After a rough week in the bond markets, with the 10-year US Treasury closing at 1.4% (dear yield hunters, are you excited?), this is the time of the year where Warren Buffett shares his investment wisdom in his annual letter. For my notes from previous years, see 2015, 2016, 2017, 2018, 2019.
As always, my best recommendation – read the letter.
Below are the excerpts I found most insightful.
On investors and speculators
At Berkshire, we have been serving hamburgers and Coke for 56 years. We cherish the clientele this fare has attracted.
The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and “stories,” they will not lack suitors. “Technicians” will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop.
Many of those investors, I should add, will do quite well. After all, ownership of stocks is very much a “positive-sum” game. Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S&P 500, will – over time – enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original “selections.”
Productive assets such as farms, real estate and, yes, business ownership produce wealth – lots of it. Most owners of such properties will be rewarded. All that’s required is the passage of time, an inner calm, ample diversification and a minimization of transactions and fees. Still, investors must never forget that their expenses are Wall Street’s income. And, unlike my monkey, Wall Streeters do not work for peanuts.
Never bet against America
Today, many people forge similar miracles throughout the world, creating a spread of prosperity that benefits all of humanity. In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America.
Despite some severe interruptions, our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming “a more perfect union.” Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so.
Our unwavering conclusion: Never bet against America.
On the power of retained earnings
Retained earnings have propelled American business throughout our country’s history. What worked for Carnegie and Rockefeller has, over the years, worked its magic for millions of shareholders as well.
On capital-light businesses
The best results occur at companies that require minimal assets to conduct high-margin businesses – and offer goods or services that will expand their sales volume with only minor needs for additional capital. We, in fact, own a few of these exceptional businesses, but they are relatively small and, at best, grow slowly.
Bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.
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And finally, a reminder of what it means to be a long term shareholder of a “cannibal”. Below are the number of American Express shares Berkshire holds and its ownership percentage of the company.
2014: 151,610,700 14.8%
2015: 151,610,700 15.6%
2016: 151,610,700 16.8%
2017: 151,610,700 17.6%
2018: 151,610,700 17.9%
2019: 151,610,700 18.7%
2020: 151,610,700 18.8%