Today is “Christmas” for most (value) investors. (Were you also refreshing the page to see if it has arrived?)
Post-Mortems
Arrived it did and in classic Buffett form, starts with post-mortems right from the get-go where he goes into detail about the “ugly $11 billion write-down” of Precision Castparts and that it was “far from my first error of that sort.”
Later he writes about how it took him “a while to wise up” when speaking of buying controlling or non-controlling stakes in wonderful businesses (rather than mediocre ones).
Capital Deployment
Like in (almost) every past letter, Buffett continues to provide lessons (by way of osmosis) to his shareholders about deploying capital.
Besides waking up to only focus on wonderful businesses, he talks about how Berkshire’s operating businesses affords the insurance businesses’ float to invest in more risk-adjusted assets like equities (instead of bonds like most other insurance companies). That is by design right from the start and both subsidiaries or “gems” (as he calls them) help reinforce and strength the other synergistically.
He also talked about how Munger and his decision to buy back shares only when they believe it’s accretive to do so and wouldn’t make the trade “at simply any price”. He illustrated that this “increased your ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet.” Buffett always want to explain the real benefits (and costs) to his shareholder partners.
Another point he made in 2019 and again here is that while indirect and non-controlled ownership in companies (i.e. stocks) might not appear to be growing in your investment accounts (except when there is a dividend to be earned), that “what’s out of sight, however, should not be out of mind”. He points to the retained earnings of these companies that, if the business is good and the management is great, is “usually building value — lots of value”. So don’t count your chickens yet, but don’t forget to account for them in some manner even though they might not be hatched yet, so to speak.
Lastly, he continues tipping his hat to his favourite “Mrs. B” and other entrepreneurs who started their ventures with very little capital (and that by now, rakes in millions or billions each year). It’s something to be proud of to start something from little to nothing and deploying just human capital.
Rhetorical Questions
There’s so many other amazing topics and perhaps its best to read (and reread) the letter yourself. With that said, I’ve found some great quotes that Buffett forms in rhetorical questions.
“Could it be that Berkshire ownership fosters longevity?”
“Who, after all, seeks rapid turnover in friends, neighbors or marriage?”
“Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981?”
“Ronald Reagan cautioned: “It’s said that hard work never killed anyone, but I say why take the chance?””
Only the Best
No need for preamble, quote below.
“The best [investment] results occur at companies that require minimal assets to conduct high-margin businesses – and offer goods or services that will expand their sales volume with only minor needs for additional capital.”
BRK2020 was incredible because of the ground it covered. Always positive and upbeat, its great to see that Warren at 90 and Charlie at 97 (did you see him at the Daily Journal’s annual meeting??) still so sharp, so posed and so delighted to steward Berkshire Hathaway. How incredible is that?