19 ms·
Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]
- DiabloD3 10y agoThere's going to be a day where there won't be any more annual letters from him.
- narendraj9 10y agoYes. But why do you want that? Why the need to state this at the moment?
- Nokinside 10y agoLife expectancy of 86 year old male is 5.4 years.
- skolsuper 10y agoWhat is it for 86 year old male multi-billionaires?
- gwern 10y agoProbably not as much as you would think. Money can buy you access to cutting-edge medical treatment... but not safe or effective cutting-edge medical treatment. Almost all new treatments don't work or have more drawbacks than benefit, that's why it's called research - and billionaires get access to the results of the big clinical trials at about the same time as everyone else.
- nabla9 10y agoOne possible difference is his access to tailored research and treatment. When Finnish geneticist Leena Peltonen-Palotie was diagnosed with rare sarcoma in 2008, her colleagues started big project to save her life. Her cancer became the "worlds most studied cancer" for a short period. They sequenced her genes and used large screening robot to test tens of thousands combinations of different drugs against tissue samples taken from her. They actually fond a cure for the sarcoma she was diagnosed with, but the cancer had already mutated into a form that did not respond to the treatment and she died two years later 2002. I believe this might have been the first ever for this kind of large scale tailored cancer research. Weirdly enough I can't find any mention of this research effort in English speaking magazines. https://en.wikipedia.org/wiki/Leena_Peltonen-Palotie https://en.wikipedia.org/wiki/Leena_Peltonen-Palotie
- gwern 10y ago"They actually fond a cure for the sarcoma she was diagnosed with, but the cancer had already mutated into a form that did not respond to the treatment and she died two years later 2002" One could also cite Steve Jobs. Despite heroic measures, his delay doomed him. (To expand a little bit on this: the Gompertz curve means that even if a 85yo billionaire contracts some cancer and is able to buy a cure no one else can which isn't useless or iatrogenic, he is going to die very soon anyway as the annual mortality risk increases exponentially. This is what is behind those surprising observations like 'curing all cancer would only add a few years to the average life expectancy' - curing cancer just means that you die of dementia, Alzheimers, a heart attack or something else a year or two later.)
- nabla9 10y agoSteve Jobs had good prognosis but he delayed the surgery almost a year and relied on 'alternative medicine'. Even with late start he still lived eight years after the diagnosis when doctors used all tricks money can buy. > he is going to die very soon anyway This is true. People close to 90 are one flu and pneumonia away from death.
- yorwba 10y agotl;dr: ~5.3 years. I collected all Wikipedia articles on American billionaires who died in 2008 - 2017: http://tools.wmflabs.org/dschwenbot/intersection/index.php?linklist=&catlist=American+billionaires%0D%0A2017+deaths%7C2016+deaths%7C2015+deaths%7C2014+deaths%7C2013+deaths%7C2012+deaths%7C2011+deaths%7C2010+deaths%7C2009+deaths%7C2008+deaths&deep=0&do_intersection=Query http://tools.wmflabs.org/dschwenbot/intersection/index.php?l... That got me 74 results. I wgot the articles and manually removed the women based on related Wikipedia categories (turns out https://en.wikipedia.org/wiki/Aubrey_McClendon https://en.wikipedia.org/wiki/Aubrey_McClendon was a man, I would have removed him just based on the name). Then I grepped the files for '"[0-9]\{4\} births"' to get the year of birth (this string marks the corresponding category). Two men didn't have a known birthdate, so I threw out their articles, too. This left me with the years of birth for 65 American billionaires. I got their years of death analogously. After that I calculated their ages as the difference (yes, this could be off by +-1 year, but my method is not exactly rigorous anyway). The mean of these values is ~82.6. 29 of them are >= 86. The mean of those is ~91.3, or 5.3 years past 86. Considering the huge error bars, this is well in line with the general population average.
- argigg 10y agoThis is going to give you biased results. Consider what would happen if you used the same method to determine the life expectancy of computer programmers.
- logicallee 10y agoOf the average 86 year old male, you mean. I think he wouldn't bat an eye on getting the best personal health care on the face of the planet (it's also an important long-term goal for him.) He wouldn't overpay for it, either.
- Nokinside 10y agoWarren Buffet is not health freak. He enjoys life and according to his own words is "one quarter Coca-Cola" >"If I eat 2700 calories a day, a quarter of that is Coca-Cola. I drink at least five 12-ounce servings. I do it everyday." Really funny: >Asked to explain the high-sugar, high-salt diet that has somehow enabled him to remain seemingly healthy, Buffett replies: "I checked the actuarial tables, and the lowest death rate is among six-year-olds. So I decided to eat like a six-year-old." The octogenarian adds, "It's the safest course I can take." http://fortune.com/2015/02/25/warren-buffett-diet-coke/ http://fortune.com/2015/02/25/warren-buffett-diet-coke/
- logicallee 10y agoThat is interesting. Goes against what I read, "what do you want to be remembered for? Longevity." which given what you just quoted must have just been a joke.
- reactor 10y ago>"If I eat 2700 calories a day, a quarter of that is Coca-Cola. I drink at least five 12-ounce servings. I do it everyday." What do you expect? ;) "Warren Buffett, who through Berkshire Hathaway (BRK.A) (BRK.B) owns about 9.3% of Coca-Cola's (KO) outstanding shares"
- sumedh 10y agoHis daughter said that he does not drink water, he just drinks coke. He also eats lots of burgers and steak, I dont understand how his body remains in good health with all that junk food.
- tim333 10y agoUntil someone makes an AI Buffett simulator.
- angry-hacker 10y agoIs there anyone as good as him? He has become a household name, but maybe there are other Buffets out there that we don't talk about?
- otalp 10y ago"In Berkshire’s 2005 annual report, I argued that active investment management by professionals – in aggregate – would over a period of years underperform the returns achieved by rank amateurs who simply sat still. I explained that the massive fees levied by a variety of “helpers” would leave their clients – again in aggregate – worse off than if the amateurs simply invested in an unmanaged low-cost index fund. ” He then goes on to show how that's been true, and that a standard index fund outperforms almost every hedge funds even before extra fees to the hedge funds are taken into account. It's not the first time this has been pointed out, and it suggests that for non-multimillionaires, an index fund is always the most rational choice. You get close to the return you'd get by investing in real estate, with the added benefit of index funds being much more easily liquifiable.
- sethev 10y ago"My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than $100 billion over the past decade."
- arbuge 10y ago>> You get close to the return you'd get by investing in real estate Close to the return on unleveraged real estate investing. Most real estate investing is significantly leveraged, to a larger extent than possible (or recommended) for stock market investing.
- countryqt30 10y ago
- tyingq 10y agoThe transparency and humble tone is pretty unique. "Unfortunately, I followed the GEICO purchase by foolishly using Berkshire stock" "It was, nevertheless, a terrible mistake on my part" "Despite that cautious approach, I made one particularly egregious error" I bet you don't find that sort of thing in many other annual shareholder letters.
- otalp 10y agoSure, but it's easy to be humble when you're essentially an institution. In fact, it's better that way, because it appears honest. It's far harder for an unproven fund manager to admit making egregious mistakes without making his shareholders nervous. Buffett has 50 years of beating the market to soothe stakeholder concerns. Most other managers don't.
- tyingq 10y agoI suppose. But, see, for example, the recent Cloudflare issues. They were pretty transparent, but missed big on the "humble" part. I don't think there would have been anything but upside had they gone with a humble approach.
- dv35z 10y agoFor what it's worth - he has been this transparent about mistakes since the very beginning of taking on Berkshire management in the late 1960s (when he was in his 30s) - He makes fairly prudent predictions and plans in each yearly shareholder letter, and is quite fairly critical of himself when those predictions do not pan out.
- valuearb 10y agoHis shareholder letters from the 1950s have the same humble tone.
- idiot_stick 10y ago>The transparency and humble tone is pretty unique. Humble is an understatement. The man is a piece of work, that's for sure. The HBO biographical documentary is insightful: http://www.hbo.com/documentaries/becoming-warren-buffett http://www.hbo.com/documentaries/becoming-warren-buffett
- glbrew 10y ago"Come to Omaha – the cradle of capitalism – on May 6th and meet the Berkshire Bunch."
- mrfusion 10y agoHas anyone ever attended a shareholder meeting? Sounds kind of fun.
- wakkaflokka 10y agoEvery time I get an email letting me know about an upcoming shareholder meeting, I think about this. Haven't been to one yet.
- wakkaflokka 10y agoEvery time I get an email letting me know about an upcoming shareholder meeting, I think about this. Haven't been to one yet.
- dankohn1 10y agoYeah, I made the "capitalist hajj" to Omaha in 2005. It was fun, though I didn't really learn anything I didn't already know by reading his stuff. Like he says, buy Vanguard mutual funds.
- tejohnso 10y agoWhat about BRK.A?
- dankohn1 10y agoIf you listen carefully to what he is saying, even he is advising a diversified portfolio of low cost mutual funds. If you want to move a small portion of your domestic equities into BRK.A instead to try to get some alpha, feel free, but also realize how much harder it is for him now with his massive amount to invest than it was 30, 20 and 10 years ago.
- tim333 10y agoBeen a couple of times a while ago. It was fun especially the first time. If you're read the stories it's fun to see some of the stuff in reality - Omaha, Buffett's house, the furniture mart, Borsheims, the steak house he goes to and so on. I also met Mrs B, now departed and had a book signed by Warren. Some of the fellow visiting shareholders can be interesting too. The actual talk you can see on Yahoo.
- ryanmarsh 10y ago"This team efficiently deals with a multitude of SEC and other regulatory requirements, files a 30,450-page Federal income tax return" 30,450 pages holy crap
- dsacco 10y agoThere's one particular passage I'd like to point out, on page 5: Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been throughout our managerial tenure – by America’s economic dynamism. One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers. You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion. I don't often see this sort of pride in America. Normally the flavors I do observe are hyper-nationalistic and filled with bravado, while the tone here is lauding yet reserved. There's a sense of authenticity delivered in the way Warren Buffett - an extremely humble, yet successful man - talks about the way his country has helped him succeed. It's austere. This isn't part of the regularly scheduled programming for threads about his letters (mostly we like to champion index funds or debate the utility of active investing), but it's what really struck me this time around. Juxtapose his words here with the same category of conversation about America in many other contexts and contrast the integrity involved. In a time when America appears to be experiencing quite a bit of social and political volatility, it is refreshing to hear optimism from a source that does not appear to use it as an instrument of control. EDIT: Well this has since ignited a debate about America's cultural identity and history of imperialism...not really the spirit of what I was going for but here we are I guess...
- jdavis703 10y agothey all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion. This was a gain that was achieved not by starting from scratch but by stealing lands from indigenous people and forcing Africans to work that land. I'm not sure if you can describe the kidnapping, murder, rape and ultimately genocide of multiple people groups as miraculous, unless one subscribes to the idealogy of manifest destiny.
- defenestration 10y agoIt took me 30 minutes to read the complete letter. It was time well spent. I learned why the property/casualty insurance business has a really good business model. It also reminds me to walk away from deals where the financial fundamentals are wrong, but our competition is eager to sign. And finally, I feel that his humble tone is honest and that he is trying teach by showing his considerations, successes and failures.
- nabla9 10y agoBuffet has structured his business to give him permanent advantage. The core of Berkshire Hathaway is the insurance business, GEICO and Berkshire Reinsurance. These companies are very profitable and generate steady cash inflow. His cash is cheaper compared other investors who get leverage using financial sector and must hedge against loss. This is important when times are tough, money is tight and stock valuations are low. When other investors must sell something they own or take expensive loan to buy what they want, Buffet is drowning in cash and looking ways to spend it. from page 8: >One reason we were attracted to the P/C business was its financial characteristics: P/C insurers receive premiums upfront and pay claims later. In extreme cases, such as claims arising from exposure to asbestos, payments can stretch over many decades. This collect-now, pay-later model leaves P/C companies holding large sums – money we call “float” – that will eventually go to others. Meanwhile, insurers get to invest this float for their own benefit. Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume. Consequently, as our business grows, so does our float. .... We recently wrote a huge policy that increased float to more than $100 billion They have $100 billion float. That's incredible.
- dv35z 10y agoIf you enjoyed that - take the time and get the book compilation of all BH's annual letters to shareholders - starting 1960s to present. Some of the most valuable reading I have done in years - strongly recommend.
- graeme 10y agoLink: https://www.amazon.com/Berkshire-Hathaway-Letters-Shareholders-Buffett/dp/0615975070/ https://www.amazon.com/Berkshire-Hathaway-Letters-Shareholde...
- kennyma 10y agoHere's an annotated version of the letter by Bloomberg https://www.bloomberg.com/news/features/2017-02-25/lessons-from-the-oracle-warren-buffett-s-shareholder-letter-annotated https://www.bloomberg.com/news/features/2017-02-25/lessons-f...
- NuDinNou 10y agoI liked HBO's documentary on him, "Becoming Warren Buffett", https://www.youtube.com/watch?v=70nGRBvqFNw https://www.youtube.com/watch?v=70nGRBvqFNw
- fovc 10y agoDoes anyone know why it is that their insurance businesses post underwriting profits? Is there anything structural? Why does GEICO have such a cost-driven moat?
- valuearb 10y agoThey post underwriting profits cause he picks excellent insurance businesses. GEICOs moat is customer satisfaction. Obviously selling direct means their product is a great value, and service means hard to get their customers to switch.
- pg314 10y agoAn owner (Buffett) that understands the insurance business goes a long way. There is less pressure than in a public company to do business even when the appropriate premiums can't be obtained (see p. 10). Having a very large and sound balance sheet also helps. Their insurance businesses don't always make money. There have been years in the past that they posted big losses.
- crb002 10y agoWhat Buffet left out. The massive windfall from OPIC, a U.S. Government insurance program not audited by the GAO, in the buy of Mid American. https://www.opic.gov/sites/default/files/docs/claim_mid_american.pdf https://www.opic.gov/sites/default/files/docs/claim_mid_amer...
- ambicapter 10y ago> We may in time experience a decline in float. If so, the decline will be very gradual – at the outside no more than 3% in any year. The nature of our insurance contracts is such that we can never be subject to immediate or near-term demands for sums that are of significance to our cash resources. This structure is by design and is a key component in the unequaled financial strength of our insurance companies. It will never be compromised. Is he basically saying that the insurance business is structured in such a way to never payout catastrophic amounts? Is this a harmful thing for the insurance claimants?
- MarkMc 10y agoI think he's saying that Berkshire's insurance is so large and diversified that even something like a earthquake in California would not have a big impact on its cash position. I'm surprised it would be capped at 3% though.
- nikdaheratik 10y agoI believe he's saying that the year-over-year float won't go below 3%, not that a very big impact event won't hurt the float for a period of a few months. Part of this is because policies are re-issued every year which means that they can increase premiums if needed and drop high risk customers as he's pointed out in previous letters.
- tehlike 10y agoBlackswan events are probably contained through diversification. His thinking on the surface is very solid: insurance business is a cash cow in some regard, and if the market is down, it is actually an opportunity to move that money into equities.
- ahh 10y agoAnyone else a bit disappointed? Normally these letters have some new brilliant insight or dive into a business I know nothing about. This one feels shorter and more peremptory. I see the financials for the major sectors and the same boilerplate explanation of insurance and railroads that's in every letter. What's up? It's not like nothing happened with Berkshire Hathaway this year.
- ahh 10y agoAnyone else a bit disappointed? Normally these letters have some new brilliant insight or dive into a business I know nothing about. This one feels shorter and more peremptory. I see the financials for the major sectors and the same boilerplate explanation of insurance and railroads that's in every letter. What's up? It's not like nothing happened with Berkshire Hathaway this year.
- CurtMonash 10y agoI was a #1-ranked stock analyst. And I indeed outperformed the market on my and my parents' accounts. I also know a small hedge fund manager who I believe could consistently outperform the market. But in each case the strategy was to know a small portfolio of underfollowed stocks very very well. It's not something that could scale. He eventually just dumped his clients and managed his own money. I stopped investing in anything except index funds after I stopped being a stock analyst. I.e., I agree with Buffett's general premise, and have since the 1980s.
- MarkMc 10y agoI have more respect for Warren Buffett than any person outside my family. He's smart, honest, humble, generous, witty and a great communicator. And he's the best investor in the world.
- Radle 10y ago"Some years, the gains in underlying earning power we achieve will be minor; very occasionally, the cash register will ring loud. Charlie and I have no magic plan to add earnings except to dream big and to be prepared mentally and financially to act fast when opportunities present themselves. Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do."
- psyc 10y agoAll that cheerleading for capitalism, and the only micro-nod to inequality is this: "However our wealth may be divided, the mind-boggling amounts you see around you belong almost exclusively to Americans." "See around me," indeed.
- jedberg 10y agoThe "Annual meeting" section is the most entertaining. It sounds like woodstock for capitalists.
- digitalmaster 10y ago"Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers." - W. Buffet
- perseusprime11 10y agoBuffet is so modest and humble. It comes through in this comment: "A few, however – these are serious blunders I made in my job of capital allocation – produce very poor returns. In most cases, I was wrong when I originally sized up the economic characteristics of these companies or the industries in which they operate, and we are now paying the price for my misjudgments. In a couple of instances, I stumbled in assessing either the fidelity or ability of incumbent managers or ones I later put in place. I will commit more errors; you can count on that. Fortunately, Charlie – never bashful – is around to say “no” to my worst ideas."
- cbanek 10y agoOne hilarious thing I learned, and I can't wait to put into action: So stop by for a quote. In most cases, GEICO will be able to give you a shareholder discount (usually 8%). This special offer is permitted by 44 of the 51 jurisdictions in which we operate. (One supplemental point: The discount is not additive if you qualify for another discount, such as that available to certain groups.) Bring the details of your existing insurance and check out our price. We can save many of you real money. Spend the savings on other Berkshire products. I need to get hooked up with my shareholder discount!
- gillianlish 10y agothat is assuming the stock market doesn't crash. if you bought an index fund in 1928 you would still be broke AF in 1935 and wouldn't get your money back until the 50s. buffett profited off the housing bubble and should not be trusted. he owned huge stakes in the ratings agencies that were giving AAA+ ratings to these awful mortgage products, even as publically he was decrying the financial products involved as 'mass destruction' he was making money on it. he is doing the same with his stock market push. if a million people listen to him and go buy stocks, what do you think happens to his index funds? They go up of course. absolutely hilarious and sad to watch people worship this guy. if his secret is really to buy index funds, then why do people listen to his speeches and newsletters? you could just go buy index funds and be done with it. like every other con artist, his genius is to get people to buy in to his story.
- valuearb 10y agoHe doesn't own or sell index funds. Your analysis of the great crash ignores the effects of dividends, which were very high in the thirties and made investors profitable much more quickly than you claim. The housing bubble burst and BRK is worth far more now. You don't know what Buffett does, how he got rich, or much about the stock market either.
- WhiteOwlLion 10y agoDid anyone notice page 4 is 8.5x11 inches while every other page is 8.25x10.75 inches?