Whenever the ‘God of Stocks’ writes anything, investors from all over the world take note. This time Warren Buffett has written a 16-page annual letter to shareholders which begins by paying a rich tribute to his ‘partner in crime’ Charlie Munger who passed away last year.
Berkshire Hathaway shareholders have been told in no uncertain terms that there is no possibility of eye-popping performance even as they are sitting on a cash pile of $168 billion. The 93-year-old Buffett assured investors that Vice Chairman and designated successor Greg Abel was “in all respects ready to be CEO of Berkshire tomorrow.”
Here are top 5 takeaways for investors from Warren Buffett’s annual letter to shareholders:
1) Buy only when…
A disciple of Benjamin Graham, Buffett is happy to let his cash pile grow into billions of dollars unless there is an opportunity lucrative enough.
“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire,” the Oracle of Omaha said.
2) The not-so-secret weapon
So what does an investor do when there are no opportunities? Wait for stocks of large and fundamentally good businesses to be strikingly mispriced. “Indeed, markets can – and will – unpredictably seize up or even vanish as they did for four months in 1914 and for a few days
in 2001. If you believe that American investors are now more stable than in the past, think back to September 2008,” Buffett said, adding that Berkshire’s ability to immediately respond to market seizures with both huge sums and certainty of performance may offer an occasional large-scale opportunity.
“Though the stock market is massively larger than it was in our early years, today’s active participants are neither more emotionally stable nor better taught than when I was in school. For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants,” he wrote.
3) Never lose money
One investment rule at Berkshire has not and will not change: Never risk permanent loss of capital. “Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been – and will be – rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes,” the legendary investor said.
4) Prepare for the worst
Berkshire is sitting on a record cash pile of $168 billion, far in excess of what conventional wisdom deems necessary. During the 2008 panic, Berkshire generated cash from operations and did not rely in any manner on commercial paper, bank lines or debt markets. “We
did not predict the time of an economic paralysis but we were always prepared for one,” he said while talking about extreme fiscal conservatism.
“In most years – indeed in most decades – our caution will likely prove to be unneeded behavior – akin to an insurance policy on a fortress-like building thought to be fireproof.”
During 2023, Berkshire did not buy or sell a share of either AMEX or Coke – extending a Rip Van Winkle slumber that has now lasted well over two decades. “Both companies again rewarded our inaction last year by increasing their earnings and dividends. Indeed, our share of
AMEX earnings in 2023 considerably exceeded the $1.3 billion cost of our long-ago purchase,” he said.
Buffett fans are now waiting for Berkshire’s annual gathering to be held on May 4, 2024. “To top things off, we will have available the new 4th edition of Poor Charlie’s Almanack. Pick up a copy. Charlie’s wisdom will improve your life as it has mine,” Buffett said.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)