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The Wisdom of Warren Buffett

It’s probably no exaggeration to say that Warren Buffett is the best-known investor on the planet. He’s also a legendary business leader. As most of you know, Mr. Buffett founded Berkshire Hathaway, now the eighth largest public company in the world, employing 360,000 people.[1] Every year around this time, multitudes of investors anxiously await the release of his annual letter to Berkshire shareholders. This year’s 2020 letter[2] was his 57th, and it did not disappoint in terms of the wit and wisdom we have come to expect from Mr. Buffett.

A recent online article[3] by Inc., a publication targeting entrepreneurs, praised Mr. Buffett’s emotional intelligence for making this year’s letter “accessible—and a model for any business leader.” The article cites his use of the second person singular, addressing the shareholders as “you.” For example, in speaking about the BNSF railroad which Berkshire owns, he says, “Your railroad carries about 15% of all non-local ton-miles…of goods that travel in the United States.”

The article also mentions Mr. Buffett’s humility about the mistakes he has made. In this case, Berkshire’s purchase of Precision Castparts in 2016 which eventually resulted in an $11 billion write-down in 2020. He doesn’t wait to talk about it at the end of the letter (where I would probably put it), but discusses it early on in the seventh paragraph.

But there is much more to glean from Mr. Buffett’s 2020 letter than emotional intelligence. Here are a few observations of my own:

He understands what’s important in business and investing

A focus on operating earnings and retained earnings has been essential to Berkshire’s financial success. “Operating earnings are what count most,” he writes, and “…retained earnings have propelled American business throughout our country’s history. What worked for Carnegie and Rockefeller has, over the years, worked its magic for millions of shareholders as well.”

He understands the power of stories

He is rightfully very proud of what Berkshire has become and spends time telling us the short history of a few of the success stories. These stories highlight the many personal attributes Mr. Buffett values, such as hard work, integrity and risk taking. “Success stories abound throughout America. Since our country’s birth, individuals with an idea, ambition and often just a pittance of capital have succeeded beyond their dreams by creating something new or by improving the customer’s experience with something old.”

He is a champion of the “little guy”

Many of these success stories were only possible because of people of humble means who had a dream. For example, he tells us about the founders of two  successful Berkshire companies based in Knoxville, Tennessee, Clayton Homes and Pilot Travel Centers: “Each company was started by a young man who had graduated from the University of Tennessee and stayed put in Knoxville. Neither had a meaningful amount of capital nor wealthy parents. But, so what? Today Clayton and Pilot each have annual pre-tax earnings of more than $1 billion. Together they employ about 47,000 men and women.”

He loves middle America

“Today, with much of finance, media, government and tech located in coastal areas, it’s easy to overlook many miracles occurring in middle America.” He then proceeds to describe how he discovered wonderful businesses in places like Omaha (his backyard) and Knoxville. I can only assume that he had a “coastal” reader in mind when he writes, “When you fly over Knoxville or Omaha, tip your hat…to the army of entrepreneurs who populate every part of our country.”

He likes to take jabs at Wall Street

After contrasting Berkshire’s philosophy of growth to that of a typical acquisition-obsessed corporate conglomerate, he says that Wall Street “loves the fees that deal-making generates.” Later, he writes that “…investors must never forget that their (investment) expenses are Wall Street’s income.” He then speaks of his personal feeling of “special kinship” with “the million-plus individual investors who simply trust us to represent their interests, whatever the future may bring. They have joined us with no intent to leave.” “We already have the investors we want,” he adds, which explains his reluctance to “court Wall Street analysts and institutional investors.”

He uses humor effectively

He quotes Ronald Reagan and Mae West to good effect. Then, after noting that some of his original investors are now in their 90s, Mr. Buffett wonders, “Could it be that Berkshire ownership fosters longevity?” (Mr. Buffett is 90 and his long-time colleague Charlie Munger is 97.)

He is bullish on America

He praises “the army of successful entrepreneurs who populate every part of our country.” He continues, “These builders needed America’s framework for prosperity – a unique experiment when it was crafted in 1789 – to achieve their potential. In its brief 232 years of existence…there has been no incubator for unleashing human potential like America.”

Mr. Buffett’s “unwavering” conclusion: “Never bet against America.”

We couldn’t agree more.

John


 

John serves as Chief Investment Officer for Coyle Financial Counsel and is responsible for overseeing the investment process. John’s prior experience includes managing institutional fixed-income portfolios for corporations, pension funds, non-profit organizations and foundations at several large, global asset managers. With more than 20 years of institutional investment experience, he is energized by helping individuals understand the role investing plays in meeting their long-term financial goals.

www.coylefinancial.com
847-441-5644 | coyle@coylefinancial.com

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 All information is from sources deemed reliable, but no warranty is made to its accuracy or completeness.   This material is being provided for informational or educational purposes only, and does not take into account the investment objectives or financial situation of any client or prospective client.  The information is not intended as investment advice, and is not a recommendation to buy, sell, or invest in any particular investment or market segment.  Those seeking information regarding their particular investment needs should contact a financial professional.  Coyle, our employees, or our clients, may or may not be invested in any individual securities or market segments discussed in this material.  The opinions expressed were current as of the date of posting but are subject to change without notice due to market, political, or economic conditions. All investments involve risk, including loss of principal.  Past performance is not a guarantee of future results.

Copyright © 2021 Coyle Financial Counsel.  All rights reserved.

[1] https://en.wikipedia.org/wiki/Berkshire_Hathaway

[2] https://www.berkshirehathaway.com/letters/2020ltr.pdf

[3] https://www.inc.com/bill-murphy-jr/warren-buffett-just-taught-an-incredible-lesson-in-emotional-intelligence-actually-3-lessons.html?cid=sf01003

 

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