshire to acquire National Indemnity for $8.6 million in 1967 instead of buying it with his private investment partnership. That insurance company served as the foundation for everything Buffett bought later.

"I've had 48 years to think about that question, and I've yet to come up with a good answer. I simply made a colossal mistake."

DOUBLE FAULT

Buying Berkshire wasn't Buffett's only textile mistake.

Buffett said he bought Waumbec Mills in 1975 because it was selling for a bargain price, only to have to close it down in a few years.

"And now some good news: The northern textile industry is finally extinct. You need no longer panic if you hear that I've been spotted wandering around New England."

Buffett's helped Berkshire beat the S&P 500 in 39 of the past 50 years, but his errors didn't stop in the 1970s.

He told shareholders the company lost $444 million on its investment in British retailer Tesco, largely because he was slow to sell the $2.3 billion stake after spotting problems in 2013.

"I made a big mistake with this investment by dawdling," Buffett said.