This weekend the ritual of releasing Berkshire Hathaway’s annual report, along with Warren Buffett’s infamous annual letter took place, along with the obligatory over- analysis of said letter.
And to be honest, it was pretty bland. Here is a link to the letter in its entirety.
Mr. Buffett reiterated some key themes, as he has done throughout the years…bullish on America, etc., but as one person alluded to on Bloomberg, what was more disappointing was the lack of discussion around the COVID environment.
I would echo that sentiment;, as it would have been interesting to hear his insights on the current economic environment rather than rehash some of the same bullet points.
To be fair, he is 90 years old, but in reading the letter it just didn’t read the same as previous ones. Maybe I am reading too much into it as I accuse others of doing, but to me it just didn’t have that same umph.
That being said, out of the 14 pages provided, I have narrowed it down to the ‘Mike Notes’ version:
–$11 Billion. That is the amount of the writedown Berkshire experienced due to overpaying for Precision Castparts. It happens to the best of us, whether you are Warren Buffett, or your own personal trader. Nobody connects 100% of the time. However, I more admire the fact that he simply called it what it was -, a poor decision.
–Share re-purchases will continue. Simply put, they see value in repurchasing shares of Berkshire stock and will continue to do so.
–Owing some is better than none at all. One of the statements Mr. Buffett makes in his letter is about how Charlie Munger convinced him that ‘owning a non controlling portion of wonderful business is more profitable, more enjoyable and far less work than struggling with 100% of a marginal enterprise’. Translatable in my opinion to the simple fact they will take more positions in companies through stock, than to outright buy them, which in combination with its share repurchase program paints a light on how they plan on deploying their cash stash that everyone watches like a hawk.
–Mortality/Sucession. A lot of the letter involved, there were these interludes discussing living past 100, or succession. One that specifically stuck out to me was around the board composition. Simply put, the Berkshire board is very old, and perhaps Buffett is lining up successors to those board seats to be seated while he and Charlie Munger are still around.
–No fan of bonds. In September 1981 the 10 yr bond had a 15.8% yield;, the end of 2020 was: 0.93%. The sobering fact is that bond investors are becoming starved for yield, and therefore are looking towards ‘other’ investments. I place the word other in parentheses….because chasing yield is a very dangerous game, that eventually leads folks down a path they would regret sometime in the future.
This is one area you will hear me continue to emphasize in the coming months as we look to reposition portfolios out of some fixed income holdings. I will say that I have been underway in in this task since the beginning of the year and you will continue to hear me discuss this for the near future.
–Taking the show on the road. In a continuation of last years meeting, it will be live streamed. However, this stream will take place from Los Angeles, not Omaha, and will include Charlie, Warren, Ajit, & Greg. Ajit & Greg are considered the two likely successors to Warren & Charlie for those of you who are not familiar, so this ‘hand-off’ which has been developing for years now, makes sense.
I, for one, am thrilled, as Charlie is always good for his zingers.
If you have the time, I highly encourage you to read the letter, and go back and read others from the past as well: https://www.berkshirehathaway.com/letters/letters.html
Personally I always enjoy reading the letter as it transports me back to my time in Omaha and the people and the places. And I will leave you with this funny personal connection of mine to this year’s letter.
The story on page 9 about Mrs. Blumkin and Nebraska Furniture Mart….well that’s where Kristin & I got our first furniture set.
Financial Recon 