From the Mouth (Pen) of Warren Buffett

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This weekend, Warren Buffett’s highly anticipated Chairman’s letter was published in the Berkshire Hathaway annual report.  Below are some of my favorite quotes from the nearly 30 page missive.  The Wall Street Journal, which notes that the annual letter is “among the most widely read — and most widely discussed — dispatches in the business world” shared a list of their favorites as well.

  • When talking about Berkshire’s acquisitions. “I’ve made some dumb purchases.” You’ve got to love a leader who tells it like it is.
  • When talking about acquisitions in general (attributed to Charlie Munger). “If you want to guarantee yourself a lifetime of misery, be sure to marry someone with the intent of changing their behavior.”
  • When talking about activism. “To be sure, certain hostile offers are justified: Some CEOs forget that it is shareholders for whom they should be working, while other managers are woefully inept. In either case, directors may be blind to the problem or simply reluctant to make the change required.” Buffett goes on to say that Berkshire “will not engage in unfriendly takeovers.”
  • When talking about investments. “Woody Allen once explained that the advantage of being bi-sexual is that it doubles your chance of finding a date on Saturday night. In like manner – well, not exactly like manner – our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for Berkshire’s endless gusher of cash.”
  • When talking about computers and online activity. “I now spend ten hours a week playing bridge online. And, as I write this letter, “search” is invaluable to me. (I’m not ready for Tinder, however.)” The fact that Warren Buffett even knows what Tinder is, is impressive.
  • When talking about GEICO Insurance. “All the while, our gecko never tires of telling Americans how GEICO can save them important money. I love hearing the little guy deliver his message: ‘15 minutes could save you 15% or more on car insurance.’ (Of course, there’s always a grouch in the crowd. One of my friends says he is glad that only a few animals can talk, since the ones that do speak seem unable to discuss any subject but insurance.)” No real lesson here, just some great humor.
  • When talking about GAAP versus non-GAAP. “I suggest that you ignore a portion of GAAP amortization costs. But it is with some trepidation that I do that, knowing that it has become common for managers to tell their owners to ignore certain expense items that are all too real. ‘Stock-based compensation’ is the most egregious example. The very name says it all: ‘compensation.’ If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?” I’m sure many agree.
  • When discussing poor returns.  “… and we are now paying the price for my misjudgments. At other times, I stumbled in evaluating either the fidelity or the ability of incumbent managers or ones I later appointed. I will commit more errors; you can count on that. If we luck out, they will occur at our smaller operations.” So refreshing for a leader to admit to his mistakes.
  • When discussing the Berkshire annual meeting. “Charlie and I have finally decided to enter the 21st Century. Our annual meeting this year will be webcast worldwide in its entirety.” This is great news for those of us who cannot make it to Omaha (40,000 did last year).
  • When still discussing the Berkshire annual meeting. “Our second reason for initiating a webcast is more important. Charlie is 92, and I am 85. If we were partners with you in a small business, and were charged with running the place, you would want to look in occasionally to make sure we hadn’t drifted off into la-la land. Shareholders, in contrast, should not need to come to Omaha to monitor how we look and sound. (In making your evaluation, be kind: Allow for the fact that we didn’t look that impressive when we were at our best.)” And, “Viewers can also observe our life-prolonging diet. During the meeting, Charlie and I will each consume enough Coke, See’s fudge and See’s peanut brittle to satisfy the weekly caloric needs of an NFL lineman. Long ago we discovered a fundamental truth: There’s nothing like eating carrots and broccoli when you’re really hungry – and want to stay that way.” I think I love this man!

— Laurie Berman, lberman@pondel.com