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The investor can always use Mr. Market to his advantage as long as he understands that Mr. Market’s purpose is to serve him rather than to guide him. When Mr. Market offers high prices, the investor can take advantage by selling to him at a price above intrinsic value, and when he offers low prices, the investor can take advantage by buying from him at prices below intrinsic value. Munger had been using a wheelchair to get around for several years but he had remained mentally sharp.

“Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his… Sad to say, the poor fellow has incurable emotional problems,” Buffett wrote in his 1987 letter. Berkshire Hathaway bought See’s, and by 1982, it was up to producing $13M after taxes on just $20M in net tangible assets. Download the free report to get insight into Buffett’s views on market volatility, value investing, and more. In 2013, Buffett reported that GEICO had generated $73B for Berkshire Hathaway in one year — not a bad single-year return for a company that Buffett took over for $2.3B. Take his investment in (and later acquisition of) the auto insurer GEICO — an acquisition that has been called Buffett’s best ever.

  • Below, we unpack 28 of the most important lessons from the last four decades of Berkshire Hathaway’s shareholder letters.
  • As an aid in calculating its intrinsic value, each year Berkshire reports its investments per share and non-insurance subsidiary earnings per share.
  • These years-long investments are vital to ensure that electricity, produced by wind and solar sources in remote areas, can reach densely populated areas in the western US.
  • The board of directors is intended to hold the CEO accountable for his actions, but too often CEO’s are never challenged by their boards.
  • Berkshire’s goal is to keep the companies operating exactly as they were before the purchase.

A years-long effort to simplify matters culminated in 1983 with Blue Chip Stamps merging into Berkshire. In 1975, the US Securities and Exchange Commission alleged that Blue Chip Stamps had manipulated the price of Wesco because Buffett and Munger had persuaded its management to drop a merger plan. Blue Chip resolved the dispute by agreeing to pay former investors in Wesco a total of about $115,000, with no admission of guilt. The partnership, spanning more than 50 years, produced one of the most successful and largest conglomerates in history.

Beyond Berkshire

Although overshadowed by Mr. Buffett, who relished the spotlight, Mr. Munger, a billionaire in his own right — Forbes listed his fortune as $2.6 billion this year — had far more influence at Berkshire than his title of vice chairman suggested. OMAHA, Neb. (AP) — Charlie Munger, who helped Warren Buffett build Berkshire Hathaway into an investment powerhouse, has died at a California hospital. “It particularly doesn’t feel like an annual meeting because my partner of 60 years, Charlie Munger, is not sitting up here,” Buffett said. “I think most of the people who come to our meeting really come to listen to Charlie.” It is a weekend of shopping, investor conferences and events that draws tens of thousands of people to Omaha in early May, even though fans can watch it streamed on their home computers or smartphones. “Berkshire has talented people there that will help with the stock picking,” said Bill Smead, chief investment officer at Smead Capital Management in Phoenix.

That action “increased your ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet,” wrote Buffett to shareholders in his 2020 letter. And as Berkshire keeps repurchasing more of its shares, its shareholders will indirectly increase their ownership in Apple, BNSF, BHE, and other Berkshire-owned businesses. More specifically, Buffett’s model states that it’s inadvisable to invest in a business where you cannot predict whether the company will have a long-term (20+ years or more) competitive advantage. In 1973, the country was still in the grips of a stock market crash that had begun in January.

Munger nudged Buffett into acquiring California confectioner See’s Candies Inc. in 1972. The success of that deal — Buffett came to view See’s as “the prototype of a dream business” — inspired Berkshire’s $1 billion investment in Coca-Cola Co. stock 15 years later. Buffett credited Munger with broadening his approach to investing beyond mentor Benjamin Graham’s insistence on buying stocks at a fraction of the value of their underlying assets. With Munger’s help, he began assembling the insurance, railroad, manufacturing and consumer goods conglomerate that posted nearly $24 billion of operating profit in 2019. Munger was vice chairman of Berkshire and one of its biggest shareholders, with stock valued at about $2.1 billion as of March 2, 2022. “Berkshire’s gain in net worth during 2017 was $65.3 billion, which increased the per-share book value of both our Class A and Class B stock by 23%,” Buffett wrote in his latest letter to Berkshire Hathaway shareholders.

Charlie Munger, right-hand man of Warren Buffett, dies aged 99

On four separate occasions, Berkshire’s stock fell by 37% or more within the span of just a few weeks. Buffett identifies the problem in the comparative data the committees use to determine a CEO’s compensation package. This has led to a rapid inflation in which the offers get bigger and more loaded with perks and payments. But Buffett believes part of the answer lies with the compensation committees that determine the CEO’s pay package.

Charlie Munger, Warren Buffet’s sidekick at Berkshire Hathaway, dies at 99

At the age of 26, a Nebraska stockbroker and school teacher named Warren Buffett took his “retirement fund” of $174,000 and decided to start his own investment business. Over these same 63 years, the average market return was just under 10%, including dividends. Over this period, an average market return would have grown a $1,000 investment to $405,000 if all income had been reinvested. The 20% average return produced by Buffett over this period would have grown a $1,000 original investment to $97 million.

I could have given them carte blanche to devise any reporting system that would enable me to get my mind around what exposure that I had, and it wouldn’t have worked,” he would later say. General Re had 23,218 derivatives contracts with 884 separate counter-parties — a massive number of different contracts, most of which were with companies that neither Buffett nor Munger had ever heard of, and that they would never be able to untangle. In his 2008 letter, Buffett relates how he and Charlie Munger realized immediately that the business was going to berkshire hathaway letters to shareholders be a problem. Setting the question of incentives aside entirely, Buffett offers one final observation about directors to explain why he has complex feelings about boards and their current value. Despite the fact that boards nominally seek directors with “independence,” the actual behavior of executives and other directors betrays this idea. He identifies several recent promising changes in the culture around boards of directors, including the profusion of women on boards and the mandating of “CEO-free” sessions where executives can speak frankly.

Buffett wrote in the annual letter that it is time to abandon the practice of highlighting per-share book value. It’s been claimed by many that you’ll learn more reading these letters than getting an MBA. These are his actual words; a “lesson plan” of his views on business and investing.

Each year, Warren Buffett writes an open letter to Berkshire Hathaway shareholders. Over the last 40 years, these letters have become an annual required read across the investing world, providing insight into how Buffett and his team think about everything from investment strategy to stock ownership to company culture, and more. Warren Buffett is well known for his love of companies that pay dividends, and Berkshire Hathaway has profited greatly from companies making payouts to their shareholders. In his 2019 shareholder letter, Buffett reported that Berkshire Hathaway’s top 10 stock investments had generated almost $3.8B in dividends over the previous year. Conversely, if a manager cannot create over $1 of market value for every $1 retained, he has a duty to his shareholders to distribute his earnings to them so that they may earn a higher rate of return elsewhere.

Munger worked on the Harvard Law Review and in 1948 was one of 12 in the class of 335 to graduate magna cum laude. Charles Thomas Munger was born on Jan. 1, 1924, in Omaha, the first of three children of Alfred Munger and the former Florence Russell, who was known as Toody. His father, the son of a federal judge, had earned a law degree at Harvard University before returning to Omaha, where his clients included the Omaha World-Herald newspaper. Munger was a successful lawyer before Buffett convinced him to try out finance, and then to join Berkshire Hathaway in 1978. Charlie Munger, the vice-chairman of Berkshire Hathaway and Warren Buffett’s righthand man, died at the age of 99 on Tuesday.

Charlie Munger, Who Helped Warren Buffett Build Investment Powerhouse Berkshire Hathaway, Dies At 99

His main problem with investment bankers is that their financial incentive is always to encourage action (sales, acquisitions, and mergers) whether or not doing so is in the interest of the company initiating the action. For a long time, however, Buffett notes in his 1992 letter, investors interested in “value” and investors interested in “growth” have been considered to be at odds. Buffett’s personal formulation of the strategy is simply “finding an outstanding company at a sensible price” as opposed to finding mediocre companies for cheap prices. Wells Fargo, American Express, Walt Disney, Dairy Queen, Duracell — Buffett’s portfolio looks to some investors like a safe and generic mix, but it is rooted in a philosophy of long-term success.

“If Charlie and I think an investee’s stock is underpriced, we rejoice when management employs some of its earnings to increase Berkshire’s ownership percentage,” he wrote in his 2018 letter. Just as Coca-Cola built an empire buying syrup and selling a lifestyle, Buffett has made Berkshire Hathaway an empire by buying boring companies and selling their ever-returning dividends. In his 1996 letter to shareholders, Buffett recounts Coca-Cola’s 1896 shareholder report, admiring how the company had set — and closely followed — its 100-year growth plan, while the core product of the company had not changed at all. When Buffett invests, he is not looking at the innovative potential of the company or, in a vacuum, its growth potential.

While the technological innovation was even more impressive than the car, the industry as a whole could be said to have failed most of its investors. By 1992, the collection of all airline companies produced in the US had produced a total of no profits whatsoever. When the car was first invented, a naïve investor might have thought that virtually every automobile stock was guaranteed to succeed. By the time Jeff Bezos acquired the paper in 2013, Buffett’s 1.7M share stake was worth about $1B — a more than 9,000% return.