Pearls of wisdom: Buffett's annual letter to shareholders will be missed

Warren Buffett, the outgoing chief executive officer (CEO) and the single-largest shareholder of Berkshire Hathaway, has announced he will stop writing annual letters to shareholders and step back from public appearances. However, the “Oracle of Omaha” will continue to write an annual Thanksgiving letter. This marks the end of an era. The 95-year-old, who turned Berkshire from an obscure textile company into the world’s largest insurer and holding company, had announced a year ago that he was handing over the reins to Greg Abel. His letters to shareholders have been among the most eagerly awaited financial documents since he started writing them in 1965. Six decades worth of epistles have been collected into a best-selling anthology, with every sentence parsed for content, and “back-tested” in terms of accuracy.

 

The annual Berkshire financial “jamboree” in Omaha, Nebraska, where Mr Buffett and his long-term partner, the late Charlie Munger, used to anchor a freewheeling question-and-answer session was also a most enjoyable and insightful event. Apart from being two very sharp thinkers, they had a wonderful sense of humour and an enviable ability to explain complicated concepts in simple language. They brilliantly played the debaters’ game of point-counterpoint with obvious enjoyment. After Munger (1924-2023) passed away, Mr Buffett started pulling back. However, he still goes to office five days a week.

 

Mr Buffett is one of the biggest philanthropists in history, having already given away an estimated $32 billion to various causes and lives by the adage that “kindness is costless but also priceless”. He has now converted shares worth another $1.3 billion and donated them to four family foundations, which will continue the good work.  But he plans to retain a “substantial portion” of his Class A voting shares until investors gain confidence in his successor as CEO. In this letter, Mr Buffett also emphasised continuity and consistency, saying he hoped Berkshire Hathaway would require only five or six CEOs over the next century and decrying the (normal) corporate tendency to look for CEOs whose “goal is to retire at 65, to become look-at-me rich, or to initiate a dynasty”. Business analysts have often wondered why the world’s biggest investor chose to live and work out of the American midwest rather than moving to Wall Street.  Mr Buffet says he likes living in the small town where he was born and that “the centre of the US was a very good place to be born, to raise a family, and to build a business”.

 

Between 1965 and 2024, Berkshire Hathaway has returned around 20 per cent compounded. That is roughly double the return from indices like the S&P 500 over the same period. Mr Buffett did this by investing in things he understood (as a finance major from Columbia; this included complicated financial instruments) and holding those investments “forever”. He deliberately ignored information technology and internet booms because he did not, on his own admission, understand how those businesses worked. He ended the letter with thoughts on his legacy. “Decide what you would like your obituary to say and live the life to deserve it and keep in mind that the cleaning lady is as much a human being as the Chairman”.