Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

2020 Berkshire Hathaway Annual Letter [pdf]

berkshirehathaway.com

Post reply on HN
Print view View original

51–60 of 87 posts

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#51

Post by gwern »

tuna-piano wrote: post #12

Just an interesting sidenote. It does feel like the letter is shorter than it used to be, so I plotted the number of pages by year in the PDF fils on their site. Looks like there was a decrease from 20 pages to 15 starting in 2017. Graph: https://imgur.com/a/TQ2oewY

This is a shockingly boring and cursory annual letter. Most of it reads like a copy-paste from all of the previous letters (retained earnings, bonds bad, why non-Berk conglomerates suck, insurance float is awesome, etc). OK, it's nice that Apple did some stock buybacks, and that they did too. Uh, what else? It was a whole year.

And what a year - what it doesn't say is far more important than what it does. Where's the grappling with the fact that their 2020 return was only 2% when the indexes are up 20%? (Did I read that right?!) For that matter, shouldn't the fact that their return in 2020 was so low be grounds for very serious soul-searching? Buffett has always justified the cash reserves and passive investing as enabling him to make awesome deals during the proverbial rainy day. Well, was not 2020 the mother of all rainy days? Where are his deals? If he couldn't do anything with his bankroll in 2020, when is he ever going to be able to do anything with it? What did they do all year? Does he really have no thoughts about how the pandemic was handled? About Western governance and economics? Is it not astonishing that the sole and only reference I noticed to coronavirus is a throwaway clause about some furniture stores being closed? WTF. This is not at all the letter I was expecting.

Has anyone seen Buffett in person recently? Are we sure he wasn't kidnapped and replaced with Deepfaked Zoom calls a year ago?

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#52

Post by mxschumacher »

outoftheabyss wrote: post #4

Is Buffett really still the gold standard, Berkshire has been outdone by the s and p 10 year rolling average over the last evade and that was true before the pandemic. I get that 20% annual returns aren’t sustainable as you get into managing hundreds of billions but it seems to me the make up of the market has changed dramatically over the 2010s and Buffett hasn’t adapted or evolved.

when using the S&P500 as a yardstick, we have to remind ourselves what environment we are living in. Interest rates are very low (though this is currently changing) and equity valuations are at or close to all time highs both in absolute an relative terms.

Berkshire generates more operating profit than Salesforce has revenue; it generates 6x more profit than Nvidia and those numbers ignore both the gigantic stock portfolio and the cash position.

Valuations will eventually trend back to historical norms. Given that GDP is relatively stagnant (there is modest growth in real terms), it is impossible for all of these companies to grow indefinitely.

Both before the .com crash and the 2008 financial crisis lots of companies have vastly outperformed Berkshire, a wave of bankruptcies and 95% declines ensued.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#53

Post by fspeech »

mettamage wrote: post #28
bedhead wrote: post #6

While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I joke that Buffett found the investing equivalent of the Donkey Kong kill screen, he basically broke the game. It's incredible. But there have been self-inflicted issues. The…

Investing and poker have some fun commonalities. One that I want to focus one in this particular case is: always play the game you know well and know how you're going to win it [nuances, 0] In Poker: find the fish, understand why they're fish and exploit it [example, 1]. In investing: find underpriced assets, understand why they're underpriced and exploit it [examples, 2, 3]. From this perspective, Buffett doesn't un…

Your point 3, a la Graham-Dodd, is how Buffett started. But later he realized that did not scale when you own businesses forever instead of trading them. Buying a whole dollar for 50 cents is great if you can quickly sell it for 75. Not so much if you hold it forever and it does not grow. So basically acquiring Berkshire Hathaway the textile maker on the cheap was an investment mistake that he acknowledged in his annual letters.

Price movement is not relevant if your stated goal is to hold the business and earn an income from its operations. Technology eventually becomes obsolete or commoditized.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#54

Post by H8crilA »

umeshunni wrote: post #32
H8crilA wrote: post #2

If you like them you can read other letters, in particular older letters. The letters for the later part of the 1970s are especially instructive in terms of what is it like to live in an inflationary regime. Buffett is one of the few people that have "seen it all", from deflationary 30s, war 40s, greatest 50s, cultural 60s, inflationary 70s, capitalist 80s, excessive 90s, normal then excessive again 00s, deflationary…

Interesting that you describe the 10s as deflationary when there was a large amount of monetary and asset inflation.

Well that was the response ("this time we'll do it differently"; Bernanke's "how to make sure 'it' doesn't happen here"), and the jury is still out on the consequences, IMHO.

I'm going by CPI and other similar measures around the world. Almost all US yearly CPI prints have been below 3%, with a small exception of late 2011.

Also, if (some) corporate profits stay on the same trajectory and interest rates fall, those stocks will rally like crazy. Interest rates are the most important prices in any market.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#55

Post by intev »

soheil wrote: post #43

So Berkshire now owns about 10% of Apple, if I buy a $1,000 Macbook $100 of that money goes to Berkshire, what are they doing with that money since Apple is the one doing the R&D and building these products? I know at least some of that money is driving up the business value of Berkshire, it's a great investment on their part but is it good for customers that Macbooks are 11% more expensive than they should be?

This is a fundamental misunderstanding of how the stock market works. You buying a stock of a company doesn't entitle you to any of the money a company makes unless they choose to hand out dividends. A lot of companies just choose to just reinvest all the money instead. Last quarter apple approved a $0.205 dividend per share (costs $121) which is an abysmal return on capital. It's still a great investment because the stock itself will appreciate in value, so the dividend is just a cherry on top. There have been many quarters where apple has paid no dividends.

The stock price also in no way impacts the price of a a company's product. If that was the case, Teslas would be some of the most expensive cars in the world. There is literally no correlation because they are independent things that don't affect each other.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#56

Post by intev »

soheil wrote: post #49
mxschumacher wrote: post #46

Earlier quoted context omitted.

Apple pays its employees, utilities, insurance, taxes, bondholders, suppliers etc, their margin is not 100%, more like 25%. Profits ultimately drive company valuations. The cash does not just flow through to Berkshire, the dividend yield is relatively low. I don't understand what you are trying to say about MacBooks being 11% more expensive?

Sure it may not flow directly to Berkshire, but let's take employee compensation for example. If the business value of Apple is 10% higher because it had retained the value it created instead of Berkshire owning it then wouldn't Apple's stock in turn be 10% higher in theory? If so then if I'm an employee at Apple I would be happy with 10% less stock as part of my compensation package and that's money Apple would have…

It never works out like that in theory or practice. A company cannot retain it's value all by itself. Value is assigned to the company by 3rd parties. If you started a company and claimed that your stock is worth $100 per share, and there are no buyers, are you really worth $100? However, if you claim to be worth $100, and I offer you $120, you would sell to me because you think you're worth less than what I'm paying for it. The moment I bought it I actually created value for your company because I just demonstrated to the entire market that you are worth more than you think. Then everyone else will start pricing you higher. It has huge knock on implications. Buffet buying Apple was basically a huge buy signal for many investors, and that action itself increased its value.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#57

Post by fuzzfactor »

nfjrbrnnffk wrote: post #21
tuna-piano wrote: post #12

Just an interesting sidenote. It does feel like the letter is shorter than it used to be, so I plotted the number of pages by year in the PDF fils on their site. Looks like there was a decrease from 20 pages to 15 starting in 2017. Graph: https://imgur.com/a/TQ2oewY

Still two long. And they should have an Instagram account with the same letter tl;dr to a 5 image post, for young investors.

not my downvote, but

It doesn't look like they are trying to attract young investors.

And when a young investor does become attracted to Berkshire, they would be likely to review more than just one single letter.

Which is actually pretty short for what it has to say.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#58

Post by ivanche »

the-dude wrote: post #15
bedhead wrote: post #6

While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I joke that Buffett found the investing equivalent of the Donkey Kong kill screen, he basically broke the game. It's incredible. But there have been self-inflicted issues. The…

Fair enough. But if his letters are not so insightful anymore, whose are?

In the last few years I've enjoyed reading letters (Annual Reports as they call it) written by Frank Martin of Martin Capital Management LLC.

https://www.mcmadvisors.com/newsmaterials/

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#59

Post by fuzzfactor »

whb07 wrote: post #5

Like every lion in the savanna, it must relinquish its reign at some point. Buffet talks pridefully about holding $250+ BILLION in cash, as if it were pegged to a gold standard. Nearly half his life was based on such a system, and so it’d be hard to remove that idea. Yet he sits on it proudly seemingly unaware that sitting on such an amount has eaten up 3%+ via the printing press of the FED. That and you know... not…

not my downvote, but

Realistically his cash liquidity has been dramatically rising but has not ever topped $150 billion:

https://ycharts.com/companies/BRK.A/cash_on_hand

So you're about $100 billion off-target in paper value, but what's $100 billion betwen friends?

OTOH your perception could be quite accurate as to how powerful an effect he may be able to enjoy with so much cash.

Probably could get more accomplished than someone having "only" $250 billion worth of credit.

Of course one is parking lots full of 18-wheelers full of hundred-dollar bills, and the other is a promissory note.

A convoy like that coming in to any city could initiate changes that could not be stopped.

Look at what drug cartels are doing and they usually don't even fill one semi-trailer with cash.

Buffet's huge stake in America itself puts him at an order of magnitude not often seen, not much differently than when the dollars were backed by gold, and for him his position in the US does not come under threat even as the currency becomes devalued. He can stll afford to build cash reserves faster than they are being devalued internationally.

For the Saudis and their convoys of world currencies, there would be pressure to sell the lowest performing one(s) so they could buy more of the notes having a more positive outlook.

Re: 2020 Berkshire Hathaway Annual Letter [pdf]

#60

Post by whb07 »

JesseMeyer wrote: post #8
whb07 wrote: post #5

Like every lion in the savanna, it must relinquish its reign at some point. Buffet talks pridefully about holding $250+ BILLION in cash, as if it were pegged to a gold standard. Nearly half his life was based on such a system, and so it’d be hard to remove that idea. Yet he sits on it proudly seemingly unaware that sitting on such an amount has eaten up 3%+ via the printing press of the FED. That and you know... not…

Do you honestly believe that Warren does not understand inflation?

I believe the mind of a 90 yo Buffet is not the same as the 30 yo Buffet.

My general point being that even if he's aware and picks some number less than 5% inflation (which is debatable), sitting on a giant cash pile and getting fear paralysis or whatever it is he's waiting on (clearly not a buying opportunity) isn't what a present day champion would do. But thats fine. Just can't expect him to be the past champion he once was.

Post reply on HN