In the past three letters to shareholders, Warren Buffett — the Oracle of Omaha — has shared invaluable lessons incapsulated in the much-famed letters to shareholders. We share more details here
He wrote that over time, it takes just a few winners to work wonders. Berkshire Hathway bought shares of Coca Cola and American Express in mid 90s for $1.3 billion each. These securities rose to $47 billion and annual dividend spiked to $302 million.
Before taking a big financial bet, one should first learn the basics. From time to time, some investing wizards open their hearts out and share key investing wisdom with the investors at large.
One of the most famous investing legends in contemporary times is Warren Buffett who often shares his wisdom in the famous annual letters to shareholders of Berkshire Hathaway.
Here, we cull out some of the pearls of wisdom from the past three letters and share them here:
Three learnings from the 2022 letter
A few winners do the trick: Weeds wither away in significance as the flowers bloom. And over time, it takes just a few winners to work wonders. Berkshire Hathway bought shares of Coca Cola in 1994 and American Express in 1995 for $1.3 billion each. They rose to $25 billion and $22 billion and annual dividend rose to $302 million.
Had Berkshire invested the same amount in bonds, the annual income would be $80 million or so, he wrote in the letter.
Long term vision is more important: He mentioned that companies just like governments are supposed to look at the larger picture of the state of affairs.
He wrote that their job is to manage Berkshire's operations and finances in a manner that will achieve an acceptable result over time and that will preserve the company's unmatched staying power when financial panics or severe worldwide recessions occur.
While giving an illustration of the US Treasury, he said that the Treasury received about $32.3 trillion in taxes while it spent $43.9 trillion.
Surplus of liquid assets such as cash: He underscored the fact that Berkshire holds a boatload of cash and treasury bills while avoiding a situation where the company would need uncomfortable cash needs at inconvenient times including financial panics and unprecedented losses.
Learnings from the 2021 letter
Wonderful prices: It is great to buy some stocks at attractive valuations. He said that on occasion, it becomes easy to buy pieces of wonderful businesses at wonderful prices. That shooting-fish-in-a-barrel experience is very rare in negotiated transactions and never occurs en masse.
Wait till you find the right stock: Buffett believes in buying ‘right’ and he said that it is better to keep cash as long as you don’t fund the right stock to buy. In fact, Berkshire held nearly $144 billion of cash because of this very reason although the company has kept a minimum threshold of $30 billion.
“Berkshire’s current 80 percent or-so position in businesses is a consequence of my failure to find entire companies or small portions ther
eof which meet our criteria for long term holding," he wrote.
Learnings from 2020 letter
Diversity is the key: Buffett mentioned that Berkshire’s second and third most valuable assets are Berkshire’s 100 percent ownership of BNSF, America’s largest railroad, and 5.4 percent ownership of Apple. And in the fourth spot is 91 percent ownership of Berkshire Hathaway Energy.
Investing in infrastructure: Buffett wrote highly of investing in infrastructure although he gave a disclaimer that the best results occur at companies that require minimal assets to conduct high-margin businesses.
“Asset-heavy companies, however, can be good investments. Indeed, we are delighted with our two giants – BNSF and BHE: In 2011, Berkshire’s first full year of BNSF ownership, the two companies had combined earnings of $4.2 billion. In 2020, a tough year for many businesses, the pair earned $8.3 billion," he wrote.
