It is quite delightful to read the 2020 letter to shareholders by Mr Buffett. It is not only about revenue and profit, but also people, team, wisdom, experiences, and even attitudes to live and attitudes to death…
The letter is a public pdf.
I would love to take a few quotes for good memory here:
[Reinvest & Compound]
“Today, school children learn what Keynes termed “novel”: combining savings with compound interest works wonders.”
[Face The Reality… humorously]
“In reviewing my uneven record, I’ve concluded that acquisitions are similar to marriage: They start, of course, with a joyful wedding — but then reality tends to diverge from pre-nuptial expectations. Sometimes, wonderfully, the new union delivers bliss beyond either party’s hopes. In other cases, disillusionment is swift.”
“A meaningful number, however, have caused me all too quickly to wonder what I was thinking when I proposed.”
“But, as the late Paul Harvey was given to saying in his famed radio broadcasts, “Here’s the rest of the story.” One of the largest insurers of Lubrizol was a company owned by . . . uh, Berkshire. In Matthew 6:3, the Bible instructs us to “Let not the left hand know what the right hand doeth.” Your chairman has clearly behaved as ordered.”
[Business Model]
“One reason we were attracted to the P/C business was the industry’s business model: P/C insurers receive premiums upfront and pay claims later. In extreme cases, such as claims arising from exposure to asbestos, or severe workplace accidents, payments can stretch over many decades.”
[We’re Humble Humans]
“Mistakes in assessing insurance risks can be huge and can take many years — even decades — to surface and ripen. (Think asbestos.) A major catastrophe that will dwarf hurricanes Katrina and Michael will occur — perhaps tomorrow, perhaps many decades from now. “The Big One” may come from a traditional source, such as wind or earthquake, or it may be a total surprise involving, say, a cyber attack having disastrous consequences beyond anything insurers now contemplate.”
[True, I Believe It…]
“That rosy prediction comes with a warning: Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of The American Tailwind, about which I wrote last year, and the compounding wonders described by Mr. Smith, will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. Others? Beware!”
[Death… Dare To Talk, Prepare, Plan, Responsibility]
“Three decades ago, my Midwestern friend, Joe Rosenfield, then in his 80s, received an irritating letter from his local newspaper. In blunt words, the paper asked for biographical data it planned to use in Joe’s obituary. Joe didn’t respond. So? A month later, he got a second letter from the paper, this one labeled “URGENT.” “
“Charlie and I long ago entered the urgent zone. That’s not exactly great news for us. But Berkshire shareholders need not worry: Your company is 100% prepared for our departure.”
“… In all, I estimate that it will take 12 to 15 years for the entirety of the Berkshire shares I hold at my death to move into the market.”
[People, People, People]
“During the first 30 or so years of my services, it was rare to find a woman in the room unless she represented a family controlling the enterprise.”
“One very important improvement in corporate governance has been mandated: a regularly-scheduled “executive session” of directors at which the CEO is barred.”
“It would be an interesting exercise for a company to hire two “expert” acquisition advisors, one pro and one con, to deliver his or her views on a proposed deal to the board — with the winning advisor to receive, say, ten times a token sum paid to the loser”
“…director compensation … (I missed much of this gravy train: As a director of Portland Gas Light in the early 1960s, I received $100 annually for my service. To earn this princely sum, I commuted to Maine four times a year.)”
“Nevertheless, I feel better when directors of our portfolio companies have had the experience of purchasing shares with their savings, rather than simply having been the recipients of grants.”
“At Berkshire, we will continue to look for business-savvy directors who are owner-oriented and arrive with a strong specific interest in our company.”
[Amazing… 66]
“In 2019, Berkshire sent $3.6 billion to the U.S. Treasury to pay its current income tax. The U.S. government collected $243 billion from corporate income tax payments during the same period. From these statistics, you can take pride that your company delivered 1.5% of the federal income taxes paid by all of corporate America.”
[Salute]
Great report, warm letter full of wisdom! Again, the letter is available here.
