WELREX® Director John Longo shares key observations from Warren Buffett’s 2022 end-of-year letter to his shareholders.
As usual, Warren Buffett’s annual letter to Berkshire Hathaway shareholders contained several gems. We list some highlights below as well as our commentary.
1.“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).”
Comment: Of course, Buffett is a fan of stock buybacks, but it is pretty rare for him to criticize a sitting U.S. President (Biden), who recently made remarks decrying stock buybacks and suggesting a 5% tax on them. Buffett is very clear in his views suggesting that the government shouldn’t micromanage firms and tax stock buybacks.
2. “The disposition of money unmasks humans.”
Comment: What you do with your money says a lot about who you are. Buffett is donating most of his money to charity and other than his use of a private jet, he largely lives the life of an upper-middle-class American.
3. “Over the years, I have made many mistakes.”
Comment: We can all take comfort in the fact that even the greatest investor ever has made many mistakes and greatly prospered.
4. “Nothing beats having a great partner.”
Comment: Here Buffett is primarily referring to his business partner, Charlie Munger, but he may also be referring to his two wives, Susan and Astrid. In business, and in life, great partners may provide many benefits.
5. “We are understanding about business mistakes; our tolerance for personal misconduct is zero.”
Comment: This quote echoes a prior famous Buffett quote, “It takes 20 years to build a reputation and five minutes to ruin it.” Greg Abel has been anointed as Berkshire’s next CEO, but roughly a decade ago David Sokol was in the driver’s seat until Buffett fired him for an “insider trading” scandal.
6. “It’s crucial to understand that stocks often trade at truly foolish prices, both high and low.”
Comment: Even though Buffett recommends index funds for the common investor, he clearly believes the market is not efficient, giving hope to active managers.
7. “Our satisfactory results have been the product of about a dozen truly good decisions – that would be about once every five years…”
Comment: Whether you want to call it the Power Rule, Pareto Rule, VC Rule, or some other variant, life-changing investments are rare but worth searching for.
8. “It requires no talent to manipulate numbers: Only a deep desire to deceive is required.”
Comment: Here Buffett is referring to managers that manipulate short-term earnings. Hence, long-term, consistent performance is the only reasonable yardstick for most firms.
9. “Our CEO will always be the Chief Risk Officer – a task it is irresponsible to delegate. Additionally, our future CEOs will have a significant part of their net worth in Berkshire shares, bought with their own money.”
Comment: Risk management is job #1 since a lack of risk controls threatens the viability of the firm. Having “skin in the game” is essential in aligning management with shareholder interests.
10. “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.”
Comment: In Buffett’s view: this too shall pass and don’t bet against America or capitalism.
John M. Longo, Ph.D., CFA
WELREX founder and CEO Yevgeni Agerd speaks to PWM’s editor-in-chief Yuri Bender about the increasing appetite of private investors in developing countries for a hybrid digital and human advice model
The WELREX investment team takes a view on what’s to come in 2024
WELREX CIO Chris Brils shares an update on our investment process and how we recently applied it successfully in China
WELREX® Director shares his view on the latest meeting of the Federal Reserve
WELREX® Director John Longo shares his view on the last week’s meeting of the Federal Reserve
WELREX Director John Longo argues that the US Fed should accept 3% inflation and move on
This short video summarises the compelling reasons why current relationship managers should consider moving to WELREX as an Independent Relationship Manager.