Indeed, it is not uncommon for Berkshire’s managers to work well into old age simply because of their love for their business. If these two criteria are satisfied, Buffett feels that his managers are doing their jobs and will praise them for it in the annual letter. Additionally, in Buffett’s early letters, readers are able to see firsthand how he operates as a manager of a small company himself.
During the entire time they worked together, Buffett and Munger lived more than 1,500 miles (2,400 kilometers) apart, but Buffett said he would call Munger in Los Angeles or Pasadena to consult on every major decision he made. Munger gave an extended interview to CNBC earlier this month in preparation for his 100th birthday, and the business network showed clips from that Tuesday. In his characteristic self-deprecating manner, Munger summed up the secret to Berkshire’s success as avoiding mistakes and continuing to work well into his and Buffett’s 90s. “Charlie has taught me a lot about valuing businesses and about human nature,” Buffett said in 2008. For Buffett, however, who owns so many companies outright and intends to continue holding them for the long term, an outcome of “usually win, occasionally die” doesn’t make sense.
As such, giving Jain free rein with the insurance operations is the highest vote of confidence I can imagine Buffett making. I also view it as a considerable positive that these moves are being made while Buffett and Munger are still around in the flesh to help with the transition. While their management style is largely hands-off when it comes to companies with BRK’s dominion, this finally feels like a genuine passing of the torch. As with the letters from 2014, 2015, and 2017, I will once again share what I see to be the three vital components of this year’s Letter.
He argues that asset-heavy companies “can be good investments,” with the Burlington Northern Santa Fe Railway (BNSF) and Berkshire Hathaway Energy (BHE) as prime examples. One might expect a figure like Buffett — simple, no nonsense, and focused on intrinsic value — to balk at the energetic spending of capital on stock repurchases. Instead, he was delighted, especially by the idea that his 5% stake in the company might be able to grow to 6% or 7% simply because the company chose to buy back some of its stock.
Among other properties, Berkshire, which is based in Omaha, owns the insurance giant Geico and the Burlington Northern Santa Fe railroad company and holds stakes in Coca-Cola, American Express, IBM, Wells Fargo and other corporate heavyweights. Mr. Munger counseled Mr. Buffett that if he wanted to build a large, sustainable company that would outperform other investors, he should buy solid brand-name companies. “He was the architect and I was the general contractor,” Mr. Buffett said of their relationship.
After the end of 1974, the Post had officially been a loser for Berkshire Hathaway, falling from a value of $10.6M to $8M. But Buffett had a conviction the company’s fortunes would turn, and he knew he had picked up the company at a great price, despite the fact that it had fallen even more. For Buffett, investors succeed when they can ignore Mr. Market and his up-and-down emotional states. Instead, they look at whether the companies that they’re invested in are profitable, returning dividends to investors, maintaining high product quality, and so on.
Keep abreast of significant corporate, financial and political developments around the world. Stay informed and spot emerging risks and opportunities with independent global reporting, expert commentary and analysis you can trust. Using that pool of capital, Buffett and Munger bought controlling shares in See’s Candies, the Buffalo Evening News and Wesco Financial, the company Munger would lead. Though the precise venue of their first meeting was the subject of lore, it was clear they hit it off right away. In short order they were talking on the telephone almost daily and investing in the same companies and securities.
H. Brown Shoe Company, at the time the leading manufacturer of work shoes in North America. In his shareholder letter that year, Buffett talked about a few of the reasons why. Berkshire Hathaway’s portfolio is also full of more obscure successes too, like See’s Candy, which Buffett calls his “dream business.” Buffett bought See’s Candy for $25M in 1972, and by 2019, it had brought in “well over” $2B — a nearly 8,000x return.
Readers of these letters are provided with an invaluable understanding of how to view markets and companies, which is exceedingly beneficial for passive investors and professionals alike. The two men shared investment ideas and occasionally bought into the same companies during the 1960s and ‘70s. They became the two biggest shareholders in one of their common investments, trading stamp maker Blue Chip Stamp Co., and through that berkshire hathaway letters to shareholders acquired See’s Candy, the Buffalo News and Wesco. Munger became Berkshire’s vice chairman in 1978, and chairman and president of Wesco Financial in 1984. Buffett illustrates the above in a section entitled “The American Tailwind” in which he espouses the benefits of investing in America. He discusses how the nation has seen outsized growth over three 77-year periods and is likely to consider succeeding in the years to come.
“There are managers to whom I have not talked in the last year, while there is one with whom I talk almost daily,” he adds. The point of this breakdown is not to show off Berkshire’s decentralized structure, which offsets most operational costs to the businesses under the Berkshire umbrella, but to explain Berkshire’s culture of cost-consciousness. Buffett does not believe that standard GAAP accounting figures always give an accurate idea of what a company is worth, so he walks through a valuation of Scott Fetzer Company to explain why Berkshire purchased the company. Sometimes this thirst for action even leads them to use fuzzy accounting to value the companies they’re selling.
Charlie Munger, the veteran right-hand man of billionaire stockpicker Warren Buffett, has died aged 99. Lacking an undergraduate degree, Munger applied to Harvard Law School before his Army discharge in 1946. He was admitted only after a family friend and former dean of the school intervened, according to Janet Lowe’s 2000 book, Damn Right!
Buffett states that the best place to find true independence-“the willingness to challenge a forceful CEO when something is wrong or foolish”-is among people whose interests are aligned with shareholders. Additionally, many “independent” directors depend on fees as a major component of their income. In his mind, the best directors are those who have their interests best aligned with shareholders. In fact, being a major, long-term shareholder is one of the primary qualities that Buffett takes into account when searching for directors. Additionally, managers conducting share repurchases demonstrate their shareholder-oriented mindset that Buffett values so highly. Under the right circumstances, there is very little that a manager can do to benefit his/her shareholders more than repurchasing undervalued shares.
That slow-motion crash created a two-year-long bear market — the Dow Jones began 1973 at 1020 and was at 616 by the end of 1974. Shares of Coca-Cola, one of Buffett’s major stocks, plummeted from $149.75 to $44.50. Across the board, companies whose fundamentals had not changed were dramatically, in Buffett’s estimation, underpriced. Conglomerates, once hailed by analysts, journalists, and bankers as business miracles, fall apart, and investors lose their money. However, he argues that defining Berkshire as a conglomerate is only partially correct. And in his 2020 letter, Buffett goes on to explain that “conglomerates earned their terrible reputation” and why owning stocks in these businesses may not be the best investment strategy.
What is interesting about this is that BRK is regarded by many–including myself–to be the best no-fee mutual fund (or proxy thereof) in the markets today. Further, given the varied, domestic nature of the businesses under BRK’s umbrella, the company’s fortunes largely represent the advance of American business in general. Warren E. Buffett first took control of Berkshire Hathaway Inc., a small textile company, in April of 1965. Fifty letters to shareholders later, the same share traded for $226,000, compounding investor capital at just under 21% per year-a multiplier of 12,556 times. Investor Whitney Tilson has attended the past 26 years of Berkshire Hathaway annual meetings for the chance to learn from Munger and Buffett, who doled out life lessons along with investing tips.
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