Warren Buffet’s annual letter to Berkshire Hathaway shareholders was just published for 2020. It can be downloaded here. I have made a habit out of reading his letter every year and his overall approach has been instrumental in shaping the way I think about investing.
What is clear to me when I look at the first page of each letter — which contains a comparison of Berkshire’s performance to that of the S&P 500 — is that he and Charlie Munger have got to be the most successful stock market investors of the last century.
They have consistently outperformed the market. And they have done that by focusing on fundamentals, doing what others are not (i.e. being contrarians), and being incredibly patient, among other things. All of this isn’t rocket science. It’s simple, understandable, and repeatable.
The other thing we can learn from his widely read letters is that clear and concise writing is a powerful tool. I have said this many times before, but to explain something clearly it means you need to really understand it. Things tend to get complicated when you don’t know what you’re taking about.
And with that, here’s an excerpt from this year’s annual letter:
In 1958, Phil Fisher wrote a superb book on investing. In it, he analogized running a public company to managing a restaurant. If you are seeking diners, he said, you can attract a clientele and prosper featuring either hamburgers served with a Coke or a French cuisine accompanied by exotic wines. But you must not, Fisher warned, capriciously switch from one to the other: Your message to potential customers must be consistent with what they will find upon entering your premises.
At Berkshire, we have been serving hamburgers and Coke for 56 years. We cherish the clientele this fare has attracted.
The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and “stories,” they will not lack suitors. “Technicians” will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop.
Many of those investors, I should add, will do quite well. After all, ownership of stocks is very much a “positive-sum” game. Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S&P 500, will – over time – enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original “selections.”
Productive assets such as farms, real estate and, yes, business ownership produce wealth – lots of it. Most owners of such properties will be rewarded. All that’s required is the passage of time, an inner calm, ample diversification and a minimization of transactions and fees. Still, investors must never forget that their expenses are Wall Street’s income. And, unlike my monkey, Wall Streeters do not work for peanuts.
When seats open up at Berkshire – and we hope they are few – we want them to be occupied by newcomers who understand and desire what we offer. After decades of management, Charlie and I remain unable to promise results. We can and do, however, pledge to treat you as partners.
And so, too, will our successors.