Warren Buffett, Chairman of Berkshire Hathaway Inc, published his annual letter to shareholders this past weekend. The following are some non-financial quotes (in italics) from this years’ letter.

The full letter can be found here https://www.berkshirehathaway.com/letters/letters.html

Our thoughts are naturally short-term, but investing is about the long-term

“It is more than silly, however, to make judgments about Berkshire’s investment value based on “earnings” that incorporate the capricious day-by-day and, yes, even year-by-year movements of the stock market. As Ben Graham taught me, “In the short run the market acts as a voting machine; in the long run it becomes a weighing machine.”

Predicting the winners is a little harder than it looks

“Our goal at Berkshire is simple: We want to own either all or a portion of businesses that enjoy good economics that are fundamental and enduring. Within capitalism, some businesses will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen.”

Never make a good deal with a bad person

“In 1863, Hugh McCulloch, the first Comptroller of the United States, sent a letter to all national banks. His instructions included this warning: “Never deal with a rascal under the expectation that you can prevent him from cheating you.” Many bankers who thought they could “manage” the rascal problem have learned the wisdom of Mr. McCulloch’s advice – and I have as well. People are not that easy to read. Sincerity and empathy can easily be faked. That is as true now as it was in 1863.”

When companies become larger it is more difficult to move the ‘earnings’ needle

“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. All in all, we have no possibility of eye-popping performance.”

Investor behaviour remains the same

“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.”

Is instant communication leading to more volatile markets?

“Occasionally, markets and/or the economy will cause stocks and bonds of some 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. Speed of communication and the wonders of technology facilitate instant worldwide paralysis, and we have come a long way since smoke signals. Such instant panics won’t happen often – but they will happen.”

Disclaimer:

This article should not be treated as financial advice or a recommendation to purchase shares in Berkshire Hathaway.

The headings in the text are from the author, not the annual shareholder letter. The text in italics is taken from the annual shareholder letter.

Full disclosure: The author is not a direct investor in Berkshire Hathaway, but does own shares in the company through a global index fund.