Last summer I read each Berkshire shareholder letter published during the 1977-2017 period. As a summer reading challenge, I read one letter per day and published my five key takeaways from each letter here on the blog (you can find links to these posts here). Without a doubt, this is one of the most important and instructive reads related to investing that I have ever come across. Most likely, I will re-read them all this coming summer.
Today is the day when the 2017 letter is published. As I had already planned to read the letter once it was published I thought it would be nice idea to keep my five key takeaways tradition going. Although Warren and Charlie aren’t getting any younger I hope to continue with this tradition for years to come.
From the 2017 letter I have picked extracts of wisdom related to the following topics: how to sleep well; people > physical assets; lessons from Kipling; looking unimaginative and foolish and skin in the game.
Please comment if you have read the letter and what you thought of it. Also, if you have found a worldly wisdom in the letter that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.
Worldly wisdom’s from Berkshire Hathaway Shareholder Letter – 2017
“Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need. We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us. We also hold it today after a million or so “partners” have joined us at Berkshire.”
“Betting on people can sometimes be more certain than betting on physical assets.”
“Berkshire, itself, provides some vivid examples of how price randomness in the short term can obscure longterm growth in value. For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic. Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips. Here are the gory details:
This table offers the strongest argument I can muster against ever using borrowed money to own stocks. There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.
In the next 53 years our shares (and others) will experience declines resembling those in the table. No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow. When major declines occur, however, they offer extraordinary opportunities to those who are not handicapped by debt. That’s the time to heed these lines from Kipling’s If:
“If you can keep your head when all about you are losing theirs . . .
If you can wait and not be tired by waiting . . .
If you can think – and not make thoughts your aim . . .
If you can trust yourself when all men doubt you . . .
Yours is the Earth and everything that’s in it.””
“Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.”
“For good reason, I regularly extol the accomplishments of our operating managers. They are truly All-Stars who run their businesses as if they were the only asset owned by their families. I also believe the mindset of our managers to be as shareholder-oriented as can be found in the universe of large publicly-owned companies. Most of our managers have no financial need to work. The joy of hitting business “home runs” means as much to them as their paycheck.
If managers (or directors) own Berkshire shares – and many do – it’s from open-market purchases they have made or because they received shares when they sold their businesses to us. None , however, gets the upside of ownership without risking the downside. Our directors and managers stand in your shoes.”