“Never Bet Against America” – Warren Buffett
Warren Buffett, the Oracle of Omaha is one of the best investors the world has ever known. Accumulating a fortune that was over $80Billion at certain times. Studying the words and publications of Warren Buffett has always been a common practice amongst investors. Warren Buffett started investing at the age of 10 and if there is anyone that exemplifies playing the long game it is Buffett. Buffett is still running his company, Berkshire Hathaway, at the age of 90. He works alongside his long time business partner, Charlie Munger, who is 97 years of age. Buffett is a great example of the power of compounding and the miraculous effect it can have on multiplying your wealth. $81.5 Billion of Buffett’s $84.5 Billion net worth came after the age of 65. Each year Buffett writes a letter to the shareholders of Berkshire Hathaway to give an update on their business. This has traditionally been something that is highly valued by all investors, not just shareholders of Berkshire, because of the investment insight it can help to provide. Buffett is known as a value investor, that is someone that studies the fundamentals of a company relative to the price it is trading at, and if that is low enough, will purchase shares of the stock. Coca-Cola is one of his most famous investments, big blue chip companies that have a track record for paying and growing their dividend. Coca-Cola has been able to continue to grow its dividend for 57 years.
Should investors still put an emphasis on these letters?
Buffett has had a track record of compounded annual returns of 20% since 1965 compared to 10% compounded return of the S&P 500 during that same time frame. However, last year he made some ill timed trades, including selling out of all his airline stocks at what seemed to be their bottom. He also sold a large portion of his bank stocks and invested in Barrick Gold. I already stated his massive net worth which has come from his investment knowledge and temperament. The returns and his success are reasons why investors pay so close attention to his letters and his 13F. This and because when these positions get post publicly it can oftentimes cause the price of those stocks to see a nice pop. However, with underperformance against the S&P 500 and some questionable trades made in 2021, many people are starting to wonder if these letters and 13F disclosures hold the same amount of weight that they used to. After all, everyone now has a microphone when it comes to investing and there were or are now others that can make public statements that seem to drive up the price of a stock (think Elon Musk, Donald Trump) or message boards that have that same effect. Another reason why some believe that the Buffett positions do not hold as much weight is the underperformance of value stocks in recent years. Growth stocks have drastically outperformed value stocks over the past 10 years. Buffett is known for being a famed value investor. Here are Berkshire Hathaway’s largest positions.
Key Takeaways from this letter
One of the things I love about Warren Buffett is his entrepreneurial spirit and belief in the American Dream. Buffett used one of his most famous quotes again in this letter when he stated, “Never bet against America.” This quote may cause many to stay the course and keep a long-term perspective in mind. That in and of itself is a good enough reason for many to read his letters. Buffett gives great explanations of Berkshire Hathaway and how they use three key elements to decide an investment purchase: 1. A steep competitive advantage 2. Managers who have character and are capable 3. Price. Buffett highlighted several businesses that were on the brink of elimination and found a way to turn things around to thrive for years to come. He mentioned See’s Candies, whose business is over 100 years old and has employed thousands of men and women. Another successful venture for Berkshire Hathaway has been GEICO which recently did $35 billion in business and has been around since 1937. It would be difficult to find someone with a track record like Buffet’s it comes to investing and helping to build businesses over the long term. However, there have been fund managers that have well outpaced Buffett during their time, Jim Simons, of Renaissance Technologies averaged 66% over his tenure but did not start investing until the age of 50. Most recently Cathie Wood has been producing astonishing returns for her ETF, ARKK. It is yet to be seen if they can have the same staying power that Buffett has had throughout his career. Here is a full copy of the annual Berkshire Hathaway letter.
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