Investment Strategies
Ten Takeaways from Buffett’s Annual Letter to Shareholders - WELREX
A firm that has occasionally commented about developments in and around wealth management reflects on the latest annual shareholder letter from investment tycoon Warren Buffett.
WELREX director John
Longo shares observations from Warren Buffett’s (pictured) 2022
end-of-year letter to his shareholders. Longo, who is the
co-author of Buffett's Tips: A Guide to Financial Literacy
and Life, is well versed in the renowned investor’s
views.
The editors are pleased to share these thoughts. The usual
editorial disclaimers apply. If you want to respond, email
tom.burroughes@wealthbriefing.com
As usual, Warren Buffett’s annual letter to Berkshire Hathaway
shareholders contained several gems. We list some highlights
below as well as our commentary.
1.“When you are told that all repurchases are harmful to
shareholders or to the country, or particularly beneficial to
CEOs, you are listening to either an economic illiterate or a
silver-tongued demagogue (characters that are not mutually
exclusive).”
Comment: Of course, Buffett is a fan of stock
buybacks, but it is pretty rare for him to criticise a sitting
US President (Biden), who recently made remarks decrying
stock buybacks and suggesting a 5 per cent tax on them.
Buffett is very clear in his views suggesting that the government
shouldn’t micromanage firms and tax stock buybacks.
2. “The disposition of money unmasks humans.”
Comment: What you do with your money says a lot
about who you are. Buffett is donating most of his money to
charity and, other than his use of a private jet, he largely
lives the life of an upper-middle-class American.
3. “Over the years, I have made many mistakes.”
Comment: We can all take comfort in the fact
that even the greatest investor ever has made many mistakes and
greatly prospered.
4. “Nothing beats having a great partner.”
Comment: Here Buffett is primarily referring to
his business partner, Charlie Munger, but he may also be
referring to his two wives, Susan and Astrid. In business, and in
life, great partners may provide many benefits.
5. “We are understanding about business mistakes; our tolerance
for personal misconduct is zero.”
Comment: This quote echoes a prior famous
Buffett quote, “It takes 20 years to build a reputation and five
minutes to ruin it.” Greg Abel has been anointed as Berkshire’s
next CEO, but roughly a decade ago David Sokol was in the
driver’s seat until Buffett fired him for an “insider trading”
scandal.
6. “It’s crucial to understand that stocks often trade at truly
foolish prices, both high and low.”
Comment: Even though Buffett recommends index
funds for the common investor, he clearly believes the market is
not efficient, giving hope to active managers.
7. “Our satisfactory results have been the product of about a
dozen truly good decisions – that would be about once every five
years…”
Comment: Whether you want to call it the Power
Rule, Pareto Rule, VC Rule, or some other variant, life-changing
investments are rare but worth searching for.
8. “It requires no talent to manipulate numbers: Only a deep
desire to deceive is required.”
Comment: Here Buffett is referring to managers
that manipulate short-term earnings. Hence, long-term, consistent
performance is the only reasonable yardstick for most firms.
9. "Our CEO will always be the chief risk officer – a task it is
irresponsible to delegate. Additionally, our future CEOs will
have a significant part of their net worth in Berkshire shares,
bought with their own money.”
Comment: Risk management is the number one
job since a lack of risk controls threatens the viability of
the firm. Having “skin in the game” is essential in aligning
management with shareholder interests.
10. "I have yet to see a time when it made sense to make a
long-term bet against America. And I doubt very much that any
reader of this letter will have a different experience in the
future."
Comment: In Buffett's view: this too shall pass
and don’t bet against America or capitalism.
To view some recent commentaries from the firm, see
here and here.