\n<\/p>\n
W<\/span>arren Buffett, the billionaire investor who is retiring at the end of 2025, has entertained and educated shareholders in his Berkshire Hathaway conglomerate for many years with his pithy annual letters outlining the firm\u2019s performance.<\/p>\n Every year since 1965 he has updated his investors on the journey as Berkshire morphed from a \u201cstruggling northern textile business\u201d with $25m of shareholder equity when he took over, to an empire worth more than $1tn.<\/p>\n Here we pick out some of the choicest turns of phrase from the departing Sage of Omaha.<\/p>\n Last year, Buffett described his purchase of Berkshire Hathaway as a mistake, writing:<\/p>\n Though the price I paid for Berkshire looked cheap, its business \u2013 a large northern textile operation \u2013 was headed for extinction.<\/p>\n Cue Buffett\u2019s capital allocation strategy, though it took him a while to recognise that he and his team faced no institutional restraints when deploying capital; the only hurdle was their ability to understand the likely future of a possible acquisition.<\/p>\n In 1982\u2019s letter, Buffett explained that \u201cwhat really makes us dance\u201d was the purchase of 100% of good businesses at reasonable prices, which he conceded was an \u201cextraordinarily difficult job\u201d.<\/p>\n One of the many lessons Buffett learned at his, and his investors\u2019, expense was to pay cash \u2013 not shares \u2013 for acquisitions.<\/p>\n A salutary incident in this learning curve was Buffett\u2019s decision to pay 272,000 Berkshire shares to buy the reinsurance company General Re in 1998, which he later said was \u201ca terrible mistake\u201d, adding:<\/p>\n My error caused Berkshire shareholders to give far more than they received (a practice that \u2013 despite the biblical endorsement \u2013 is far from blessed when you are buying businesses).<\/p>\n Readers of Buffett\u2019s 1995 letter were treated to a memorable explanation of his two-pronged investment strategy \u2013 taking stakes in \u201cwonderful\u201d listed companies while also trying to buy similar businesses in their entirety.<\/p>\n This double-barrelled approach gave an important advantage over capital-allocators who stuck to a single course, Buffett wrote, adding:<\/p>\n Woody Allen once explained why eclecticism works: \u2018The real advantage of being bisexual is that it doubles your chances for a date on Saturday night.\u2019<\/p>\n <\/span>Buffett said there would always be epidemics of fear and greed in the investment community.<\/span> Photograph: Angela Weiss\/AFP\/Getty Images<\/p>\n In 1986, Buffett coined his most famous quote on investing: to be fearful when others are greedy and to be greedy only when others are fearful.<\/p>\n Admitting that he could see no stocks that offered the \u201cgrand-slam home run\u201d opportunity of being cheaply priced with good economics and good management, Buffett said there would always be epidemics of fear and greed in the investment community, though timing them was difficult.<\/p>\n Buffett believes most deals do damage to the shareholders of the acquiring company, and is baffled as to why potential buyers even look at projections prepared by sellers.<\/p>\n In 1994 he suggested many CEOs were less disciplined in how their spare capital was used, because of a \u201cbiological bias\u201d towards \u201canimal spirits and ego\u201d.<\/p>\n When such a CEO is encouraged by his advisers to make deals, he responds much as would a teenage boy who is encouraged by his father to have a normal sex life. It\u2019s not a push he needs.<\/p>\n Berkshire\u2019s insurance business, Geico, has been the key to its expansion over the decades. Its float \u2013 money from customers that Berkshire holds until it is needed for payouts \u2013 typically comes at a very low cost, and can be used to fund investment.<\/p>\n Berkshire\u2019s super-catastrophe (super-cat) insurance business has also been a profitable enterprise, although it faced large losses when disaster struck.<\/p>\n In 1992, Hurricane Andrew cost Berkshire $125m, roughly equal to its 1992 super-cat premium income. But other insurers came out worse from what was then the largest insured loss in history, as Buffett wrote:<\/p>\n Andrew destroyed a few small insurers. Beyond that, it awakened some larger companies to the fact that their reinsurance protection against catastrophes was far from adequate. (It\u2019s only when the tide goes out that you learn who\u2019s been swimming naked.)<\/p>\n In his 2002 letter, Buffett said derivatives were \u201ctime bombs, both for the parties that deal in them and the economic system\u201d. He warned:<\/p>\n In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.<\/p>\n That warning looked very prescient in 2008, when the \u201cfrightening web of mutual dependence\u201d that he said \u201cdevelops among huge financial institutions\u201d helped to trigger the financial crisis. Buffett said:<\/p>\n Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: it\u2019s not just whom you sleep with, but also whom they are sleeping with.<\/p>\n This \u201csleeping around\u201d could actually be useful for large derivatives dealers because it assured them government aid if trouble hit, Buffett said:<\/p>\n From this irritating reality comes the first law of corporate survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: modest incompetence simply won\u2019t do; it\u2019s mind-boggling screw-ups that are required.<\/p>\n However, that letter showed that Berkshire was a party to 251 derivatives contracts. Buffett justified this on the grounds that they were all \u201cmispriced at inception, sometimes dramatically so\u201d.<\/p>\n Buffett\u2019s long-term goal is to outperform the S&P 500 index, which means keeping dry powder to deploy when valuations fall and \u201cthe cash register will ring loud\u201d.<\/p>\n Buffett says his plan is to dream big and be ready for when dark clouds fill the economic skies, as they will briefly rain gold. In 2016\u2019s letter he promised:<\/p>\n When downpours of that sort occur, it\u2019s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.<\/p>\n Buffett has always been clear that the company is run on the principle of centralisation of financial decisions at \u201cthe very top\u201d, which leads to a lot of delegation to the key managers running each company or business unit.<\/p>\n He favours older managers, joking that \u201cyou can\u2019t teach a new dog old tricks\u201d.<\/p>\n Through the 1980s, shareholders learned of the \u201cterrific\u201d Rose Blumkin and her family. \u201cMrs B\u201d had escaped Russia, founded a furniture store in Nebraska with $500, offered much better deals than rivals, and was generating more than $100m of sales annually out of one 200,000 sq ft store before selling most of the business to Buffett for $55m as she approached her 90s.<\/p>\n Happily in 1993, shareholders learned that Mrs B had celebrated her 100th birthday, with Buffett joking: \u201cThe candles cost more than the cake.\u201d He added:<\/p>\n Naturally, I was delighted to attend Mrs B\u2019s birthday party. After all, she\u2019s promised to attend my<\/em> 100th.<\/p>\n Alas she would not. As Buffett reminisced in 2011:<\/p>\n She sold me our interest when she was 89 and worked until she was 103. (After retiring, she died the next year, a sequence I point out to any other Berkshire manager who even thinks of retiring.)<\/p>\n Berkshire investors were treated to regular hints about life after Buffett. From 2005, they were reassured that the board had identified several candidates who could take on the role.<\/p>\n Sounding unenthusiastic about the prospect, Buffett wrote in 2007\u2019s letter:<\/p>\n The candidates are young to middle-aged, well-to-do to rich, and all wish to work for Berkshire for reasons that go beyond compensation.<\/p>\n (I\u2019ve reluctantly discarded the notion of my continuing to manage the portfolio after my death \u2013 abandoning my hope to give new meaning to the term \u2018thinking outside the box\u2019.)<\/p>\n","protected":false},"excerpt":{"rendered":" Warren Buffett, the billionaire investor who is retiring at the end of 2025, has entertained and educated shareholders in his Berkshire Hathaway conglomerate for many years with his pithy annual letters outlining the firm\u2019s performance. Every year since 1965 he has updated his investors on the journey as Berkshire morphed from a \u201cstruggling northern textile<\/p>\n","protected":false},"author":1,"featured_media":39634,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[19456,4138,15709,21452,12634,5603,21453,13256],"class_list":{"0":"post-39633","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-buffett","9":"tag-buffetts","10":"tag-fearful","11":"tag-greedy","12":"tag-investing","13":"tag-lessons","14":"tag-sharpest","15":"tag-warren"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/39633","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=39633"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/39633\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/39634"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=39633"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=39633"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=39633"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}For capital allocation, the world was his oyster<\/h2>\n
Pay cash<\/h2>\n
Why a \u2018bisexual\u2019 approach to investing pays off<\/h2>\n
On fear and greed \u2026<\/h2>\n
On the perils of acquisitions<\/h2>\n
When the tide goes out, you see who\u2019s been swimming naked<\/h2>\n
The dangers of derivatives \u2013 weapons of mass destruction<\/h2>\n
Be ready for when it rains gold<\/h2>\n
On delegation, and Buffett\u2019s incredible managers<\/h2>\n
Succession planning<\/h2>\n