Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

Post by differentView » Sat, Feb 25, 2017, 2:48 PM UTC

gizmo wrote: post #18

tyingq wrote: post #5

The transparency and humble tone is pretty unique. "Unfortunately, I followed the GEICO purchase by foolishly using Berkshire stock" " It was, nevertheless, a terrible mistake on my part" "Despite that cautious approach, I made one particularly egregious error" I bet you don't find that sort of thing in many other annual shareholder letters.

Warren Buffett is an expert salesperson, and this tone is the exquisitely crafted product of 70 years of salesmanship. Buffett has worked tirelessly to build his public image, and his "aw-shucks" act is a critical part of that. His image of a down-to-earth person with unquestionable integrity* has enabled him to lock down investment deals under the most favorable possible terms. *) read one of his biographies to see…

Post by isclever » Sat, Feb 25, 2017, 2:50 PM UTC

otalp wrote: post #4

"In Berkshire’s 2005 annual report, I argued that active investment management by professionals – in aggregate – would over a period of years underperform the returns achieved by rank amateurs who simply sat still. I explained that the massive fees levied by a variety of “helpers” would leave their clients – again in aggregate – worse off than if the amateurs simply invested in an unmanaged low-cost index fund. ” He…

Post by pg314 » Sat, Feb 25, 2017, 2:52 PM UTC

dsacco wrote: post #23

otalp wrote: post #4

"In Berkshire’s 2005 annual report, I argued that active investment management by professionals – in aggregate – would over a period of years underperform the returns achieved by rank amateurs who simply sat still. I explained that the massive fees levied by a variety of “helpers” would leave their clients – again in aggregate – worse off than if the amateurs simply invested in an unmanaged low-cost index fund. ” He…

I would argue that index funds make the most sense for most millionaires these days, too. For the most part, if a hedge fund is actually worth investing in (and there are quite a few), only institutions will have the capital to play.

Post by angry-hacker » Sat, Feb 25, 2017, 2:56 PM UTC

jdavis703 wrote: post #29

dsacco wrote: post #17

There's one particular passage I'd like to point out, on page 5: Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been throughout our managerial tenure – by America’s economic dynamism. One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenu…

they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion. This was a gain that was achieved not by starting from scratch but by stealing lands from indigenous people and forcing Africans to work that land. I'm not sure if you can describe the kidnapping, murder, rape and ultimately genocid…

Post by pg314 » Sat, Feb 25, 2017, 2:57 PM UTC

gizmo wrote: post #32

philipov wrote: post #25

Earlier quoted context omitted.

> That doesn't mean it's entirely zero sum, though, because money still flows from bad businesses towards good businesses as a result. Buffet's point is that it's negative-sum. A gambler might win today, but lose tomorrow, and his counterparty will get the opposite, but the house wins on every transaction. While the players churn, the market makers and rent seekers will drain the system of money, in aggregate.

You're reading it incorrectly. Buffett is making the claim that people have "waste[d] more than $100 billion over the past decade" looking for superior investment returns. That's his claim, no more. And I agree. There wouldn't be a stock market if everybody just invests in a fortune 500 index fund. The benefit to society of a functioning stock market is way more than $10B/yr.

  A lot of very smart people set out to do better than average in securities markets. Call them active investors.

  Their opposites, passive investors, will by definition do about average. In aggregate their
  positions will more or less approximate those of an index fund. Therefore, the balance of
  the universe—the active investors—must do about average as well. However, these
  investors will incur far greater costs. So, on balance, their aggregate results after these costs
  will be worse than those of the passive investors.