April 1, 2023
Warren Buffett’s Annual Letter to Shareholders
An investing philosophy shaped from America’s Heartland since 1930.
Warren Buffett, chairman and CEO of Berkshire Hathaway and revered as the Oracle of Omaha, released his annual letter to shareholders on Saturday, February 25th.
While the entire 11-page letter is great reading for all investors, here are a few snippets taken directly from Warren’s letter that you might want to incorporate into how you think about investing (and maybe even your life).
Business Pickers, Not Stock Pickers
[W]e buy publicly-traded stocks through which we passively own pieces of businesses. Holding these investments, we have no say in management.
Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers. Please note particularly that we own publicly traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.
Over the years, I have made many mistakes. Consequently, our extensive collection of businesses currently consists of a few enterprises that have truly extraordinary economics.
Many that enjoy very good economic characteristics, and a large group that are marginal. Along the way, other businesses in which I have invested have died, their products unwanted by the public. Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently delivering a gusher of improved goods and services. Schumpeter called this phenomenon “creative destruction.”
A 58-Year Report Card
At this point, a report card from me is appropriate: In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so. In some cases, also, bad moves by me have been rescued by very large doses of luck. (Remember our escapes from near disasters at USAir and Salomon? I certainly do.)
Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years – and a sometimes-forgotten advantage that favors long-term investors such as Berkshire.
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.”
The American Tailwind
At Berkshire we hope and expect to pay much more in taxes during the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved – a contribution Berkshire will always need. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.
I have been investing for 80 years – more than one-third of our country’s lifetime. Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.