Warren Buffett

Berkshire Hathaway Annual shareholder meeting

Warren Buffett

If you are into world of investing, then one name you would have heard would be Warren Buffet. He is widely considered the most successful investor of the 20th century. Buffett is the chairman, CEO and largest shareholder of Berkshire Hathaway and consistently ranked among the world’s wealthiest people. His annual chairman’s letters known for their assessment of Berkshire’s performance , nuggets of advice and witticisms and are widely read and quoted. In this article we shall talk of about Warren Buffet, Berkshire Hathaway, his annual letters.

www.berkshirehathaway.com/letters/letters.html has Warren Buffett’s annual letters from 1977

Warren Buffett Berkshire Hathaway Annual Letters

Around the last weekend in February or first weekend in March, on a Saturday morning, legendary investor Warren Buffett releases his annual letter to Berkshire Hathaway share-holders. His letters are devoid of glossy charts and graphs are written in a very simplistic  manner. As Buffett has said numerous times, he assumes the audience consists of distant relatives who only pay attention to Berkshire once a year and know nothing about its business happenings during that time. His letters,since 1977, are edited by Carol Loomis, a senior editor-at-large for Fortune . Mr. Buffett typically begins penning his annual letters months ahead of their release. He has said that the minute he finishes one annual letter, he starts working on another one .

If you have any serious interest in investing, business, and good corporate governance, Buffett’s letters are a must read, people often say. Investors eagerly await Warren Buffett’s letter to Berkshire Hathaway Inc. shareholders each year for its plain-spoken insight into the billionaire’s financial strategy and economic predictions. It is best source of information about Warren Buffett and his investment and management philosophies, they say.

www.berkshirehathaway.com/letters/letters.html has Warren Buffett’s annual letters from 1977 . Some takeaways from Buffett are as follows:

  • Equity Is Business Ownership, Not Stock Ownership when you invest in stocks, you are acquiring a partial ownership interest in a business, not just a ticker symbol. It’s that view that, according to Buffett, separates the speculator from the investor.
  • Invest, rather than speculate
  • Risk comes from not knowing what you’re doing
  • I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.
  • Life is like a snowball. The important thing is finding wet snow (opportunities) and a really long hill (long term).
  • Don’t save what is left after spending; spend what is left after saving.
  • Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard,

Warren Buffett

Warren Edward Buffett(Aug 30 1930)  is an American business magnate, investor, and philanthropist.  He is widely considered the most successful investor of the 20th century noted for his adherence to the value investing philosophy. Value Investing  strategy is selecting stocks  for less than their intrinsic values. He  is often called the Wizard of Omaha, Oracle of Omaha,or the Sage of Omaha .He is known for his personal frugality despite his immense wealth. Buffett is also a notable philanthropist, having pledged to give away 99 percent of his fortune to philanthropic causes, primarily via the Gates Foundation.

Berkshire Hathaway

Berkshire Hathaway is an American multinational conglomerate, head-quartered in Omaha Nebraska United States, is made up of over 100 wholly owned subsidiaries(GEICO, BNSF, Lubrizol, Dairy Queen, Fruit of the Loom, Helzberg Diamonds and NetJets, owns half of Heinz and an undisclosed percentage of Mars) and many partly owned common stocks (American Express, The Coca-Cola Company, Wells Fargo, and IBM).  It has significant property and casualty insurance businesses, cash and fixed income investments. Compared to 9.4% from S&P 500 with dividends included, Berkshire Hathaway averaged an annual growth in book value of 19.7% to its shareholders from 1965 to 2013 as shown in image below from 2014 annual letter. (click on image to enlarge)

Difference between  BRKA and BRKB shares

Berkshire Hathaway is listed on the New York Stock Exchange as BRKA and BRKB. Difference between  BRKA and BRKB shares  are :

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  •  They trade at different prices. The B shares trade and are worth 1/1500th the economic value of the A shares. So  if the A shares trade for $150,000 then the B shares will trade for $100.Berkshire’s class A shares sold for $165,265 as of February 3, 2014, making them the highest-priced shares on the New York Stock Exchange, in part because they have never had a stock split and have only paid a dividend once since Warren Buffett took over, retaining corporate earnings on its balance sheet in a manner that is impermissible for private investors and mutual funds.
  • The BRK-A shares come with voting rights, but the BRK-B shares have no voting rights.

On  May 10, 1965 Warren Buffett, through his investment partnership,  took over the management and control of Berkshire Hathaway Inc.,  a then large but struggling New England textile maker. His investment partnership had accumulated about 49% of the shares starting in 1962, after noticing a pattern in the price direction of its stock whenever the company closed a mill. He had agreed to sell his his shares back to Seasbury Stanton,owner of Hathaway,  in 1964 but when the  offer in writing ($ 11.375) was less than the oral offer ($11.5) Buffet refused. Buffett initially maintained Berkshire’s core business of textiles. By 1967, he  expanded into the insurance industry( purchased  National Indemnity Company) and other investments. In the late 1970s, Berkshire acquired an equity stake in the Government Employees Insurance Company (GEICO), which forms the core of its insurance operations today (and is a major source of capital for Berkshire Hathaway’s other investments). In 1985, the last textile operations were shut down.Charles Thomas Munger is Vice-Chairman of Berkshire Hathaway Corporation and Buffett describes Munger as my partner

In 2010, Buffett claimed that purchasing Berkshire Hathaway was the biggest investment mistake he had ever made, and claimed that it had denied him compounded investment returns of about $200 billion over the subsequent 45 years. Our article Oops I did it! explains the magic in mistakes.

Berkshire’s annual shareholders’ meetings

Berkshire’s annual shareholders’ meetings, held of first Saturday on May(Sat 3rd May 2014), is visited by 20,000 people, is nicknamed Woodstock for Capitalists. It  is considered Omaha’s largest annual event . Known for their humour and light-heartedness, the meetings typically start with a movie made for Berkshire shareholders. The image from businessInsider captures the annual shareholder’s meeting (reminds of Dhirubhai Ambani shareholder meetings . Our article Reliance : Dhirubhai Ambani,KokilaBen DhiruBhai Ambani! talks about Dhirubhai in detail)

Berkshire Hathaway Annual shareholder meeting

Berkshire Hathaway Annual shareholder meeting

Why should you read Warren Buffett  Annual Letters

When one of the richest men in the world offers free advice, you listen. Of course acting on it is another thing, but investors have been hearing Warren Buffett out for years in his role as chairman and CEO of Berkshire Hathaway through his annual letter to shareholders. In the  letters  he not only discusses the company’s performance but also offers general views on the economic and investment landscape. The letter is widely read well beyond the loyal community of Berkshire shareholders. It also covers a range of topics of interest to retail investors and seasoned businessmen alike.For the past four decades, these letters have become gospel for not only value investors but for anyone serious about learning how to not only become a better investor, but also a better businessman, a better executive, and a more effective leader. While Berkshire shareholders have been treated to an unbelievable wealth-creating machine over the past 50 years, Buffett has also given students, investors, and anyone else interested in investing an amazing gift in his annual letters.

What makes these letters so valuable is the way in which Buffett communicates his insights. Rather than using complex financial jargon or obscure technical terms, Buffett writes in a clear, accessible style that is easy for anyone to understand. He also has a knack for using analogies and stories to illustrate his points, which makes his letters engaging and entertaining to read.

Another reason why these letters are so valuable is that they provide a unique perspective on the world of business and finance. Buffett is known for his long-term investment horizon, and his letters reflect this perspective. Rather than focusing on short-term performance or quarterly earnings, Buffett takes a broader view of the world and the economy. He writes about trends and themes that he believes will have a significant impact on the business world over the long term, and he offers insights on how investors can position themselves to benefit from these trends.

One of the recurring themes in Buffett’s letters is the importance of investing in high-quality companies with strong competitive advantages. He stresses the importance of investing in companies with a durable competitive advantage, or “moat,” which makes it difficult for competitors to enter the market and steal market share. He also emphasizes the importance of investing in companies with strong management teams that have a proven track record of success.

Another recurring theme in Buffett’s letters is the importance of staying disciplined and sticking to a long-term investment strategy. He advises investors to ignore short-term fluctuations in the market and focus on the fundamentals of the companies they are investing in. He also warns against the dangers of speculation and encourages investors to avoid the temptation to make risky bets in pursuit of quick profits.

Buffett’s letters are also known for their wit and humor. He often injects a lighthearted tone into his writing, which makes his letters more engaging and enjoyable to read. For example, in his 2020 letter, he joked about how he had become an “indoor cat” due to the pandemic and expressed his gratitude for Amazon, which had become his “new best friend” during the lockdown.

In summary, Warren Buffett’s annual letters to shareholders are a valuable source of insights and perspectives on the world of business and finance. They offer a unique perspective on the importance of investing in high-quality companies with strong competitive advantages, the dangers of speculation, and the importance of staying disciplined and focused on the long term. And they do so in a clear, accessible style that makes them enjoyable to read for investors and non-investors alike.

Warrent Buffetts Annual Letters

Here are some references to specific years in Warren Buffett’s annual letters:

  1. 1965: Buffett’s first letter to shareholders after taking control of Berkshire Hathaway, in which he outlines his investment philosophy and the principles that would guide his approach to business for the next several decades.
  2. 1985: Buffett writes about the importance of buying stocks at a reasonable price, saying “We try to buy stocks with what we call ‘margin of safety.’ This means we believe there is a significant gap between the value of the company and the price at which it is selling.”
  3. 2008: In the midst of the financial crisis, Buffett writes about the importance of having a long-term perspective and not getting caught up in short-term market fluctuations. He also discusses the risks of using leverage to invest in the stock market.
  4. 2011: Buffett writes about the importance of having a strong corporate culture and how it can drive long-term success. He discusses the importance of ethics and integrity in business and how Berkshire Hathaway has built a reputation for honesty and transparency.
  5. 2020: In the midst of the COVID-19 pandemic, Buffett writes about the challenges facing the economy and the importance of staying calm and focused on the long-term. He also discusses the risks of inflation and the importance of maintaining a diverse portfolio of investments.

Should you follow Warren Buffet advice blindly

According to Forbes magazine Buffett’s net worth is about $60 billion, so he is obviously doing something right. He’s been investing for well over 60 years which means

  • He’s read thousands of financial reports and shareholder letters,  judging whether a business has a strong competitive advantage or not. He’s also spent time managing businesses. It means  being able to spot trends and draw conclusions based on details that a typical retail investor like you or me might not even notice.
  • Once a company is selected, it still has to be valued which in Buffet terminology is finding Intrinsic value. Intrinsic value is defined as the discounted value of the cash that can be taken out of a business during its remaining life.The calculation of intrinsic value, though, is not so simple. As Buffet says  intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised.
  • He buys companies that he prefers to own no matter what happens with the macroeconomic picture. Can you tune out the incremental ups and downs of the market?
  • The amount of capital you have to invest.  As Buffet says If you’re working with a small sum you have thousands and thousands of potential opportunities and when we work with large sums, we just — we have relatively few possibilities in the investment world which can make a real difference in our net worth. 

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Do you thing Warren Buffet is greatest investor? Do you read his annual letters? Do you suggest reading his annual letters? Which advice you have liked or not liked? Can you follow his advice? Is his advice applicable to India also?

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