Berkshire Hathaway Letters to Shareholders, 1965-2018 by Warren Buffett

In H1’18, Apple set a record with $43.5B of stock buybacks. In May, it announced an additional $100B would be spent buying back Apple stock. When the car was first invented, a naïve investor might have thought that virtually every automobile stock was guaranteed to succeed. At one point, there were 2,000 separate car brands just in the US. By the time Jeff Bezos acquired the paper in 2013, Buffett’s 1.7M share stake was worth about $1B — a more than 9,000% return.

If you are not already familiar with the concept of float, I refer you to a long explanation on page A-5. To my surprise, our float increased $9 billion last year, a buildup of value that is important to Berkshire owners though is not reflected in our GAAP (“generally-accepted accounting principles”) presentation of earnings and net worth. Berkshire owns a wide variety of businesses, some in their entirety, some only in part. The second group largely consists of marketable common stocks of major American companies. Equities and participate in several joint ventures or other collaborative activities. In Berkshire Hathaway’s annual letter, pushing back on those railing against the practice he believes beneficial to all shareholders.

That action “increased your ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet,” wrote Buffett to shareholders in his 2020 letter. And as Berkshire keeps repurchasing more of its shares, its shareholders will indirectly increase their ownership in Apple, BNSF, BHE, and other Berkshire-owned businesses. “If Charlie and I think an investee’s stock is underpriced, we rejoice when management employs some of its earnings to increase Berkshire’s ownership percentage,” he wrote in his 2018 letter. If investors can do that, they’ll naturally tend to go in the opposite direction of the herd — to “be fearful when others are greedy and greedy only when others are fearful,” as he wrote in 2004.

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Versus reading the letters online, the appendix area references keywords like inflation, taxes, share buybacks, dividends, etc that he talks about in each letter. It’s a great way to reference if you want to look something up and see how Buffet managed during that particular historical period of time. If you have enough time, this book covers everything you need to know about the value investment, but it is a book require slow and repetitive reading and thinking. Warren’s letter and actions described needs to be related to that context of that year.

I feel bad I kept postponing reading Oracle of Omaha’s letters until now. So much to learn on investing and really gels wells with my investment philosophy. This is a must read for anyone who wants to seriously consider investing in equities.

The annual report earlier this week, received plenty of attention, given he…and the economic system.” One of Berkshire’s largest businesses, General Re… In our ground rules, though our management is corporate our attitude is partnership. The risk of a company failing and a significant amount of debt getting called back is too great a risk, and Buffett and Berkshire Hathaway share in that risk equally with their shareholders. The reason that many CEOs use derivatives, Buffett says, is to hedge risks inherent to their business — like Burlington Northern using fuel derivatives to protect its business model against an increase in the price of fuel.

Hire people who have no need to work

A $1 million investment by a tax-free institution of that time (e.g., a pension fund or college endowment), would have grown to a about $5.3 billion. Had one invested in gold for protection the same amount of gold would be worth $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American businesses. The magic of metal was no match for the American mettle, said Buffett. Buffett wrote in the annual letter that it is time to abandon the practice of highlighting per-share book value. For nearly three decades, per-share book value was the measuring stick. His frustration with investment banker math reached its boiling point in his 1986 letter to shareholders, in which he dissected the value of Berkshire’s latest acquisition, the Scott Fetzer Company.

General Re had been operating as a dealer in the swap and derivatives market, making money on futures, options on various foreign currencies and stock exchanges, credit default swaps, and other financial products. No business that is not generating value over the long term is worth holding on to, and holding on to a bad business is never going to be a good investing strategy. This observation is important for Buffett, and for his overall conservative strategy in the market. Berkshire reported an $11B write-down of its investment in the metal fabrication company Precision Castparts , as the pandemic brought aerospace manufacturing to a near halt, hurting some of PCC’s largest customers and pushing its shares down. Growth investors, the thinking goes, primarily look for companies that show they can grow at an above average rate.

In addition, you will get a better understanding of accounting and the insurance industry. Now let’s talk about companies we don’t control, a list that again references Apple. Below we list our fifteen largest equity holdings, several of which are selections of Berkshire’s two long-time investment managers, Todd Combs and Ted Weschler. At yearend, this valued pair had total authority in respect to $34 billion of investments, many of which do not meet the threshold value we use in the table.

And people who are comfortable with their investments will, on average, achieve better results than those who are motivated by ever-changing headlines, chatter and promises. Consequently, our extensive collection of businesses includes some enterprises that have truly extraordinary economics, many others that enjoy good economic characteristics, and a few that are marginal. One advantage of our common-stock segment is that – on occasion – it becomes easy to buy pieces of wonderful businesses at wonderful prices.

Berkshire Hathaway Inc. – 2021 Shareholder Letter

Charlie later took up law, and I tried selling securities. Since then, I have enjoyed working almost every year with students of all ages, finally “retiring” from that pursuit in 2018. Deb Bosanek, my assistant, scheduled our board’s opening dinner for October 22. Meanwhile, I arranged to arrive earlier that day to https://forexarena.net/ meet with Matt Rose, CEO of BNSF, whose accomplishments I had long admired. When I made the date, I had no idea that our get-together would coincide with BNSF’s third-quarter earnings report, which was released late on the 22nd. In the fall of 2009, we consequently selected Fort Worth so that we could visit TTI.

For someone looking for a historical perspective on Berkshire Hathaway’s history, maybe. Found them dry at first, but about 100 pages into the book started to revel in the consistency, humility, rationality and financial brilliance of berkshire hathaway letters to shareholders this guy. Control purchase of Clayton Homes and the usage of Berkshire’s credit rating to guarantee wholly-owned mortgages issued by Clayton to help buyers finance their homes, while charging Clayton a 100bp spread for this benefit.

When I purchased ‘Berkshire Hathaway Letters to Shareholders‘ on 15 November 2013 (for the pricy sum of £2.07) I was not sure what I was in for. All I knew was that I liked Warren’s way of thinking, his approach to business and investing and I wanted to read more from the man directly, not via a biographer or hired hand. I surely would have done a double take if my future self had told me I would take 865 days to finish this thick fat almost 1000 page book. For shareholders and others who are interested, a book that compiles the full unedited versions of each of Warren Buffett’s letters to shareholders between 1965 and 2014 is available for sale at this link. Since we purchased our Pilot stake in 2017, this holding has warranted “equity” accounting treatment. Early in 2023, Berkshire will purchase an additional interest in Pilot that will raise our ownership to 80% and lead to our fully consolidating Pilot’s earnings, assets and liabilities in our financial statements.

• Our property/casualty (“P/C”) insurance business has been the engine propelling Berkshire’s growth since 1967, the year we acquired National Indemnity and its sister company, National Fire & Marine, for $8.6 million.
• But his embrace of “value investing” does not mean Buffett is skeptical of growth — it just means he avoids investing in companiessolelybecause he thinks they have the potential to grow much larger than they are.
• Many people perceive Berkshire as a large and somewhat strange collection of financial assets.
• Today, the “Oracle of Omaha” has a net worth of around $85B — making him the fourth wealthiest person in the United States after Jeff Bezos , Bill Gates, and Mark Zuckerberg.

Our country would have done splendidly in the years since 1965 without Berkshire. Absent our American home, however, Berkshire would never have come close to becoming what it is today. All told, the company paid the government only $337,359 in income tax during that period – a pathetic $100 per day. Our property/casualty (“P/C”) insurance business has been the engine propelling Berkshire’s growth since 1967, the year we acquired National Indemnity and its sister company, National Fire & Marine, for $8.6 million. Today, National Indemnity is the largest P/C company in the world as measured… “We believe it is insane to risk what you have and need in order to obtain what you don’t need,” Buffett writes.

It is to only invest in companies that can succeed over an extremely long period of time, like 100 years or more. Within a few years, the relatively high priced Dexter shoes were driven out of the market by a flood of cheap, imported versions. The price of the company went to virtually zero within just a few years. “What I had assessed as durable competitive advantage vanished within a few years,” he would write in his2007letter.

Look for companies that reinvest their earnings into growth

With his owner mentality, however, Buffett used the downturn as an opportunity to amass an even greater share of the company. When many investors buy stock, they become price-obsessed, constantly checking the ticker to see if they’re up or down money on any given day. Too often, for Buffett, executive compensation plans impotently reward managers for nothing more than their firm’s earnings increasing or a stock price rising — outcomes for which the conditions were often created by a previous manager. Below, we unpack 28 of the most important lessons from the last four decades of Berkshire Hathaway’s shareholder letters.

By 1992, the collection of all airline companies produced in the US had produced a total of no profits whatsoever. Today, this idea has become core to how Berkshire Hathaway operates. “At Berkshire, Charlie and I have long focused on using retained earnings advantageously,” Buffett writes. The Washington Post’s stock suffered too, even after Buffett’s acquisition.

And yet, with the new accounting changes, and net of the scorecard change, Berkshire still beat the S&P 500 by 7.2%. With Buffett, the losses are less, and the gains are more, not to mention the before- and after-tax calculation delta. It is a matter of what one keeps, not what one makes, as measured during a 12-month period of time, and in one’s lifetime.

New options grants increase the number of shares of a company, diluting the existing pool of shareholders and reducing the value of shareholders’ current holdings. That means Buffett’s share of that company is worth less than it was before — contrary to Buffett’s beliefs that managers should work to increase the value of his share of the company, not decrease it. He mocks himself for making mistakes, and sings the praises of Berkshire’s army of CEO-managers. He offers an investment philosophy grounded not in complicated financial analysis, but often in common sense evaluations of what a particular company is worth.

The point of this breakdown is not to show off Berkshire’s decentralized structure, which offsets most operational costs to the businesses under the Berkshire umbrella, but to explain Berkshire’s culture of cost-consciousness. Buffett’s problem is less with the financial products themselves and more with the motivations behind using them to make a company’s quarterly numbers look better. Asked to imagine a “successful investor,” many would imagine someone who is hyperactive — constantly on the phone, completing deals, and networking. “Today, I would rather prep for a colonoscopy than issue Berkshire shares,” he later wrote. What made this deal even worse for Buffett was the fact that he had conducted the deal not in cash — as he would virtually every other acquisition made through Berkshire Hathaway — but in Berkshire stock.

And with Berkshire’s portfolio, he is adamant that the price of a stock is one of the least important factors to consider when deciding whether to buy or sell shares in a particular company. When Berkshire first acquired See’s, they paid a small multiple to account for the fact that See’s was able to earn 25% of net tangible assets after tax — an impressive rate of return for a candy business. A few years later, however, See’s was earning 65% of its net tangible assets after tax. Companies have both tangible assets and intangible assets, which include things like reputation and brand. For Buffett, those intangible things are of the utmost importance for value-driven investors.

I learned over many iterations how and why the corporate culture is better in Berkshire than in most other companies. He leads the viewer from the very beginning to today’s state which is an amazing transformation from a declining textile operation to a huge conglomerate holding. It is also detailed why this structure is adventageous, almost to a point where I’d want to buy a few shares. If I had completed the book earlier I would surely have bought some below 1.2 P/BV during the corona times. If you are going to read this book, I would recommend reading in reverse order.