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Weekend: Warren Buffett's Annual Letter To Shareholders - What To Know...
“The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”
Only a few winners are key to success.
Prices fluctuate. Efficient markets only exist in textbooks.
Share buybacks are favourable for investors.
Compound and avoid major mistakes.
Never bet against America.
Buffett highlighted that his 58-year career success has been due to “about a dozen truly good decisions”, with the rest of his investments being referred to as “no better than so-so.”
Two of the decisions he mentions are his investments in American Express and Coca-Cola, which paid a dividend of $302M and $704M in 2022. Buffett paid $1.3B for each in the 90s.
As well as generous dividends, Buffett mentions the importance of the gain in stock prices for these companies. At yearend, the Coca-Cola investment was valued at $25B, while Amex was recorded at $22B. Each holding now accounts for roughly 5% of Berkshire’s net worth.
Buffett’s lesson for investors: “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”
He jokingly added that it also helps to start early and live into your 90s.
It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks. In truth, marketable stocks and bonds are baffling; their behaviour is usually understandable only in retrospect.
Share buybacks. The maths is simple. When the share count decreases, your interest in that business increases. So every bit helps if repurchases are made at value-accretive prices.
When a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and the friendly but expensive investment banker recommending the foolish purchases.
“When you are told that all repurchases are harmful to shareholders or the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue.”
Buffett described Berkshire Hathaway’s journey as “a bumpy road involving a combination of continuous savings by our owners, the power of compounding, avoidance of major mistakes and – most important of all – the American Tailwind.”
He stated the importance that Berkshire Hathaway will always be cash-heavy. This will be the case to avoid behaviour resulting in uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses.
“Cash combined with courage in a time of crisis is priceless.”
Fun fact to note: During the decade ending 2021, Berkshire Hathaway paid 0.1% of all money that the treasury collected via taxes.
Had roughly 1,000 taxpayers in the U.S. matched Berkshire’s payments over the last decade, no other businesses nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime.
After investing for nearly 80 years, Buffett is yet to find a time that makes sense to make a long-term bet against America. Instead, he said he’s been able to count on the American Tailwind, and though it has been becalmed occasionally, its propelling force has always returned.
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