Earlier this week, arguably the world’s greatest investor, Warren Buffett, sent out his all-important annual letter to the shareholders of Berkshire Hathaway. This is something he has been doing since 1965 and these letters are seen as must-reading for investors around the world. 

The first item that Buffett covered was the sad loss of his long-term business partner, Charlie Munger. Anyone who knows anything about Warren Buffett, knows that Munger was with him every step of the way and Buffett refers to him as the architect of Berkshire Hathaway. He died aged 99, just a month before his 100th birthday. Buffett himself is 93 years old but is certainly not slowing down! 

Key Messages

Some of the key messages from the shareholders letter were: 

  • In his letter he says he tells you the good news and the bad news and it is all from CEO in plain language, and not some investor relations person serving up ‘mush’. 
  • The annual profit figure, or net earnings figure, for Berkshire Hathaway was $96bn – whilst he talks about this figure, he actually says he prefers to use the operating earnings line, which whilst a much lower figure (just a mere $37.4bn!!) it ignores unrealised gains and losses, and Buffett feels is a more meaningful number. 
  • The company aims to own all or a portion of businesses with good economics that are fundamental and enduring. And he hopes they are run by able and trustworthy people. However, people are not easy to read and sincerity and empathy can easily be faked. He cites the first Comptroller of the US, Hugh McCulloch, who said in 1863 in a letter to all the national banks ‘never deal with a rascal under the expectation that you can prevent him from cheating you’ – wise words!! 
  • Berkshire Hathaway now has the largest accounting net worth recorded by any American business. 
  • One of his key investment rules is to never risk permanent loss of capital! 
  • He talks of currencies, and he feels that despite his knowledge and understanding, he cannot forecast market prices of major currencies and also doesn’t believe he can hire anyone that does! 

Berkshire Hathaway Holdings

The company has large holdings and ownership in insurance and railroad businesses, but they also have large interests in a number of public companies including: 

  • American Express – $32bn of value and around 20% of the shareholding 
  • Bank of America 
  • Apple – £174bn in value and around 5.7% of the shareholding 
  • Chevron 
  • Coke – £23bn in value but received over $700bn in dividends 

Overseas Interests

They have a number of sizeable interests in Japan including holdings in Mitsubishi and Mitsui, and Buffett made a point about the more measured compensation levels seen in Japan compared to the US! 

Strategy and Returns

When it comes to the stock market, Buffett famously does not react to daily, weekly, monthly or even annual changes. When he invests it is for the long term, and he makes the point that the stock market is increasingly becoming more casino like in his nature.

And finally, the scary bit – the numbers! The returns! Berkshire Hathaway posts it returns from starting in 1965 to date. The per share market value has achieved a compound annual growth of 19.8% during that whole time and in terms of an overall gain in that period it is 4,384,748% 

If you wish to read the letter in full or see any of the previous letters, the link is below: