He advises people to be different than everyone else by being “fearful when others are greedy” and “greedy only when others are fearful.” Above all, Buffett’s first rule is to “never lose money,” and his second rule is not to forget the first rule. Knight’s memoir gives readers a glimpse into what life was like behind the scenes of a small, intrepid startup that quickly rose to become one of the world’s most recognizable brands. So Howard decided to give himself 40 years to put more than $3 billion to work on this challenge. This book, which Buffett said readers “will enjoy,” captures that journey.

H. Brown had to “stand in the shoes of owners” and truly weigh whether the cost of a project was worth the potential results. H. Brown Shoe Company, at the time the leading manufacturer of work shoes in North America. In his shareholder letter that year, Buffett talked about a few of the reasons why. Below, we unpack 28 of the most important lessons from the last four decades of Berkshire Hathaway’s shareholder letters. 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.

Additionally, many “independent” directors depend on fees as a major component of their income. In his mind, the best directors are those who have their interests best aligned with shareholders. In fact, being a major, long-term shareholder is one of the primary qualities that Buffett takes into account when searching for directors.

Once finished with his studies, Buffett worked as a stockbroker and taught an Investment Principles night class at the University of Nebraska. Through his investments, Buffett’s personal savings were growing to hundreds of thousands of dollars , which allowed him to open his own investment firm, Buffett Partnership Ltd. as a young adult. Value investing―investing in relatively few well-researched stocks that you intend to hold for several years. In the third quarter of 2022, Berkshire purchased 60 million shares in semiconductor manufacturing company TSMC, acquiring a $4.1 billion stake. In the second quarter of 2020, Berkshire added a position of more than 20 million shares in mining company Barrick Gold, and in the third quarter the company agreed to buy Dominion Energy’s natural gas transmission and storage operations.

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. In 1965, Warren Buffett penned his first annual letter to the shareholders of Berkshire Hathaway. The letter was one page long and dealt with topics that included liquidating the assets of one textile mill and changes in Berkshire’s inventory. In 2012, forty-eight years later, Buffett discusses his 50% purchase of a holding company that will own 100% of H.J. Heinz, paying $4 billion for common stock and another $8 billion for additional preferred shares. Almost endless details of Berkshire’s 2022 operations are laid out on pages K-33 – K-66.

Abel is CEO of Berkshire Hathaway Energy and vice chairman in charge of noninsurance operations. Of course, Buffett’s successor—when the “Oracle of Omaha” announces his retirement, if he ever does—might have different thoughts about paying dividends. In particular, Buffett prefers to reinvest profits in the companies he controls to improve their efficiency, expand their reach, create new products and services, and improve existing ones.

At least I took my time and didn’t skip anything, and highlighted hundreds of passages that are worthy of a re-read. The letters provide you with a solid understanding of Buffett’s investment philosophy and that alone makes the book worthwhile. In addition, you will get a better understanding of accounting and the insurance industry. Warren Edward Buffett is an American investor, industrialist and philanthropist. He is widely regarded as one of the most successful investors in the world. Often called the “legendary investor, Warren Buffett”, he is the primary shareholder, chairman and CEO of Berkshire Hathaway.

Stock Ideas Disclaimer

In doing so, they risk potentially losing much more than their initial investment. 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. His frustration with investment banker math reached its boiling point in his 1986 letter to shareholders, in which he dissected the value of Berkshire’s latest acquisition, the Scott Fetzer Company. BHE, however, has been paying no dividends on its common stock for the past 21 years.

For someone looking for a historical perspective on Berkshire Hathaway’s history, maybe. Intense competition in the reinsurance business has produced major losses for practically every company operating in the area. Our underwriting loss was something over 12%—a horrendous figure, but probably little different from the average of the industry. Reading the letters was like reading a comic that comes out in sequels.

Buffett sold around 30% of this stake in 2013 when he “soured somewhat on the company’s then-management” realizing a profit of $43 million. As Tesco’s problems mounted through 2014, Berkshire sold all the remaining shares with Buffett saying to shareholders that the delay in selling shares was costly. Berkshire made an after-tax loss of $444 million on the Tesco investment. On August 26, 2011, Berkshire Hathaway purchased $5 billion of preferred shares in Bank of America. The investment has an annual interest cost of 6% earning Berkshire $300 million in annual interest. Alongside the preferred stock investment, Berkshire obtained warrants allowing Berkshire to buy 700 million common shares at $7.14 per share any time before September 2, 2021.

Books, articles, and lectures

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. And yes, our shareholders will continue to save and prosper by retaining earnings. Warren E. Buffett first took control of Berkshire Hathaway Inc., a small textile company, in April of 1965. 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.

Buffett does not believe that standard GAAP accounting figures always give an accurate idea of what a company is worth, so he walks through a valuation of Scott Fetzer Company to explain why Berkshire purchased the company. Derivatives inevitably open up your business to incalculable amounts of risk. 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.

Buffett’s Ideal Company

Buffett’s personal formulation of the strategy is simply “finding an outstanding company at a sensible price” as opposed to finding mediocre companies for cheap prices. 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. 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. However, perhaps even more than paying dividends, Buffett values the corporate practice of reinvesting profits into growth. By the time Jeff Bezos acquired the paper in 2013, Buffett’s 1.7M share stake was worth about $1B — a more than 9,000% return.

Within a few years, the relatively high priced Dexter shoes were driven out of the market by a flood of cheap, imported versions. The price of the company went to virtually zero within just a few years. “What I had assessed as durable competitive advantage vanished within a few years,” he would write in his2007letter. Growth investors, the thinking goes, primarily look https://forexarena.net/ for companies that show they can grow at an above average rate. Companies that growth investors like might look expensive today, but are worth it if they are going to grow at or above the expected rate. For a long time, however, Buffett notes in his1992letter, investors interested in “value” and investors interested in “growth” have been considered to be at odds.

Buy stock as an owner, not a speculator

Warren Buffett is the Einstein of 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. These are his actual letters — word for word — a “lesson plan” of his views on business and investing. You can find most of the letters for free on Berkshire’s website, but this compiles them into a well-designed, easily readable format. Some might argue that the Partnership letters may even have been better than the Berkshire letters.

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. Buffett refuses to split Berkshire stock, which would explain why Berkshire Class A shares currently trade for over $160,000 in the market. Buffett seeks to alleviate this issue by trading stocks based on intrinsic value rather than market value. The use of beta as a measure of risk can cause an investor to miss out on great opportunities in the market. Though Buffett and Munger, who turned 99 on Jan. 1, continue to show the spirit and enthusiasm of men much younger than them, life for Berkshire Hathaway after Warren and Charlie remains a key focus for investors.

In this situation, Buffett argues, the board must act as if there is a single “absentee owner.” The board should attempt to further this owner’s long-term interests to the best of its ability. If board members lack either integrity or the ability to think independently, the directors can actually do a great deal of harm to shareholders. Buffett strongly opposes the idea that stock prices always reflect all publicly available information. While he does admit that the market is often efficient, Buffett believes that inefficiencies exist in the market that can be exploited through careful analysis.

To McDonald’s, however, he’s just that guy that drives through each morning, willing to spend exactly $3.17 on his breakfast. A voiceover in his HBO documentary describes him as “your $44-billion average Joe.” Now, his net worth is more accurately estimated at $85.6 billion, however he pledges to give away 99% of his wealth to charitable causes. Warren Buffett is the world’s most successful investor, a feat that speaks to his excellent decision-making skills. His methods and practices―how he chooses which stocks to invest in, and when to buy and sell―have formed the basis of over 60 books and countless lectures and research papers, and gained a following around the globe.

Britt always taught us Titans that Wisdom is Cheap, and principal can find treasure troves of the good stuff in books. We hope only will also express their thanks to the Titans if the book review brought wisdom into their lives. The second situation is what exists at Berkshire berkshire hathaway letters to shareholders Hathaway, where the majority shareholder also runs the business. Buffett views share repurchases as an extremely effective means for increasing shareholder value. Central to Buffett’s thesis on dividend policy is the concept that not all retained earnings are equal.

“Much of what you become in life depends on whom you choose to admire and copy.” This second book from Bogle that Buffett recommended is perhaps the most important one one this list for entry-level investors. For investors, the most valuable takeaway is his list of 10 simple rules of “Common Senses Investing.” According to Bogle, it “may not be the best strategy ever devised. But the number of strategies that are worse is infinite.” In “The Outsiders,” William N. Thorndike, a graduate of Harvard College and the Stanford Graduate School of Business, details the extraordinary success of eight successful CEOs who took a radically different approach to corporate management. “Just buy a copy and carry it around; it will make you look urbane and erudite,” Buffett joked in his 2010 shareholder letter.

• He decided to merge his many business partnerships into one and invested heavily in the textile manufacturing firm Berkshire Hathaway.
• This criterion seems to be another mark of Graham’s influence on Buffett.
• A lot of them are wilting in bookshelves around the world waiting for a day when the owner inevitably bundles it into the charity box for donation.
• The idea of value investing maintains that you should choose your stocks with intention and trust, as a result of research in their business practices, and stay loyal to them for the long term.

Though not recognized in our financial statements, this float has been an extraordinary asset for Berkshire. New shareholders can get an understanding of its value by reading our annually updated explanation of float on page A-2. There was very little in the way of news in the annual letter to Berkshire Hathaway Inc. shareholders that Warren Buffett released Saturday morning. But the main thing that stood out about the letter was its brevity — at 4,455 words, it was the shortest Buffett shareholder letter in 44 years.