Markets

8 key quotes from Warren Buffet’s famous annual letter

Mon 27 Feb 23, 11:41am (AEST)
Warren Buffett
Source: Shutterstock

Key Points

  • In his annual letter to Berkshire shareholders, Buffett urged investors to stay focused on the long term instead of high inflation
  • Berkshire posted a record US$30.8 billion in operating profit in 2022

Warren Buffett and Berkshire Hathaway both released annual letters over the weekend. Surprisingly, his letter was only nine pages – the shortest since the 70s. Nevertheless, there are plenty of takeaways and valuable insights, and here are the ones that I found most interesting. 

It only takes a few good ones: "Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years ... Over time, it takes just a few winners to work wonders ...Consequently, our extensive collective 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.” 

Let your winners run: “In August 1994 … Berkshire completed its seven-year purchase of 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire. The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays.”

Start early, live long: “The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And yes, it helps to start early and live into your 90s as well.” 

Inefficient markets and benefit of public markets: “One advantage of our publicly-traded segment is that – episodically – it becomes easy to buy pieces of wonderful businesses at wonderful prices. It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks.”

Earnings beats are overrated: “Even the operating earnings figure that we favour can easily be manipulated by managers who wish to do so … Beating “expectations” is heralded as a managerial triumph. That activity is disgusting. It requires no talent to manipulate numbers. Only a deep desire to deceive is required. “Bold imaginative accounting,” as a CEO once described his deception to me, has become one of the shames of capitalism.” 

Buybacks adding value: “The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases.”

A jab at Joe Biden: “When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”

Berkshire’s future: “As for the future, Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses. We will also avoid behaviour that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses … At Berkshire, there will be no finish line.” 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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