‘Make a couple of good decisions during a lifetime and avoid serious mistakes’
Warren Buffett has done it again, penning an annual letter to Berkshire Hathaway BRK.A, -2.16% BRK.B, -1.94% shareholders with valuable lessons for both investors and business leaders — along with subtle signals about his investment intentions.
2. Managers: write your own letters and investors rank managers accordingly: Another lesson is that managers should write their own letters and shareholders should evaluate them on their candor, clarity, and shareholder orientation. Buffett writes his own letter in his distinctive voice for Berkshire’s 3 million individual shareholders, picturing his sister as his reader.
4. Trust-based management and screening out rascals: A fourth lesson is trust-based management. This means letting the person closest to a decision make it, without interference from senior managers. But this model of autonomy requires trustworthy personnel. While many managers rely on internal controls and systems to promote accountability, Berkshire has long preferred trust and autonomy.
7. The value and logic of share buybacks: The seventh lesson builds on the previous two: share buybacks are valuable and laudable, despite criticism from politicians , as long as they are made at a price below value. Buffett shows how Berkshire shareholders benefit when Berkshire repurchases shares, as they end up owning slightly larger stakes in Berkshire’s long-term investments such as American Express AXP, +1.12% and Coca-Cola KO, -0.80%.
9. The risks and costs of political control of business: Berkshire subsidiaries that are affected by political crosshairs include BNSF Railway and Berkshire Hathaway Energy , both of which underperformed last year, partly because of their capital intensity. But they faced other headwinds, largely neglected by today’s preoccupations with ESG.
Ideal candidates are those with powerful franchises such as American Express and Coca-Cola. Buffett says Berkshire has no pending intention to enlarge holdings in Occidental Petroleum and appears averse to investing in capital-intensive businesses such as rail or energy — referring to the latter as “a costly mistake.”
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