Each year, we all (or at least I) eagerly anticipate Warren Buffet’s Annual Letter to Shareholders. It’s such an awesome read in so many ways! Not only does it give a great summary of what happened over the past year at Berkshire but it also provides amazing financial advice, a good read on the economy of today, and as a bonus it has funny quips. I believe if there is one piece of financial “news” you should read it’s this Letter, and it’s only once a year. So, in reading the most recent Letter I snagged some great quotes to share, in no particular order. All of these are direct quotes from the 2018 Letter released in 2019. Enjoy!
P.S. I took the photo featured on this post as Warren rolled by me on a golf cart after one of our meetings.
“Abraham Lincoln once posed the question: “If you call a dog’s tail a leg, how many legs does it have?” and then answered his own query: “Four, because calling a tail a leg doesn’t make it one.” Abe would have felt lonely on Wall Street.”
“Prices are sky-high for businesses possessing decent long-term prospects.”
“For example, managements sometimes assert that their company’s stock-based compensation shouldn’t be counted as an expense. (What else could it be – a gift from shareholders?)”
“At rare and unpredictable intervals, however, credit vanishes and debt becomes financially fatal. A Russian roulette equation – usually win, occasionally die – may make financial sense for someone who gets a piece of a company’s upside but does not share in its downside. But that strategy would be madness for Berkshire. Rational people don’t risk what they have and need for what they don’t have and don’t need.”
“Berkshire will forever remain a financial fortress. In managing, I will make expensive mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities. But I will never risk getting caught short of cash.”
“A major catastrophe that will dwarf hurricanes Katrina and Michael will occur – perhaps tomorrow, perhaps many decades from now. “The Big One” may come from a traditional source, such as a hurricane or earthquake, or it may be a total surprise involving, say, a cyber attack having disastrous consequences beyond anything insurers now contemplate. When such a megacatastrophe strikes, we will get our share of the losses and they will be big – very big.”
“My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price.”
“Wide swings in our quarterly GAAP earnings will inevitably continue. That’s because our huge equity portfolio – valued at nearly $173 billion at the end of 2018 – will often experience one-day price fluctuations of $2 billion or more, all of which the new rule says must be dropped immediately to our bottom line. Indeed, in the fourth quarter, a period of high volatility in stock prices, we experienced several days with a “profit” or “loss” of more than $4 billion.”
I am looking forward to our next meeting and to next year’s Letter. Thanks WB for another great read on the state of things!