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

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

#61

Post by marcandre »

isclever wrote: post #44
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…

Not only do you get on average better returns, you can do better even when they perform poorly since those funds (in Canada) can charge you anywhere from 1.5% to 3% of your portfolio in fees (MER), while an index fund could charge as low as 0.1%. https://www.wealthsimple.com/ (I'm a customer) has recently expanded into the US from Canada and are one of a group of what is being called Roboinvestors which take these in…

0.64% MER is much higher than what you can get with Vanguard. Mutual funds are about 4x less expensive, some ETFs are 10x less expensive.

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

#62

Post by Spooky23 »

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…

Slavery was a boat anchor on America, not a source of strength. Most of the dynamism and power that was built in the US took off not coincidentally after the wane of slavery.

And until very recently the former slave owning states were and in some ways remain sleepy backwaters dependent on the largess of the military and welfare to remain viable.

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

#63

Post by dv35z »

otalp wrote: post #7
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.

Sure, but it's easy to be humble when you're essentially an institution. In fact, it's better that way, because it appears honest. It's far harder for an unproven fund manager to admit making egregious mistakes without making his shareholders nervous. Buffett has 50 years of beating the market to soothe stakeholder concerns. Most other managers don't.

For what it's worth - he has been this transparent about mistakes since the very beginning of taking on Berkshire management in the late 1960s (when he was in his 30s) - He makes fairly prudent predictions and plans in each yearly shareholder letter, and is quite fairly critical of himself when those predictions do not pan out.

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

#64

Post by gizmo »

pg314 wrote: post #50
gizmo wrote: post #32

Earlier quoted context omitted.

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.

No, he isn't reading it incorrectly. Buffett is claiming that on aggregate, because of the fees, the passive investors will be better off than the active investors. From page 23: 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 approxima…

Yes, but Buffett is not claiming that active investing (as opposed to passive index investing) is negative-sum in aggregate! That would be ludicrous, because Buffett is an active investor himself and the Buffett Annual Report is a long form sales letter to persuade people to buy more Berkshire shares.

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

#65

Post by hn_throwaway_99 »

davidw wrote: post #33
jdavis703 wrote: post #29

Earlier quoted context omitted.

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…

The gains weren't just from those things - there was a lot of hard work involved. However, your point that it wasn't "from scratch" is a valid one and that jumped out at me too.

I am going to give Buffett the benefit of the doubt in terms of what he meant. Not that it was a completely clean slate and no one was here beforehand, but that the economic productive output that existed here before (beyond bare resource value) was not assimilated and did not contribute much to present day economic output. For all intents and purposes, it was "starting from scratch". Contrast this with, say, the Roman conquest of the Greeks, which was almost a kind of cultural conquest of the losers over the winners.

This is not to minimize the genocide of the Native Americans that occurred, or the horrors of slavery. But in an economic report looking at compounded returns over the history of the US, starting from scratch is a fairly reasonable assessment.

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

#66

Post by dv35z »

defenestration wrote: post #20

It took me 30 minutes to read the complete letter. It was time well spent. I learned why the property/casualty insurance business has a really good business model. It also reminds me to walk away from deals where the financial fundamentals are wrong, but our competition is eager to sign. And finally, I feel that his humble tone is honest and that he is trying teach by showing his considerations, successes and failure…

If you enjoyed that - take the time and get the book compilation of all BH's annual letters to shareholders - starting 1960s to present. Some of the most valuable reading I have done in years - strongly recommend.

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

#67

Post by Nokinside »

logicallee wrote: post #57
Nokinside wrote: post #8

Earlier quoted context omitted.

Life expectancy of 86 year old male is 5.4 years.

Of the average 86 year old male, you mean. I think he wouldn't bat an eye on getting the best personal health care on the face of the planet (it's also an important long-term goal for him.) He wouldn't overpay for it, either.

Warren Buffet is not health freak. He enjoys life and according to his own words is "one quarter Coca-Cola"

>"If I eat 2700 calories a day, a quarter of that is Coca-Cola. I drink at least five 12-ounce servings. I do it everyday."

Really funny:

>Asked to explain the high-sugar, high-salt diet that has somehow enabled him to remain seemingly healthy, Buffett replies: "I checked the actuarial tables, and the lowest death rate is among six-year-olds. So I decided to eat like a six-year-old." The octogenarian adds, "It's the safest course I can take."

http://fortune.com/2015/02/25/warren-buffett-diet-coke/

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

#68

Post by logicallee »

Nokinside wrote: post #67
logicallee wrote: post #57

Earlier quoted context omitted.

Of the average 86 year old male, you mean. I think he wouldn't bat an eye on getting the best personal health care on the face of the planet (it's also an important long-term goal for him.) He wouldn't overpay for it, either.

Warren Buffet is not health freak. He enjoys life and according to his own words is "one quarter Coca-Cola" >"If I eat 2700 calories a day, a quarter of that is Coca-Cola. I drink at least five 12-ounce servings. I do it everyday." Really funny: >Asked to explain the high-sugar, high-salt diet that has somehow enabled him to remain seemingly healthy, Buffett replies: "I checked the actuarial tables, and the lowest de…

That is interesting. Goes against what I read, "what do you want to be remembered for? Longevity." which given what you just quoted must have just been a joke.

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

#69

Post by gigatexal »

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…

Note the positive ton towards immigration. I too found this part interesting.

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

#70

Post by logicallee »

purple-again wrote: post #53
logicallee wrote: post #31

Earlier quoted context omitted.

America is worth way more than $90 trillion. He's valuing it like a buyer :) As a quick back-of-envelope check: American GDP in 2016 was $18.86 tn. The son of a bitch wants it at a 4.7 trailing multiple, after a relatively slow-growth year. All that praise - and then a 4.8x multiple. Now I know how he butters up his acquisition targets :) EDIT: I am getting downvoted, but I am keeping this. You guys don't realize tha…

You are probably getting downvoted because it seems unlikely that a multiple of GDP had to anything to do with Mr. Buffets analysis of American Wealth. https://en.wikipedia.org/wiki/Wealth_in_the_United_States

I think my metric is fine. The link you just quoted says "Including human capital such as skills, the United Nations estimated the total wealth of the United States in 2008 to be $118 trillion" - up to you if it's higher or lower 8 years later. His estimation is still low.

Anyway value is not usually priced in terms of wealth, though - but on the future.

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