Warren Buffet - Berkshire Annual Shareholder Letter 

 Warren Buffet - Berkshire Annual Shareholder Letter 

Warren Buffet remains one of the most successful investors, and each year, he shares his latest annual shareholder letter with Berkshire Hathaway shareholders. The share has been a long-term holding in our PCS Stockbroking discretionary offshore client portfolios. 

His letter usually contains a few pearls of investment wisdom that he shares freely. 

This was Buffett’s first shareholder letter since the death of longtime investment partner Charlie Munger in late November 2023, so naturally, much tribute was paid to him.

Most readers love his conversational style of writing, where he is unashamedly honest especially where he makes mistakes and shares what is unknown. Many people appreciate as he says this year on page 14;

“Surprises in the Property-casualty insurance (P/C) business – which can occur decades after six-month or one-year policies have expired – are almost always negative. The industry’s accounting is designed to recognise this reality, but estimation mistakes can be huge. And when charlatans are involved, detection is often both slow and costly. Berkshire will always attempt to be accurate in its estimates of future loss payments, but inflation – both monetary and the “legal” variety – is a wild card”.

As in prior years, his shareholder letter is less about “what’s new” and more about offering investors useful reminders to invest successfully, expressed in Buffett’s unique, easy-to-understand and understated manner. He then shares his thoughts on Berkshire’s dividend policy, who his successor will be, and which investments he expects to be long-term holdings.

According to Buffett, Munger told him in 1965:

“Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practised at a small scale.”

This Year’s Pearls of Wisdom

The pearls of wisdom this year come when he comments on investment behavioural intelligence attributes;

The things that have made Berkshire so successful over time, include:

1. Have a clarity of purpose when investing.

2. Focus on quality investments—or in Buffett’s words, “wonderful businesses.”

3. Favor companies run by good managers.

4. Hold on for the long term, as “patience pays.”

5. Practice “fiscal conservatism.”

Can Berkshire Hathaway Outperform?

When asked if Berkshire Hathaway could outperform at the rate that it did in the past?

Buffett admits: “There remains only a handful of companies in this country capable of truly moving the needle at Berkshire, and we and others have endlessly picked over them. Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.”

What should investors expect from Berkshire? That it’ll do slightly better than the average company.

Keep your cool in chaotic markets

We all know markets have been very choppy over the past few years, and this is the same environment Buffet has to deal with.

Buffet says this isn’t changing anytime soon, and that “such instant panics won’t happen often, but they will happen”.

In a section called “Our Not-So-Secret-Weapon,” Buffett says that such downturns have historically been buying opportunities for Berkshire to buy quality businesses at a discount.

As investors, Buffett and his colleagues have been able to respond to panicked markets with “large sums and certainty of performance. Perhaps more importantly, they haven’t allowed short-term noise in the market to tempt them to sell their assets at a low value”.

“One investment rule at Berkshire has not and will not change: Never risk permanent capital loss. Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been — and will be — rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes.”

Invest like his sister Bertie

Ending this year’s letter, Buffett uses his sister, Bertie, as an example to his shareholders and investors.

Bertie has some accounting background, but Buffett writes – “she wouldn’t pass a CPA exam”.

What stands in her favour and investors like her: “She is sensible — very sensible — instinctively knowing that pundits should always be ignored,” says Buffett. “After all, if she could reliably predict tomorrow’s winners, would she freely share her valuable insights and increase competitive buying? That would be like finding gold and handing a map to the neighbours showing its location.”

From the last page of the letter;

“As a final punctuation point to the “Omaha Effect,” Bertie – yes, that Bertie – spent her early formative years in a middle-class neighbourhood in Omaha and, many decades later, emerged as one of the country’s great investors.

You may be thinking that she put all of her money in Berkshire and then sat on it. But that’s not true. After starting a family in 1956, Bertie was active financially for 20 years: holding bonds, putting 1⁄3 of her funds in a publicly-held mutual fund and trading stocks with some frequency. Her potential remained unnoticed.

Then, in 1980, when she was 46 and independent of any urgings from her brother, Bertie decided to make her move. Retaining only the mutual fund and Berkshire, she made no new trades during the next 43 years. During that period, she became wealthy, even after making large philanthropic gifts (think nine figures). Millions of American investors could have followed her reasoning, which involved only the common sense she had somehow absorbed as a child in Omaha”.

To read the full letter click here

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