Like every year, it’s a pleasure to read the words of wisdom from Warren. His annual letter gives us a glimpse into his mind and how he sees the world. It’s fascinating, and each time is surprising. Warren is an excellent writer who put a smile on my face.
I’m looking forward to watching his ‘Investing Carnaval’ at the beginning of May.
OK, here are the parts I enjoyed most:
When large enterprises are being managed, both trust and rules are essential. Berkshire emphasizes the former to an unusual – some would say extreme – degree. Disappointments are inevitable. We are understanding about business mistakes; our tolerance for personal misconduct is zero.
-- In other words, when someone shows you his ‘real face,’ – Believe them and act accordingly.
The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.
-- It reminds me of the ‘ticket with 20 holes’ he is discussing in his previous letters.
The GAAP earnings are 100% misleading when viewed quarterly or even annually. Capital gains, to be sure, have been hugely important to Berkshire over past decades, and we expect them to be meaningfully positive in future decades. But their quarter-by-quarter gyrations, regularly and mindlessly headlined by media, totally misinform investors.
This is an honest view of all the BS you see in the financial reports of most companies.
When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).
He aims at Elizabeth Warren. Classic.
Finally, an important warning: Even the operating earnings figure that we favor can easily be manipulated by managers who wish to do so. Such tampering is often thought of as sophisticated by CEOs, directors and their advisors. Reporters and analysts embrace its existence as well. Beating “expectations” is heralded as a managerial triumph. That activity is disgusting. It requires no talent to manipulate numbers: Only a deep desire to deceive is required. “Bold imaginative accounting,” as a CEO once described his deception to me, has become one of the shames of capitalism.
It’s similar to his view on the GAAP reports on a monthly or quarterly basis. As he put it, “that activity is disgusting.”
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. At Berkshire, there will be no finish line.
What does it tell about all the CROs in hedge funds? Why, over there the CEO or CIO is not the risk officer?
On Taxes
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 collected. 8 And that means – brace yourself – had there been roughly 1,000 taxpayers in the U.S. matching Berkshire’s payments, no other businesses nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime.
Wow – It put Berkshire vs. other successful companies (that don’t pay their fair ‘share’). It might be time to change the laws. A bit.
Millions, billions, trillions – we all know the words, but the sums involved are almost impossible to comprehend. Let’s put physical dimensions to the numbers:
• If you convert $1 million into newly-printed $100 bills, you will have a stack that reaches your chest.
• Perform the same exercise with $1 billion – this is getting exciting! – and the stack reaches about 3⁄4 of a mile into the sky.
• Finally, imagine piling up $32 billion, the total of Berkshire’s 2012-21 federal income tax payments. Now the stack grows to more than 21 miles in height, about three times the level at which commercial airplanes usually cruise.When it comes to federal taxes, individuals who own Berkshire can unequivocally state “I gave at the office.”
I thought the phrase ‘We donate at work’ came from Israel… While apparently, it’s universal.
On Charlie and his wisdom or “Nothing Beats Having a Great Partner”
It sort of like a tweet storm that he took from a podcast that Charlie did in the past few weeks.
• The world is full of foolish gamblers, and they will not do as well as the patient investor.
• If you don’t see the world the way it is, it’s like judging something through a distorted lens.
• All I want to know is where I’m going to die, so I’ll never go there. And a related thought: Early on, write your desired obituary – and then behave accordingly.
• If you don’t care whether you are rational or not, you won’t work on it. Then you will stay irrational and get lousy results.
• Patience can be learned. Having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage.
• You can learn a lot from dead people. Read of the deceased you admire and detest.
• Don’t bail away in a sinking boat if you can swim to one that is seaworthy.
• A great company keeps working after you are not; a mediocre company won’t do that.
• Warren and I don’t focus on the froth of the market. We seek out good long-term investments and stubbornly hold them for a long time.
• Ben Graham said, “Day to day, the stock market is a voting machine; in the long term it’s a weighing machine.” If you keep making something more valuable, then some wise person is going to notice it and start buying.
• There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count on getting rich twice.
• You don’t, however, need to own a lot of things in order to get rich.
• You have to keep learning if you want to become a great investor. When the world changes, you must change.
• Finally, I will add two short sentences by Charlie that have been his decision-clinchers for decades: “Warren, think more about it. You’re smart and I’m right.”
And so it goes. I never have a phone call with Charlie without learning something.
And, while he makes me think, he also makes me laugh.
Have a wonderful weekend!
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