ET Prime Special: Investing lessons from Warren Buffett – Part 5. The year when bears taught even Buffet a lesson. The year is 1981

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Synopsis

1981 was a critical test of Buffett’s strategy during a bear market year. The S&P 500 declined 4.91%, and Berkshire’s stock price declined 35-36%, demonstrating the leverage inherent in equity-focused strategies. However, the letter that year reveals sophisticated thinking about acquisition strategy, non-controlled earnings, and the importance of business quality over managerial intervention. The letter is particularly important as it demonstrates how these principles hold up during bear markets. While equity-focused strategies underperformed, Buffett’s emphasis on book value growth and non-controlled earnings positioned Berkshire Hathaway for superior long-term returns

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