Berkshire Hathaway Letters to Shareholders

The sometimes humorous read is full of wisdom, and it’s a giant undertaking to read, for sure. However, it was worth it and by the end I got to develop a reading habit that will help me with the regular and much shorter books in the future. 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.

There’s a sense of humor and self-deprecating nature to many of his remarks that is a far cry from the general tone employed by most other companies. Post that, I read another book named The Essays of Warren Buffett – it is an excellent compilation of all the letters by Lawrence A. Cunningham. His large derivatives stakes involving sales of both single-name and tranche-based credit default swaps and long-dated equity index puts in 2008. Buffett goes to great detail to simplify these to thinking in terms of insurance contracts and float cost over their duration, as well as the importance of not being forced to put up collateral. 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 money is expensive, having more of it 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. His main problem with investment bankers is that their financial incentive is always to encourage action whether or not doing so is in the interest of the company initiating the action. 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. The approach of the more mature Buffett is to never invest in a company that can be a success if held for a short period of time. It is to only invest in companies that can succeed over an extremely long period of time, like 100 years or more.

Invest in unsexy companies that build products people need

The investor can always use Mr. Market to his advantage as long as he understands that Mr. Market’s purpose is to serve him rather than to guide him. When Mr. Market offers high prices, the investor can take advantage by selling to him at a price above intrinsic value, and when he offers low prices, the investor can take advantage by buying from him at prices below intrinsic value. Citing https://forexarena.net/ Berkshire’s longstanding investments in Coca-Cola and American Express, Buffett noted that positions in both companies completed nearly 30 years ago earned Berkshire dividends in 2022 worth more than $1 billion. In 2022, Berkshire Hathaway repurchased 1.2% of its outstanding shares, a move Buffett told shareholders “directly increased your interest in our unique collection of businesses.”

Products are produced in the United States and Europe and are sold primarily through a global network of independent dealers and distributors, with peak sales occurring in the second and third quarters. Also in June 2017, Berkshire’s $377 million investment and 10 percent purchase in Store Capital makes it the company’s third-largest investor, after Vanguard Group and Fidelity Investments. Scottsdale-based Store Capital is a real-estate investment trust, holding more than 1,700 properties across 48 states. In 2001, Berkshire acquired three additional building products companies. In February, it purchased Johns Manville which was established in 1858 and manufactures fiberglass wool insulation products for homes and commercial buildings, as well as pipe, duct, and equipment insulation products. Finally in 2001, Berkshire acquired 87 percent of Dalton, Georgia-based Shaw Industries, Inc.

In 2017, Berkshire was the largest shareholder in United Airlines and Delta Air Lines and a top 3 shareholder in Southwest Airlines and American Airlines. Buffett himself has described this as a “call on the industry” rather than a choice in an individual company. In April 2020 Berkshire sold all shares in US Airlines in response to the COVID-19 pandemic. At the peak of the financial crisis in September 2008, Berkshire invested $5 billion in preferred stock in Goldman Sachs to provide it with a source of funding when capital markets had become constrained.

Markets

Nevertheless, statistics give credence to Buffett’s stance that using profits to buttress the company’s financial position results in greater wealth for shareholders than paying dividends. Berkshire Hathaway’s BRK-A increased by 3,641,613% from 1965 to 2021 compared to the S&P 500 returning 30,209% over the same period. Many people take in his letters with great interest, and it’s easy to see why. You can learn a lot about his views on stocks and how to buy them at a great price by studying what he says about his portfolio in his letters. For a long-term investor, volatile markets aren’t necessarily any riskier than a market that isn’t volatile.

The $32 trillion of revenue was garnered by the Treasury through individual income taxes (48%), social security and related receipts (341¤2%), corporate income tax payments (81¤2%) and a wide variety of lesser levies. Berkshire’s contribution via the corporate income tax was $32 billion during the decade, almost exactly a tenth of 1% of all money that the Treasury berkshire hathaway letters to shareholders collected. Berkshire now enjoys major ownership in an unmatched collection of huge and diversified businesses. Let’s first look at the 5,000 or so publicly-held companies that trade daily on NASDAQ, the NYSE and related venues. Within this group is housed the members of the S&P 500 Index, an elite collection of large and well-known American companies.

Based on the share price in June 2017, this position has yielded a profit of more than $10 billion excluding the annual interest earned from the preferred stock. Later, in one of Buffett’s interviews, he described this as “a major mistake” as the price of oil collapsed. Berkshire offloaded most of its shares but held 472 thousand shares until 2012. In that year, ConocoPhillips spun off a subsidiary, Phillips 66, of which Berkshire owned 27 million shares.

Berkshire Hathaway Letters Shareholders by Warren Buffett (69 results)

Warren Buffett’s letters to his shareholders for the past 50 years contain wisdom on business and investing like no other book. It is the unparalleled journey of the greatest investor of our age and the study of the unrelenting behemoth that Berkshire Hathaway has developed into, surely the best success story of capitalism. It’s been claimed by many that you’ll learn more reading these letters than getting an MBA.

Yahoo wasn’t doing well when she arrived, but many said her management style and decisions made it worse. “Managers of this stripe cannot be ‘hired’ in the normal sense of the word. What we must do is provide a concert hall in which business artists of this class will wish to perform,” he writes. For Buffett, there’s no reason for the CEOs of Berkshire’s companies to be careful with money if Charlie, him, and the inhabitants of Berkshire Hathaway’s HQ cannot be equally careful with it — so he insists on setting this culture from the top. 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. By 2017, Berkshire Hathaway had hit about $1M in total annual overhead, according to the Omaha World-Herald — a paltry sum for a company with $223B in annual revenues.

What You Can Learn From Warren Buffett’s Mistakes

All of Berkshire’s major insurance subsidiaries are rated AAA by Standard & Poor’s Corporation, the highest Financial Strength Rating assigned by Standard & Poor’s, and are rated A++ by A. M. Best with respect to their financial condition and operating performance. He rarely comments on current world events , and is very good at focusing on just writing about the company’s dealings. I learned that they are not stock pickers, they buy businesses and not tickers. The pros and cons of buying a bit of a publicly-traded company vs. owning some in full became clear. I think the smart ones can be influenced by their very prudent business selection process.

• 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.
• Book lovers have their own list but this list can never be definitive since there can be no universal consensus on what should go into “the toughest reads out there!
• Rather than getting too caught up in the price or recent movement of a stock, Buffett says, buy from companies that make great products, that have strong competitive advantages, and that can provide you with consistent returns over the long term.

As of 2018, Berkshire Hathaway is ranked third on the Fortune 500 rankings of the largest United States corporations by total revenue. In June 2014, the firm’s cash and cash equivalents rose past $50 billion, the first time it finished a quarter above that level since Buffett became chairman and chief executive officer. At the end of 2017, the firm’s cash and cash equivalent holdings rose to $116 billion. The salary for Buffett is $100,000 per year with no stock options, which is among the lowest salaries for CEOs of large companies in the United States. StockIdeas.org is a personal website intended for educational purposes only.

This is why Buffett characterizes them as “moats” and why they are such an integral part of his long term investment decisions. Indeed, it is not uncommon for Berkshire’s managers to work well into old age simply because of their love for their business. If these two criteria are satisfied, Buffett feels that his managers are doing their jobs and will praise them for it in the annual letter. Additionally, in Buffett’s early letters, readers are able to see firsthand how he operates as a manager of a small company himself.

The levels of taxation and inflation that will be experienced, and that will determine, the degree by which an investor’s purchasing-power return is reduced from his gross return. If these five criteria can be effectively evaluated, the real risk run by an investor will be minimal. In this chapter, Graham characterizes the market as a manic-depressive who comes each day to offer prices at which he will buy from and sell to the investor, whichever one the investor chooses. On some days, Mr. Market will offer obscenely low prices to the investor and on others Mr. Market will offer him inexplicably high prices. Each letter typically begins with the change in book value over the course of the year.

Don’t read those numerous related books, warren and munger’s original writings are the best. Going from Buffett’s past history, it’s unlikely that the company will pay investors a dividend while he remains in charge. There’s every chance that Berkshire Hathaway’s future CEO also decides against paying dividends, especially given Buffett’s track record of creating shareholder value by other means.

Buffett later admitted that this lower, undercutting offer made him angry. Instead of selling at the slightly lower price, Buffett decided to buy more of the stock to take control of the company and fire Stanton . However, this made Buffett the majority owner of a failing textile business. The company’s insurance brands include auto insurer GEICO and reinsurance firm General Re.

Its non-insurance subsidiaries operate in diverse sectors such as confectionery, retail, railroads, home furnishings, machinery, jewelry, apparel, electrical power and natural gas distribution. Among its partially owned businesses are Pilot Flying J (80%), Kraft Heinz Company (26.7%), American Express (18.8%), Bank of America (11.9%), The Coca-Cola Company (9.32%) and Apple (5.57%). Berkshire utilizes debt, but primarily through its railroad and utility subsidiaries. For these extremely asset-laden businesses that have constant equipment and capital needs, debt makes more sense, and they will generate plentiful amounts of cash for Berkshire Hathaway even in an economic downturn. 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.

With a speculator mentality, Buffett might have offloaded GEICO’s stock in the mid-70s. With a downturn in progress and healthy gains already realized, he would have come out ahead. With his owner mentality, however, Buffett used the downturn as an opportunity to amass an even greater share of the company. From Buffett’s perspective, buying a stock should follow the same kind of rigorous analysis as buying a business.

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. Id say it’s a must read for any long term focused investor or someone planning to enter business, most of the core points made in all std business books are present here, and it overall makes for a solid education. 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.

In 1965, Berkshire was a one-trick pony, the owner of a venerable – but doomed – New England textile operation. With that business on a death march, Berkshire needed an immediate fresh start. Berkshire’s purchases of Amex were essentially completed in 1995 and, coincidentally, also cost $1.3 billion. Annual dividends received from this investment have grown from $41 million to $302 million.