Widely read:
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Is the annual ritual now winding up? I'm talking of course about Warren Buffett's annual letter which has been coming around this time of the year since 1977. The release of Buffett's annual letter to the shareholders of Berkshire Hathaway is a landmark annual episode and not just for those shareholders. Anyone who is interested in investing or business generally finds it a fascinating read.
Most company chairperson's annual letters are an exercise in PR wrapped in dull corporate language. Buffett's, in sharp contrast, are known for frank commentary on just about anything he wants to speak about. The dullness and vapidity of normal corporate communications and his letters are an exact parallel to the dullness of the normal shareholders' annual meet and the festival-like atmosphere of his company's famed annual meet in Omaha, Nebraska.
This year's letter is a bit different from many past ones. Buffett does not really have anything to say about the outside world so to speak. He does not offer any scathing remarks on, say, Bitcoin, or Wall Street or hedge funds or any other of his pet hates. Instead, the letter is all about Berkshire itself. At first glance, it reads like something that would not be of interest to anyone who was not an actual Berkshire shareholder.
However, a leisurely and thoughtful reading reveals much more. Buffett and Munger have always been great believers in businesses that do things and make things rather than those that just push money around. In this year's letter, Buffett has a section named 'Surprise, surprise' which leads with this observation: Many people perceive Berkshire as a large and somewhat strange collection of financial assets. In truth, Berkshire owns and operates more U.S.-based "infrastructure" assets - classified on our balance sheet as property, plant and equipment - than are owned and operated by any other American corporation. That supremacy has never been our goal. It has, however, become a fact. At year end, those domestic infrastructure assets were carried on Berkshire's balance sheet at $158 billion. That number increased last year and will continue to increase. Berkshire always will be building.
That's quite a surprise actually. In a time when the primary activity of too many businesses seems to be nothing but financial engineering, this is a deep reaffirmation of what business is all about - to do productive things that will lead to more economic activity while yielding a decent profit. This also connects to the most basic - and truest - view of how equity investing works. Your shares' value grows because the economy grows, good businesses make more money and if you have invested in them, you gain wealth over time.
A couple of years ago in his annual letter to shareholders, Warren Buffett said that a large part of his success in life could be attributed to what he called 'The American Tailwind.' For decades, the fundamental reason that he made money was that the American economy grew, the rest was detail. For you and me, the best way to create wealth through investing is to catch the Indian tailwind, in our businesses and jobs, as well as in our investing. The fundamentals of the business matter a lot, and if they are bad, then no one can work miracles. And, of course, vice versa.
Long ago, 42 years ago in fact, in his 1980 letter, Buffett wrote "Our conclusion is that, with few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact." Modern businesses are littered with examples that demonstrate this. Good businesses with sustained earning power, in a positive environment, are what you need.
Tricks don't work, no matter how smart they sound. News of recent months and even years is littered with evidence of this.
Also read: Learnings from Warren Buffett's 2021 letter to shareholders
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