Berkshire Hathaway Letters to Shareholders 1965 to 2018 Book

Instead, he was delighted, especially by the idea that his 5% stake in the company might be able to grow to 6% or 7% simply because the company chose to buy back some of its stock. When Buffett invests, he is not looking at the innovative potential of the company or, in a vacuum, its growth potential. More specifically, Buffett’s model states that it’s inadvisable to invest in a business where you cannot predict whether the company will have a long-term (20+ years or more) competitive advantage. Among those top 10 Berkshire Hathaway companies, the amount of earnings that are retained and reinvested is more than double the size of the earnings being paid out as dividends. However, perhaps even more than paying dividends, Buffett values the corporate practice of reinvesting profits into growth.

Instead, they look at whether the companies that they’re invested in are profitable, returning dividends to investors, maintaining high product quality, and so on. During inflation, the conventional wisdom has been that businesses with lots of tangible capital resources were the best bets. With their factories and machinery, the thinking went, they could better weather the market impact of widespread lower purchasing power and higher costs. From Buffett’s perspective, buying a stock should follow the same kind of rigorous analysis as buying a business. “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes,” he wrote in his 1996 letter. Each manager, in other words, received a portion of the company’s profits minusthe amount that they spent, in terms of capital, to generate those profits.

In short, buy stock in businesses that you would like to own yourself. Then there’s the corporate malfeasance possible when executives with a better understanding of their company’s value can leverage their own options into undeserved wealth. At the same time, many executives at companies that had failed or suffered huge losses received record levels of compensation. For Buffett, executive bonuses can work to motivate people to go above and beyond, but only when they’re closely tied to personal success in places within an organization where an executive has responsibility. Since 1965, the price of Berkshire’s Class A stock has increased by more than 2,800,000%. That’s compared to a roughly 23,000% increase in the overall gain of the S&P 500 over the same period.

After reading about AGMs, you will add it to your bucket list. The information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not designed to meet your personal financial situation – we are not investment advisors nor do we give personalized investment advice. The opinions expressed herein are those of the publisher and are subject to change without notice. It may become outdated an there is no obligation to update any such information. All letters in the book and the above samples are written and copyrighted by Warren E. Buffett and are reproduced with his permission.

A wealth of Berkshire facts and figures are set forth in the annual 10-K that the company regularly files with the S.E.C. and that we reproduce on pages K-1 – K-119. Some shareholders will find this detail engrossing; others will simply prefer to learn what Charlie and I believe is new or interesting at Berkshire. Our position carries with it the responsibility to report to you what we would like to know if we were the absentee owner and you were the manager.

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Fifty-four letters to shareholders later, the same share traded for $306,600, compounding investor capital at just under 20% per year—a multiplier of 17,000 times. Fifty letters to shareholders later, the same share traded for $226,000, compounding investor capital at just under 21% per year-a multiplier of 12,556 times. Apple – our runner-up Giant as measured by its yearend market value – is a different sort of holding. Here, our ownership is a mere 5.55%, up from 5.39% a year earlier.

Buffett followed up on his buybacks strategy in 2020 as well. Berkshire spent $24.7B to buy back its own stock, the equivalent of 80,998 “A” shares. The most common culprits, for Buffett, are the kinds of executives who determine that they’re going to buy a certain amount of stock over a certain period of time. Just as Coca-Cola built an empire buying syrup and selling a lifestyle, Buffett has made Berkshire Hathaway an empire by buying boring companies and selling their ever-returning dividends. Wells Fargo, American Express, Walt Disney, Dairy Queen, Duracell — Buffett’s portfolio looks to some investors like a safe and generic mix, but it is rooted in a philosophy of long-term success.

And, fortunately, we have had a mildly attractive alternative during 2020 and 2021 for deploying capital. After my initial plunge, I always kept at least 80% of my net worth in equities. My favored status throughout that period was 100% – and still is. Berkshire’s current 80%-or-so position in businesses is a consequence of my failure to find entire companies or small portions thereof which meet our criteria for long- term holding. Charlie and I have pledged that Berkshire will always hold more than $30 billion of cash and equivalents.

Obviously, we can’t select our owners, as we could do if our form of operation were a partnership. Anyone can buy shares of Berkshire today with the intention of soon reselling them. For sure, we get a few of that type of shareholder, just as we get index funds that own huge amounts of Berkshire simply because they are required to do so.

Berkshire Hathaway Inc. – 2021 Shareholder Letter

However, if the price of fuel rises, they will be insulated from that increase and lower the damage to their business. While Buffett himself has professed to using derivatives at times to put certain investment and de-risking strategies into action, what he saw at General Re concerned him greatly. When directors have skin in the game, they’re more likely to look out for the company’s best interests. When you have directors who are in it for the money, you’re likely to get an absentee board, and worse outcomes.

In his 2019 shareholder letter, Buffett reported that Berkshire Hathaway’s top 10 stock investments had generated almost $3.8B in dividends over the previous year. If you choose to read just one book on investing, this is it. Warren Buffett is the Einstein of berkshire hathaway letters to shareholders investment, a figure so large it towers over any other. These compilation of his letters to shareholders serves as a compendium of his investment principles and how they not only shaped his company but also became sharper through the dull edge of experience.

From 1997 to 2016, the average active stock investor only made about 4% returns annually, compared to 10% returns for the S&P 500 index as a whole. In other words, constantly buying and selling stock, and thinking that you can get an advantage from your instincts or analysis, has been proven to lead, in most cases, to smaller gains. When companies are priced well, run well, and return capital well, it is Buffett’s belief that they should be encouraged to reinvest their profits, not just throw cash to shareholders in the form of dividends. However, he argues that defining Berkshire as a conglomerate is only partially correct. And in his 2020 letter, Buffett goes on to explain that “conglomerates earned their terrible reputation” and why owning stocks in these businesses may not be the best investment strategy.

• In other words, constantly buying and selling stock, and thinking that you can get an advantage from your instincts or analysis, has been proven to lead, in most cases, to smaller gains.
• With his owner mentality, however, Buffett used the downturn as an opportunity to amass an even greater share of the company.
• This should be required reading for anyone thinking about managing theirs or other people’s money.
• Putting derivatives on your balance sheets always puts a volatile, unpredictable element into play.

Now, Berkshire pays roughly $9 million daily to the Treasury. Therefore, we do not hold discussions with analysts nor large institutions. Whenever possible, also, we release important communications on Saturday mornings in order to maximize the time for shareholders and the media to absorb the news before markets open on Monday. In 1788, going back to the U.S.’s starting point, there was only a small band of ambitious people and an embryonic governing framework aimed at turning dreams into reality. Today, the Federal Reserve estimates U.S. household wealth at $108 trillion.

Buffet is one of the rare business leaders who believe in passing on the wisdom that they have acquired over the years to the next generation. Though, the letters are really voluminous but the effort to complete the entire bunch is really worth it. Buffet has shared the thought process that has gone into making various investment decisions and has also tried to educate about the economics of the various industries like Insurance.

Every year, your company makes substantial federal income tax payments. In 2021, for example, we paid $3.3 billion while the U.S. Treasury reported total corporate income-tax receipts of $402 billion. Additionally, Berkshire pays substantial state and foreign taxes. “I gave at the office” is an unassailable assertion when made by Berkshire shareholders. BHE, however, has been paying no dividends on its common stock for the past 21 years.

You can find most of the letters for free on Berkshire’s website, but this compiles them into a well-designed, easily readable format. Warren is a great guy, the kind that you’d love to have as a grandpa – and not in hopes of inheriting a fortune but as someone to learn valuable lessons from. By way of these letters he could be any long-term investor’s virtual grandpa. I think those that don’t shy away from owning a stock for decades will find the most value in the book, however the day traders and crypto fans will of course see it utterly boring. If the importance of sitting and sleeping comfortably with your investment is of importance you might end up heeding some of his advice or even become a shareholder. Warren Buffett is God at understanding capitalism, and dissecting businesses.

In addition to investments, Berkshire owns dozens of companies outright including BNSF railroad, Geico insurance, several major utilities and an eclectic assortment of other companies such as Dairy Queen, NetJets and Precision Castparts. Berkshire now owns nearly $13 billion worth of Occidental’s common shares outright. It also holds $10 billion worth of preferred Occidental shares that pay an $800 million annual dividend and warrants to buy another 83.9 million shares at $59.62 each. Berkshire picked up those warrants and preferred shares in 2019 for helping finance Occidental’s acquisition of Anadarko.

Complex financial instruments are dangerous liabilities

Derivatives inevitably open up your business to incalculable amounts of risk. Eventually, you’re going to lose just as much money on them as you win in the short term. Warren Buffett with Barack Obama, whose administration pursued action to curb the use of complex financial derivatives in the aftermath of the 2008 financial crisis.

We did, though, make reasonable progress in increasing the intrinsic value of your shares. For Buffett, however, who owns so many companies outright and intends to continue holding them for the long term, an outcome of “usually win, occasionally die” doesn’t make sense. But Buffett believes part of the answer lies with the compensation committees that determine the CEO’s pay package. Yahoo wasn’t doing well when she arrived, but many said her management style and decisions made it worse.

Management

That’s because thepriceof a stock, on any given day, is mostly dictated by the whims of “Mr. Market” (Buffett’s metaphor for the mercurial movements of the broader stock market). Eventually, https://forexarena.net/ the illusion of investment success fades away. Conglomerates, once hailed by analysts, journalists, and bankers as business miracles, fall apart, and investors lose their money.

One can easily see the shift in his investment philosophy over the years, his focus shifting towards purchase of quality business from cigar-butts. Also visible, is his focus shifting in favour of operating earnings rathers that earnings from equity investments alone. One thing that stuck out that he is humble yet very proud at the same time. Of his partners in this enterprise, but also very much of America itself and refers to its tailwind that helped american businesses.

Eventually, Buffett says, the market will catch up and reward those companies. Conglomerates are corporations made up of multiple different businesses. According to Buffett, the term — which carries a negative connotation — has often been applied to Berkshire. In 2013, Buffett reported that GEICO had generated $73B for Berkshire Hathaway in one year — not a bad single-year return for a company that Buffett took over for $2.3B.