By investing in BRK, it is possible to both gain a wide breadth of diversification while also betting in America, all without any explicit investment fees to be churned off as the decades roll by, all of which adds up to more compounding for the investee. According to Buffett, if the $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, Buffett’s stake would have grown to be worth $606,811 pre-tax. 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. Berkshire’s legions of devoted shareholders who regularly packed an Omaha arena to listen to the two men will remember the curmudgeonly quips Munger offered while answering questions alongside Buffett at the annual meetings.

• By the early 1960s, however, Buffett had convinced him to give up being a lawyer and focus on finance.
• Along the way, Buffett shares with his stockholders great insight into the reasoning behind every acquisition and major investment made and provides a highly detailed historical account of Berkshire Hathaway’s growth.
• Munger and Buffett began buying Berkshire Hathaway shares in 1962 for $7 and $8 per share, and they took control of the New England textile mill in 1965.
• He was admitted only after a family friend and former dean of the school intervened, according to Janet Lowe’s 2000 book, Damn Right!

Munger’s death on Tuesday, five weeks shy of his 100th birthday, leaves Berkshire Vice Chairmen Greg Abel and Ajit Jain, who respectively oversee its non-insurance and insurance businesses, as the 93-year-old Buffett’s top advisers and sounding boards. 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. In the nation’s accounting, the comparable item is labeled “savings.” Without savings, there would have been no investment, no productivity gains and no leap in living standards.

The Berkshire Hathaway 2018 Shareholder Letter: A Changing of the Scorecard

One of Buffett’s self-proclaimed worst mistakes as an investor came with his all-stock acquisition of Dexter Shoe Company in 1993. “At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business. It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone,” he wrote in 2014. Ultimately, Buffett’s distaste for cheap companies and their problems means that while some investors argue the merits of taking large positions in companies, Buffett and Berkshire Hathaway are comfortable taking relatively small positions in more expensive firms. 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.

• For him, it is CEOs and shareholders’ constant action — buying and selling of stocks, hiring and firing of financial advisers — that creates losses.
• Occasionally, Buffett will choose to include special topics in his letters on whatever topic he feels that his shareholders should be aware.
• This emphasis on trading equal amounts of intrinsic business value ensures that neither party in any of Berkshire’s acquisitions will be taken advantage of, and is ultimately the most fair basis upon which to make a stock-for-stock transaction.
• Buffett concedes that those who invest in companies on the speculation that they may one day be worthwhile could reap returns — he just has no interest in that kind of investment.

Munger’s wealth decreased over time as he gave more of his fortune away, but the ever increasing value of Berkshire’s stock kept him wealthy. “We got a little less crazy than most people and a little less stupid than most people and that really helped us,” Munger said. He went into more detail about the reasons for Berkshire’s success in a special letter he wrote in 2014 to mark 50 years of helping lead the company.

After Munger’s death, Berkshire succession comes into focus

Tilson said Munger advised that after achieving some success “your whole approach to life should be how not to screw it up, how not to lose what you’ve got” because reputation and integrity are the most valuable assets, and both can be lost in a heartbeat. The two men shared investment ideas and occasionally bought into the same companies during the 1960s and ’70s. Debt also forces shareholders into a Russian roulette equation, according to Buffett in his 2018 letter. And “a Russian roulette equation — usually win, occasionally die — may make financial sense for someone who gets a piece of a company’s upside but does not share in its downside.

Since Apple first began buying back its own stock in 2012, it has become one of most prolific stock repurchasers in history. By piling cash into distressed American companies like General Electric, Goldman Sachs, and Bank of America during the 2008 financial crisis, Buffett reportedly made $10B by 2013. Buffett has several issues with the practice of CEOs granting themselves stock options as 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. Together, they form a compendium of the beliefs and advice of the man widely regarded to be the greatest investor in history.

People in the Story

When you have directors who are in it for the money, you’re likely to get an absentee board, and worse outcomes. Berkshire reported an $11B write-down of its investment in the metal fabrication company Precision Castparts (PCC), as the pandemic brought aerospace manufacturing to a near halt, hurting some of PCC’s largest customers and pushing its shares down. Value investors, on the other hand, purportedly ignore potential growth as a function in their fundamental analysis. But his embrace of “value investing” does not mean Buffett is skeptical of growth — it just means he avoids investing in companies solely because he thinks they have the potential to grow much larger than they are. One striking example that he discusses at length in his 1979 letter to shareholders is that of Waumbec Mills in Manchester, New Hampshire. Buffett’s distrust of bargains comes mostly from a series of poor acquisitions and investments he made early on in the life of Berkshire Hathaway.

Lessons From Warren Buffett’s Annual Letters To Shareholders

Inherently, the risk that the investor runs is that by forgoing consumption now, he may not have the ability to consume more later. Thus, volatility actually works in favor of the intelligent investor because increased volatility creates increased opportunity to take advantage of even lower lows and higher highs. By viewing market prices as quotes from a manic-depressive business partner, the investor is now put in a position of power over berkshire hathaway letters to shareholders market prices rather than enslaved by them (a far-too-common occurrence). Berkshire’s goal is to keep the companies operating exactly as they were before the purchase. As an aid in calculating its intrinsic value, each year Berkshire reports its investments per share and non-insurance subsidiary earnings per share. As of 2012, Berkshire carried investments per share of $113,786 and non-insurance subsidiary earnings per share of $8,085.

After scoring highly on an army intelligence test, Munger was sent to study meteorology at Caltech in Pasadena.

When an investor intends to invest over the long term, he must be assured that the companies in which he invests will continue to operate over the long term as well. This is a two-pronged approach for assessing the underlying economics of a company. Buffett favored return on equity over earnings per share as a yardstick to measure managerial effectiveness.

Buffett is a strong believer in this kind of “eat what you kill” philosophy of executive compensation. In this case, the corporation has a controlling owner not involved in management. When this happens, directors who are not content with the quality of management or fear that management is becoming too greedy can go directly to the owner and report their dissatisfaction. The board of directors is intended to hold the CEO accountable for his actions, but too often CEO’s are never challenged by their boards. In his 1993 letter, Buffett lays out the three “boardroom situations” in great detail.

At Berkshire Hathaway, Buffett enforces an individualized system of compensation that rewards managers for their personal actions — even if that means, counterintuitively, rewarding managers of individual units when the wider business doesn’t do well. In between accounts of Berkshire’s current holdings, he tells jokes, shares anecdotes, and relates quippy aphorisms to help illuminate his core points. A combination of traits is required, including an understanding of true risk and market fluctuations. Above all, readers see the “Oracle of Omaha” at work each year, shaping an investing career that may not ever be replicated. These directors are incentivized to stay on the board, which often means choosing not to offend a CEO or fellow directors so that his popularity with management can remain strong and he can continue to collect directors’ fees.

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. Berkshire Hathaway’s fundamental strategy has been to identify valuable companies and then acquire increasingly large portions of them. Britt always taught us Titans that Wisdom is Cheap, and principal can find treasure troves of the good stuff in books.

You can find most of the letters for free on Berkshire’s website, but this compiles them into a well-designed, easily readable format. But Buffett always credited Munger with pushing him beyond his early value investing strategies to buy great businesses at good prices like See’s Candy. That was on display while he fielded hours of questions at the annual meetings of Berkshire and the Daily Journal Corp. earlier this year, and in recent interviews on an investing podcast and also with The Wall Street Journal and CNBC. When money is expensive, having more of it (in the form of debt) is a way of setting yourself up to take full advantage of opportunities. This fits nicely into Buffett’s general investment worldview that the best time to buy is when everyone is selling. In shareholder letter after shareholder letter, Buffett reminds his readers that the true stars of Berkshire Hathaway are not him or Charlie Munger — they are the managers that run the various companies under the Berkshire Hathaway umbrella.