8 ms·

2020 Berkshire Hathaway Annual Letter [pdf]

92 points by karl11 6y ago

H8crilA 6y ago
If you like them you can read other letters, in particular older letters. The letters for the later part of the 1970s are especially instructive in terms of what is it like to live in an inflationary regime. Buffett is one of the few people that have "seen it all", from deflationary 30s, war 40s, greatest 50s, cultural 60s, inflationary 70s, capitalist 80s, excessive 90s, normal then excessive again 00s, deflationary 10s and whatever the 20s will be.
- newsclues 6y ago
  The roaring 20s last century came about after a global pandemic
  - secfirstmd 6y ago
    Um and a world war?
    - geoduck14 6y ago
      And before a crash
    - votepaunchy 6y ago
      The Great War predated (and may have been a large factor in causing) the 1918-19 pandemic.
    - newsclues 6y ago
      War on drugs and war on terror have been waged worldwide for at least two decades
- umeshunni 6y ago
  Interesting that you describe the 10s as deflationary when there was a large amount of monetary and asset inflation.
  - H8crilA 6y ago
    Well that was the response ("this time we'll do it differently"; Bernanke's "how to make sure 'it' doesn't happen here"), and the jury is still out on the consequences, IMHO. I'm going by CPI and other similar measures around the world. Almost all US yearly CPI prints have been below 3%, with a small exception of late 2011. Also, if (some) corporate profits stay on the same trajectory and interest rates fall, those stocks will rally like crazy. Interest rates are the most important prices in any market.
xeromal 6y ago
I always love to make sure their site is still bare bones. Love the raw HTML look.
- nabla9 6y ago
  The modern corporate website: * ethnically diverse happy people stock photos (80% of the page content) * carousels and pages with vague two sentence statements and a link. Link leads to missions statements and values and maybe a short paragraph. * detailed information about what the company sells hidden behind 3-4 clicks at minimum (can be omitted).
  - ethbr0 6y ago
    Ironically, this was my exact experience trying to figure out what OutSystems [0] sold. I get it's expected in the B2B "we sell to idiot VPs" world, but jesus... have at least one page somewhere with a tech stack and platform summary. [0] https://outsystems.com https://outsystems.com
- aseembehl 6y ago
  Came here to write exactly this. Berkshire is special
- libertine 6y ago
  Well I think that's the case when your company has so much notoriety that your website isn't used to sell, or get new clients, or capture/retain the attention of anyone, or try to monetize itself with a user base. It's basically a place to distribute information about them.
outoftheabyss 6y ago
Is Buffett really still the gold standard, Berkshire has been outdone by the s and p 10 year rolling average over the last evade and that was true before the pandemic. I get that 20% annual returns aren’t sustainable as you get into managing hundreds of billions but it seems to me the make up of the market has changed dramatically over the 2010s and Buffett hasn’t adapted or evolved.
- jcims 6y ago
  Given the shape of those two curves I’d give it a bit more time before counting Buffet out.
- mxschumacher 6y ago
  when using the S&P500 as a yardstick, we have to remind ourselves what environment we are living in. Interest rates are very low (though this is currently changing) and equity valuations are at or close to all time highs both in absolute an relative terms. Berkshire generates more operating profit than Salesforce has revenue; it generates 6x more profit than Nvidia and those numbers ignore both the gigantic stock portfolio and the cash position. Valuations will eventually trend back to historical norms. Given that GDP is relatively stagnant (there is modest growth in real terms), it is impossible for all of these companies to grow indefinitely. Both before the .com crash and the 2008 financial crisis lots of companies have vastly outperformed Berkshire, a wave of bankruptcies and 95% declines ensued.
whb07 6y ago
Like every lion in the savanna, it must relinquish its reign at some point. Buffet talks pridefully about holding $250+ BILLION in cash, as if it were pegged to a gold standard. Nearly half his life was based on such a system, and so it’d be hard to remove that idea. Yet he sits on it proudly seemingly unaware that sitting on such an amount has eaten up 3%+ via the printing press of the FED. That and you know... not buying when everyone was selling back in March. Selling out of the airlines seems like a rookie mistake but to a 90 yo, flying again is actually a “never again” due to his age.
- JesseMeyer 6y ago
  Do you honestly believe that Warren does not understand inflation?
  - vlovich123 6y ago
    Perhaps you can understand inflation and still make a mistake?
  - whb07 6y ago
    I believe the mind of a 90 yo Buffet is not the same as the 30 yo Buffet. My general point being that even if he's aware and picks some number less than 5% inflation (which is debatable), sitting on a giant cash pile and getting fear paralysis or whatever it is he's waiting on (clearly not a buying opportunity) isn't what a present day champion would do. But thats fine. Just can't expect him to be the past champion he once was.
    - JesseMeyer 6y ago
      What would you expect a 'present day champion' to do during the most volatile market since just prior to the Great Depression?
      - whb07 6y ago
        Go on cnbc, cry about the world ending and being scared for your life and then buy up everything circa march. Also Buffet is old enough to have remembered other "pandemias" and times of volatility. He was there during the hong kong flu of 69. He was around when Polio was a thing. Hes been through Black Monday and 9/11. Tons of money to be made in volatility. You're using that word in a negative manner. Volatility up is a great thing.
bedhead 6y ago
While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I joke that Buffett found the investing equivalent of the Donkey Kong kill screen, he basically broke the game. It's incredible. But there have been self-inflicted issues. The seemingly unconditional refusal to explore technology companies. (While his Apple investment was great, even Buffett would tell you this is a consumer company and not a tech company) The allowing of the two new managers to keep breaking Berkshire's rules, such as not investing in IPO's, or not investing in airlines. The large write down in PCP. The double-speak about "never bet against America" while remaining paralyzed during the COVID panic. Maybe these things are moot compared to the scale problem. But I think the more disheartening issue is Buffett's last 5-6 letters have been forgettable, and today's was really just a recap of Berkshire's main assets, not offering anything particularly insightful or interesting. I think he's still doing an admirable job but Berkshire just isn't what it used to be. Everything has a cycle.
- appleiigs 6y ago
  Warren has addressed not investing in tech. Automobiles were a major tech advancement, but car companies always have struggled. Airplanes were also a major advancement but always struggled. A top technology company can usurped by a new company with better tech. Facebook is faddish, requires acquisitions of Instagram and Whatsapp to stay on top, but that not Warren’s idea of creating value.
  - guantanamo_bob 6y ago
    Automobiles and airlines have always had slim margins and are slow to grow. It shouldn’t take a Warren Buffett to see the differences between this old technology advancement and more recent ones (from an investment perspective).
- blantonl 6y ago
  I think investors over the past year have grown so accustomed to something new and shiny and revolutionary coming every week to get excited about that they've forgotten that making money in markets successfully is about a long term focus and a LOT of boring details and unsexy businesses. I, like a lot of people LOVE trading stocks and derivatives, and trying to beat the market -- more so as a hobby and as an opportunity to learn more about the more esoteric components of financial markets and how things operate. I've been doing it for over 15 years and I've paid my dues in terrible trades, and seen some great plays work out. The process of options pricing, managing ex-dividend dates and options, derivatives plays, trading styles like position and swing etc all are enormously fun to learn the nuances of. It's a fascinating world. At the same time, the vast majority of the money that I save for retirement is your standard run of the mill dollar cost aversaging (DCA) into targeted funds based on my risk tolerance, age, and retirement objectives. Really boring stuff that works over 20 years, not 3 months. Buffet is one of those guys that gets less sexy when volatility is increased, and more realistic when things are boring and people are licking their wounds. Berkshire is going to be just fine. And they're doing just fine.
tuna-piano 6y ago
Just an interesting sidenote. It does feel like the letter is shorter than it used to be, so I plotted the number of pages by year in the PDF fils on their site. Looks like there was a decrease from 20 pages to 15 starting in 2017. Graph: https://imgur.com/a/TQ2oewY https://imgur.com/a/TQ2oewY
- GrantZvolsky 6y ago
  Your graph could be improved by avoiding interpolation. Interpolation is misleading in this case because the observations are complete without it.
- nfjrbrnnffk 6y ago
  Still two long. And they should have an Instagram account with the same letter tl;dr to a 5 image post, for young investors.
  - ethbr0 6y ago
    :accountant: :chart: :no-sign: :rocket: That would sum most of it up.
  - fuzzfactor 6y ago
    not my downvote, but It doesn't look like they are trying to attract young investors. And when a young investor does become attracted to Berkshire, they would be likely to review more than just one single letter. Which is actually pretty short for what it has to say.
- gwern 6y ago
  This is a shockingly boring and cursory annual letter. Most of it reads like a copy-paste from all of the previous letters (retained earnings, bonds bad, why non-Berk conglomerates suck, insurance float is awesome, etc). OK, it's nice that Apple did some stock buybacks, and that they did too. Uh, what else? It was a whole year. And what a year - what it doesn't say is far more important than what it does. Where's the grappling with the fact that their 2020 return was only 2% when the indexes are up 20%? (Did I read that right?!) For that matter, shouldn't the fact that their return in 2020 was so low be grounds for very serious soul-searching? Buffett has always justified the cash reserves and passive investing as enabling him to make awesome deals during the proverbial rainy day. Well, was not 2020 the mother of all rainy days? Where are his deals? If he couldn't do anything with his bankroll in 2020, when is he ever going to be able to do anything with it? What did they do all year? Does he really have no thoughts about how the pandemic was handled? About Western governance and economics? Is it not astonishing that the sole and only reference I noticed to coronavirus is a throwaway clause about some furniture stores being closed? WTF. This is not at all the letter I was expecting. Has anyone seen Buffett in person recently? Are we sure he wasn't kidnapped and replaced with Deepfaked Zoom calls a year ago?
pacman2 6y ago
Alternative paper: https://ourfiniteworld.com/wp-content/uploads/2021/02/Tverberg-Collapse-Presentation-Final-1.pdf https://ourfiniteworld.com/wp-content/uploads/2021/02/Tverbe...
neogodless 6y ago
See Annual Report as well. https://news.ycombinator.com/item?id=26284669 https://news.ycombinator.com/item?id=26284669
- chmaynard 6y ago
  Looks like the two URLs are different.
smurda 6y ago
“When people are fearful, be greedy. When people are greedy, be fearful.” -Buffet quote I think about a lot over the last 12 months
- ethbr0 6y ago
  The key point from that quote is "when people are fearful, a pessimistic future is currently priced in" and "when people are greedy, an optimistic future is currently priced in." So, effectively, it's setting up a win/tie dynamic on change/expected. Vs a lose/tie dynamic on change/expected when investing with the current sentiment.
rajivjain 6y ago
It’s inspiring to see that Buffett and Munger remain so wonderfully optimistic about the future of the US even when both are 90+ in the current sociopolitical environment. Reading this letter certainly lifted my spirit and put me in a different mood.
soheil 6y ago
So Berkshire now owns about 10% of Apple, if I buy a $1,000 Macbook $100 of that money goes to Berkshire, what are they doing with that money since Apple is the one doing the R&D and building these products? I know at least some of that money is driving up the business value of Berkshire, it's a great investment on their part but is it good for customers that Macbooks are 11% more expensive than they should be?
- mxschumacher 6y ago
  Apple pays its employees, utilities, insurance, taxes, bondholders, suppliers etc, their margin is not 100%, more like 25%. Profits ultimately drive company valuations. The cash does not just flow through to Berkshire, the dividend yield is relatively low. I don't understand what you are trying to say about MacBooks being 11% more expensive?
  - soheil 6y ago
    Sure it may not flow directly to Berkshire, but let's take employee compensation for example. If the business value of Apple is 10% higher because it had retained the value it created instead of Berkshire owning it then wouldn't Apple's stock in turn be 10% higher in theory? If so then if I'm an employee at Apple I would be happy with 10% less stock as part of my compensation package and that's money Apple would have had to pay me if that were not the case. So wouldn't this affect the price of Macbook?
    - intev 6y ago
      It never works out like that in theory or practice. A company cannot retain it's value all by itself. Value is assigned to the company by 3rd parties. If you started a company and claimed that your stock is worth $100 per share, and there are no buyers, are you really worth $100? However, if you claim to be worth $100, and I offer you $120, you would sell to me because you think you're worth less than what I'm paying for it. The moment I bought it I actually created value for your company because I just demonstrated to the entire market that you are worth more than you think. Then everyone else will start pricing you higher. It has huge knock on implications. Buffet buying Apple was basically a huge buy signal for many investors, and that action itself increased its value.

92 points by karl11 6y ago

If you like them you can read other letters, in particular older letters. The letters for the later part of the 1970s are especially instructive in terms of what is it like to live in an inflationary regime. Buffett is one of the few people that have "seen it all", from deflationary 30s, war 40s, greatest 50s, cultural 60s, inflationary 70s, capitalist 80s, excessive 90s, normal then excessive again 00s, deflationary 10s and whatever the 20s will be.

newsclues 6y ago
The roaring 20s last century came about after a global pandemic
- secfirstmd 6y ago
  Um and a world war?
  - geoduck14 6y ago
    And before a crash
  - votepaunchy 6y ago
    The Great War predated (and may have been a large factor in causing) the 1918-19 pandemic.
  - newsclues 6y ago
    War on drugs and war on terror have been waged worldwide for at least two decades
umeshunni 6y ago
Interesting that you describe the 10s as deflationary when there was a large amount of monetary and asset inflation.
- H8crilA 6y ago
  Well that was the response ("this time we'll do it differently"; Bernanke's "how to make sure 'it' doesn't happen here"), and the jury is still out on the consequences, IMHO. I'm going by CPI and other similar measures around the world. Almost all US yearly CPI prints have been below 3%, with a small exception of late 2011. Also, if (some) corporate profits stay on the same trajectory and interest rates fall, those stocks will rally like crazy. Interest rates are the most important prices in any market.

xeromal 6y ago

I always love to make sure their site is still bare bones. Love the raw HTML look.

nabla9 6y ago
The modern corporate website: * ethnically diverse happy people stock photos (80% of the page content) * carousels and pages with vague two sentence statements and a link. Link leads to missions statements and values and maybe a short paragraph. * detailed information about what the company sells hidden behind 3-4 clicks at minimum (can be omitted).
- ethbr0 6y ago
  Ironically, this was my exact experience trying to figure out what OutSystems [0] sold. I get it's expected in the B2B "we sell to idiot VPs" world, but jesus... have at least one page somewhere with a tech stack and platform summary. [0] https://outsystems.com https://outsystems.com
aseembehl 6y ago
Came here to write exactly this. Berkshire is special
libertine 6y ago
Well I think that's the case when your company has so much notoriety that your website isn't used to sell, or get new clients, or capture/retain the attention of anyone, or try to monetize itself with a user base. It's basically a place to distribute information about them.

outoftheabyss 6y ago

Is Buffett really still the gold standard, Berkshire has been outdone by the s and p 10 year rolling average over the last evade and that was true before the pandemic. I get that 20% annual returns aren’t sustainable as you get into managing hundreds of billions but it seems to me the make up of the market has changed dramatically over the 2010s and Buffett hasn’t adapted or evolved.

jcims 6y ago
Given the shape of those two curves I’d give it a bit more time before counting Buffet out.
mxschumacher 6y ago
when using the S&P500 as a yardstick, we have to remind ourselves what environment we are living in. Interest rates are very low (though this is currently changing) and equity valuations are at or close to all time highs both in absolute an relative terms. Berkshire generates more operating profit than Salesforce has revenue; it generates 6x more profit than Nvidia and those numbers ignore both the gigantic stock portfolio and the cash position. Valuations will eventually trend back to historical norms. Given that GDP is relatively stagnant (there is modest growth in real terms), it is impossible for all of these companies to grow indefinitely. Both before the .com crash and the 2008 financial crisis lots of companies have vastly outperformed Berkshire, a wave of bankruptcies and 95% declines ensued.

whb07 6y ago

Like every lion in the savanna, it must relinquish its reign at some point. Buffet talks pridefully about holding $250+ BILLION in cash, as if it were pegged to a gold standard. Nearly half his life was based on such a system, and so it’d be hard to remove that idea. Yet he sits on it proudly seemingly unaware that sitting on such an amount has eaten up 3%+ via the printing press of the FED. That and you know... not buying when everyone was selling back in March. Selling out of the airlines seems like a rookie mistake but to a 90 yo, flying again is actually a “never again” due to his age.

JesseMeyer 6y ago
Do you honestly believe that Warren does not understand inflation?
- vlovich123 6y ago
  Perhaps you can understand inflation and still make a mistake?
- whb07 6y ago
  I believe the mind of a 90 yo Buffet is not the same as the 30 yo Buffet. My general point being that even if he's aware and picks some number less than 5% inflation (which is debatable), sitting on a giant cash pile and getting fear paralysis or whatever it is he's waiting on (clearly not a buying opportunity) isn't what a present day champion would do. But thats fine. Just can't expect him to be the past champion he once was.
  - JesseMeyer 6y ago
    What would you expect a 'present day champion' to do during the most volatile market since just prior to the Great Depression?
    - whb07 6y ago
      Go on cnbc, cry about the world ending and being scared for your life and then buy up everything circa march. Also Buffet is old enough to have remembered other "pandemias" and times of volatility. He was there during the hong kong flu of 69. He was around when Polio was a thing. Hes been through Black Monday and 9/11. Tons of money to be made in volatility. You're using that word in a negative manner. Volatility up is a great thing.

bedhead 6y ago

While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. Berkshire has grown so large that it has significant scale problems. I joke that Buffett found the investing equivalent of the Donkey Kong kill screen, he basically broke the game. It's incredible. But there have been self-inflicted issues. The seemingly unconditional refusal to explore technology companies. (While his Apple investment was great, even Buffett would tell you this is a consumer company and not a tech company) The allowing of the two new managers to keep breaking Berkshire's rules, such as not investing in IPO's, or not investing in airlines. The large write down in PCP. The double-speak about "never bet against America" while remaining paralyzed during the COVID panic. Maybe these things are moot compared to the scale problem. But I think the more disheartening issue is Buffett's last 5-6 letters have been forgettable, and today's was really just a recap of Berkshire's main assets, not offering anything particularly insightful or interesting. I think he's still doing an admirable job but Berkshire just isn't what it used to be. Everything has a cycle.

appleiigs 6y ago
Warren has addressed not investing in tech. Automobiles were a major tech advancement, but car companies always have struggled. Airplanes were also a major advancement but always struggled. A top technology company can usurped by a new company with better tech. Facebook is faddish, requires acquisitions of Instagram and Whatsapp to stay on top, but that not Warren’s idea of creating value.
- guantanamo_bob 6y ago
  Automobiles and airlines have always had slim margins and are slow to grow. It shouldn’t take a Warren Buffett to see the differences between this old technology advancement and more recent ones (from an investment perspective).
blantonl 6y ago
I think investors over the past year have grown so accustomed to something new and shiny and revolutionary coming every week to get excited about that they've forgotten that making money in markets successfully is about a long term focus and a LOT of boring details and unsexy businesses. I, like a lot of people LOVE trading stocks and derivatives, and trying to beat the market -- more so as a hobby and as an opportunity to learn more about the more esoteric components of financial markets and how things operate. I've been doing it for over 15 years and I've paid my dues in terrible trades, and seen some great plays work out. The process of options pricing, managing ex-dividend dates and options, derivatives plays, trading styles like position and swing etc all are enormously fun to learn the nuances of. It's a fascinating world. At the same time, the vast majority of the money that I save for retirement is your standard run of the mill dollar cost aversaging (DCA) into targeted funds based on my risk tolerance, age, and retirement objectives. Really boring stuff that works over 20 years, not 3 months. Buffet is one of those guys that gets less sexy when volatility is increased, and more realistic when things are boring and people are licking their wounds. Berkshire is going to be just fine. And they're doing just fine.

tuna-piano 6y ago

Just an interesting sidenote. It does feel like the letter is shorter than it used to be, so I plotted the number of pages by year in the PDF fils on their site. Looks like there was a decrease from 20 pages to 15 starting in 2017. Graph: https://imgur.com/a/TQ2oewY https://imgur.com/a/TQ2oewY

GrantZvolsky 6y ago
Your graph could be improved by avoiding interpolation. Interpolation is misleading in this case because the observations are complete without it.
nfjrbrnnffk 6y ago
Still two long. And they should have an Instagram account with the same letter tl;dr to a 5 image post, for young investors.
- ethbr0 6y ago
  :accountant: :chart: :no-sign: :rocket: That would sum most of it up.
- fuzzfactor 6y ago
  not my downvote, but It doesn't look like they are trying to attract young investors. And when a young investor does become attracted to Berkshire, they would be likely to review more than just one single letter. Which is actually pretty short for what it has to say.
gwern 6y ago
This is a shockingly boring and cursory annual letter. Most of it reads like a copy-paste from all of the previous letters (retained earnings, bonds bad, why non-Berk conglomerates suck, insurance float is awesome, etc). OK, it's nice that Apple did some stock buybacks, and that they did too. Uh, what else? It was a whole year. And what a year - what it doesn't say is far more important than what it does. Where's the grappling with the fact that their 2020 return was only 2% when the indexes are up 20%? (Did I read that right?!) For that matter, shouldn't the fact that their return in 2020 was so low be grounds for very serious soul-searching? Buffett has always justified the cash reserves and passive investing as enabling him to make awesome deals during the proverbial rainy day. Well, was not 2020 the mother of all rainy days? Where are his deals? If he couldn't do anything with his bankroll in 2020, when is he ever going to be able to do anything with it? What did they do all year? Does he really have no thoughts about how the pandemic was handled? About Western governance and economics? Is it not astonishing that the sole and only reference I noticed to coronavirus is a throwaway clause about some furniture stores being closed? WTF. This is not at all the letter I was expecting. Has anyone seen Buffett in person recently? Are we sure he wasn't kidnapped and replaced with Deepfaked Zoom calls a year ago?

pacman2 6y ago

Alternative paper: https://ourfiniteworld.com/wp-content/uploads/2021/02/Tverberg-Collapse-Presentation-Final-1.pdf https://ourfiniteworld.com/wp-content/uploads/2021/02/Tverbe...

neogodless 6y ago

See Annual Report as well. https://news.ycombinator.com/item?id=26284669 https://news.ycombinator.com/item?id=26284669

chmaynard 6y ago
Looks like the two URLs are different.

smurda 6y ago

“When people are fearful, be greedy. When people are greedy, be fearful.” -Buffet quote I think about a lot over the last 12 months

ethbr0 6y ago
The key point from that quote is "when people are fearful, a pessimistic future is currently priced in" and "when people are greedy, an optimistic future is currently priced in." So, effectively, it's setting up a win/tie dynamic on change/expected. Vs a lose/tie dynamic on change/expected when investing with the current sentiment.

rajivjain 6y ago

It’s inspiring to see that Buffett and Munger remain so wonderfully optimistic about the future of the US even when both are 90+ in the current sociopolitical environment. Reading this letter certainly lifted my spirit and put me in a different mood.

soheil 6y ago

So Berkshire now owns about 10% of Apple, if I buy a $1,000 Macbook $100 of that money goes to Berkshire, what are they doing with that money since Apple is the one doing the R&D and building these products? I know at least some of that money is driving up the business value of Berkshire, it's a great investment on their part but is it good for customers that Macbooks are 11% more expensive than they should be?

mxschumacher 6y ago
Apple pays its employees, utilities, insurance, taxes, bondholders, suppliers etc, their margin is not 100%, more like 25%. Profits ultimately drive company valuations. The cash does not just flow through to Berkshire, the dividend yield is relatively low. I don't understand what you are trying to say about MacBooks being 11% more expensive?
- soheil 6y ago
  Sure it may not flow directly to Berkshire, but let's take employee compensation for example. If the business value of Apple is 10% higher because it had retained the value it created instead of Berkshire owning it then wouldn't Apple's stock in turn be 10% higher in theory? If so then if I'm an employee at Apple I would be happy with 10% less stock as part of my compensation package and that's money Apple would have had to pay me if that were not the case. So wouldn't this affect the price of Macbook?
  - intev 6y ago
    It never works out like that in theory or practice. A company cannot retain it's value all by itself. Value is assigned to the company by 3rd parties. If you started a company and claimed that your stock is worth $100 per share, and there are no buyers, are you really worth $100? However, if you claim to be worth $100, and I offer you $120, you would sell to me because you think you're worth less than what I'm paying for it. The moment I bought it I actually created value for your company because I just demonstrated to the entire market that you are worth more than you think. Then everyone else will start pricing you higher. It has huge knock on implications. Buffet buying Apple was basically a huge buy signal for many investors, and that action itself increased its value.