HHWM Investment Insights: The Full-Meal Deal of Diversification
Written by Jason Hiley
Written by Jason Hiley
For 50 years, Warren E. Buffett has been at the helm of Berkshire Hathaway, among the largest publicly held companies in the world. For 50 years, Buffett has been publishing annual letters to shareholders. With our evidence-based, diversified investment strategy, we don’t typically focus on particular companies’ annual announcements, nor do we typically share them as recommended reading.
Warren Buffett’s letters to Berkshire Hathaway shareholders are different.
While his letters lead with the usual corporate analytics, they’re also generously seasoned with Buffett’s legendary combination of wisdom and practicality on business, finance, family wealth, philanthropy, life lessons and “just for fun” jabs. Investment advice aside, they’re simply fascinating reads from a thoughtful man who is leading a life well-lived.
Here is what Microsoft founder Bill Gates had to say about this year’s letter:
Warren Buffett’s new annual letter to Berkshire Hathaway’s shareholders hasn’t received nearly as much attention as it deserves. I wonder if that’s because financial journalists feel like they just can’t write another story about how wise Warren is. Fortunately, I don’t have any such limitation. I have read all 50 of Warren’s letters and feel this is the most important one he has ever written.
We urge you to take the time to read this year’s golden anniversary letter for yourself. You may agree or disagree with Buffett’s ideas, but you can expect to take something worthwhile from the experience. To get you started, here are a few of our favorite nuggets from this year’s letter.
On American Enterprise …
“Though we will always invest abroad as well, the mother lode of opportunities runs through America. The treasures that have been uncovered up to now are dwarfed by those still untapped.”
“Charlie and I have always considered a ‘bet’ on ever-rising U.S. prosperity to be very close to a sure thing. Indeed, who has ever benefited during the past 238 years by betting againstAmerica?”
“Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket).”
On Business Management …
“The [2014 Berkshire employee] increase, I am proud to say, included no gain at headquarters (where 25 people work). No sense going crazy.”
“It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.”
“We don’t have a legal office nor departments that other companies take for granted: human relations, public relations, investor relations, strategy, acquisitions, you name it. We do, of course, have an active audit function; no sense being a damned fool.”
On Wealth and Investing …
“Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do.”
“A sound investment can morph into a rash speculation if it is bought at an elevated price.”
“You can’t get rich trading a hundred-dollar bill for eight tens.”
On Capital Markets …
“One of the heralded virtues of capitalism is that it efficiently allocates funds. The argument is that markets will direct investment to promising businesses and deny it to those destined to wither. That is true: With all its excesses, market-driven allocation of capital is usually far superior to any alternative.”
“Periodically, financial markets will become divorced from reality – you can count on that.”
“No advisor, economist, or TV commentator – and definitely not Charlie [Munger] nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”
On Risk Management …
“We will always be prepared for the thousand-year flood; in fact, if it occurs we will be selling life jackets to the unprepared.”
“When bills come due, only cash is legal tender. Don’t leave home without it.”
“In our view, it is madness to risk losing what you need in pursuing what you simply desire.”
On Ethics and Conflicts of Interest …
“If horses had controlled investment decisions, there would have been no auto industry.”
“Money flows from the gullible to the fraudster. And with stocks, unlike chain letters, the sums hijacked can be staggering.”
“A lot of mouths with expensive tastes then clamor to be fed – among them investment bankers, accountants, consultants, lawyers and such capital-reallocators as leveraged buyout operators. Money-shufflers don’t come cheap.”
On Human Nature …
“Charlie told me long ago to never underestimate the man who overestimates himself.”
“If you’ve attended our annual meetings, you know Charlie [Munger] has a wide-ranging brilliance, a prodigious memory, and some firm opinions. I’m not exactly wishy-washy myself, and we sometimes don’t agree. In 56 years, however, we’ve never had an argument. When we differ, Charlie usually ends the conversation by saying: ‘Warren, think it over and you’ll agree with me because you’re smart and I’m right.’”
“To have our fellow owners – large and small [shareholders] – be so in sync with our managerial philosophy is both remarkable and rewarding. I am a lucky fellow to have you as partners.”
If you enjoyed these samples, there are plenty more where they came from, plus an equally interesting, first-ever addendum written by Berkshire Hathaway’s Vice-Chairman Charles “Charlie” T. Munger. We hope you’ll take the time to read Buffett’s and Munger’s thoughts in their original context in Berkshire Hathaway’s 2014 annual shareholder letter. We also encourage you to be in touch with us if we can answer any questions about how to apply these insights into your own business and personal wealth management.
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