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. His letter this year, attached, is far shorter than before, being only 13 pages.

This share has been a long-term holding in our PCS Stockbroking discretionary offshore client portfolios.  

Berkshire last Saturday reported record annual profits and boosted its cash stake to $334,2bn, as Warren Buffett used his annual shareholder letter to caution Washington to spend money wisely and take care of those who get the “short straws in life”.

His letter usually contains a few pearls of investment wisdom that he shares freely, and most readers love his conversational style of writing, where he is unashamedly honest, especially where he makes mistakes and confirms what is unknown.

Admitting and Learning from Mistakes

Many people appreciate as he says this year on the very first page;

“……At other times, I’ve made mistakes when assessing the abilities or fidelity of the managers Berkshire is hiring. The fidelity disappointments can hurt beyond their financial impact, a pain that can approach that of a failed marriage.

A decent batting average in personnel decisions is all that can be hoped for. The cardinal sin is delaying the correction of mistakes or what Charlie Munger called “thumb-sucking.”

Problems, he would tell me, cannot be wished away. They require action, however uncomfortable that may be.

During the 2019-23 period, I have used the words “mistake” or “error” 16 times in my letters to you. Many other huge companies have never used either word over that span. Amazon, I should acknowledge, made some brutally candid observations in its 2021 letter. Elsewhere, it has generally been happy talk and pictures.

I have also been a director of large public companies at which “mistake” or “wrong” were forbidden words at board meetings or analyst calls. That taboo, implying managerial perfection, always made me nervous (though, at times, there could be legal issues that make limited discussion advisable. We live in a very litigious society.)

On page 6 he further acknowledges an error that worried him for two decades, when he says;

“Sixty years ago, present management took control of Berkshire. That move was a mistake – my mistake – and one that plagued us for two decades. Charlie, I should emphasise, spotted my obvious error immediately: Though the price I paid for Berkshire looked cheap, its business – a large northern textile operation – was headed for extinction”.

Selling ETFs

Until last quarter, part of the additional cash that has built up has been where Buffet has fully sold out its ETF holdings.

Previously, he held funds in the SPDR S&P 500 ETF Trust (SPY) and Vanguard S&P 500 ETF (VOO), which were sold out in the fourth quarter of last year.

Further, towards the bottom of page 6, he shares their increased allocation to Japanese equities over the past 5 years.

This Year’s Pearls of Wisdom

This year, he shares the benefit that longer-term vision has on investments on page 9 ;

“In recent decades, this “money-up-front, loss-payments-later” model has allowed Berkshire to invest large sums (“float”) while generally delivering what we believe to be a small underwriting profit.

We make estimates for “surprises” and, so far, these estimates have been sufficient”.

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.

Invest like his sister Bertie.

In previous letters, he has often referred to his sister, Bertie, as an example to his shareholders and investors.

Bertie has some accounting background, but as Buffett has said in the past – “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. 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.

As a final punctuation point to the “Omaha Effect,” 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 think that she put all her money in Berkshire and then simply 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”.

In this year’s letter, on the last page (before the financial annexures),    

Buffett says he talks regularly on Sundays with his 91-year-old sister Bertie, using an old-fashioned phone when discussing his age. “Bertie is now 91 and we talk regularly on Sundays using old-fashioned telephones for communications. We cover the joys of old age and discuss such exciting topics as the relative merits of our canes. In my case, the utility is limited to the avoidance of falling flat on my face.

But Bertie regularly one-ups me by asserting that she enjoys an additional benefit: When a woman uses a cane, she tells me, men quit “hitting” on her. Bertie explains that the male ego is such that little old ladies with canes simply aren’t an appropriate target. Presently, I have no data to counter her assertion.

But I have suspicions. At the meeting, I can’t see much from the stage, and I would appreciate it if attendees would keep an eye on Bertie.

Let me know if the cane is doing its job. I bet that she will be surrounded by males. For those of a certain age, the scene will bring back memories of Scarlett O’Hara and her horde of male admirers in Gone with the Wind”.

FRIDAY FOOD FOR THOUGHT