“All that’s required is the passage of time, an inner calm,” began a sentence in Warren Buffett’s annual letter to his followers Saturday. He was talking about the essentials of investing in a farm or business, but it felt like a metaphor for the collectively lonely and despairing moment that the world found itself in during the past year. With his own 90-year perspective, Buffett reminded his readers that a moment is all this is.
The bar was high for Buffett this time, given all that’s happened since last year’s letter: a public-health crisis; lockdowns; social unrest; worsening wealth inequality; a new U.S. president; extreme political divisiveness that led to insurrectionists storming the Capitol; climate disasters such as the tragic freezing conditions and blackouts in Texas last week; the resurgence of Bitcoin; and the recent market tumult brought on in part by a boiling over of frustrations with the state of the world.
Did he clear that bar? Perhaps that’s the wrong question. Anyone looking to hear his thoughts on today’s issues may feel let down — he didn’t directly address any of them — but I doubt his devotees were surprised by this or disappointed. Buffett met the occasion by doing what he always does: explain his decisions, take his lumps and victory laps, offer up his musings on investing. If you wanted something different, you didn’t get it, and you don’t know Buffett.
The last time the chairman and chief executive officer of Berkshire Hathaway Inc. spoke publicly was at the virtual shareholder meeting in May, an uncharacteristically somber event at which he sat in an empty auditorium normally filled with his adoring fans and left listeners wondering whether he was still the Oracle of Omaha. New icons with investing philosophies arguably antithetical to the Buffett way have since filled the void, such as Tesla Inc. billionaire Elon Musk, futuristic stock picker Cathie Wood and so-called SPAC king Chamath Palihapitiya — especially as Berkshire’s stock continues to lag the market.
But Buffett has his story and he’s sticking to it. And as if to remind readers of exactly that, the letter takes time to recount the history of Berkshire and how it came to be: a state-by-state discovery of ordinary Americans building extraordinary businesses — See’s Candies, Nebraska Furniture Market, Clayton Homes, Pilot Travel Centers — that Buffett and his now-97-year-old partner, Charlie Munger, couldn’t help but acquire and continue to admire. Some are still run by descendants of the families that started them. If this were to be Buffett’s last letter, it would be a relatively eloquent signoff.
Here’s a notable passage:
There has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming “a more perfect union.” Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so. Our unwavering conclusion: Never bet against America.
There was no mention of Bitcoin, Robinhood or Reddit, but Buffett did write glowingly of “the million-plus” individual investors who own Berkshire stock. He and Munger “feel a special obligation” to this group because their earliest investors when they began managing money — before acquiring Berkshire Hathaway in 1965 — were just regular people. “Partners” is what they call Berkshire shareholders, and the company says it’s happy with the partners it has, not needing to court Wall Street the way other publicly traded companies might. That Berkshire never holds earnings calls with analysts or attends investor conferences apart from its own annual event is the somewhat controversial proof.
On the topic of the Reddit day-trading phenomenon, Munger put it a bit differently this week, telling the Wall Street Journal: “I hate this luring of people into engaging in speculative orgies.” And while taking questions during the shareholder meeting Wednesday for Daily Journal Corp., which he chairs, Munger had choice words for SPACs, too. “I think the world would be better off without them,” he said. “It’s just that the investment banking profession will sell s–t as long as s–t can be sold.” He is truly the yin to Buffett’s yang.
The biggest omission from Buffett’s letter was any rumination on markets and valuations, nor were there signs that maybe he’d come to accept higher prices as the new normal. In fact, it seems to be just the opposite. Berkshire had to write down the value of its last major acquisition, Precision Castparts, by $11 billion. The aerospace-parts manufacturer was hit hard by the Covid-19 pandemic as travel stopped. “I paid too much for the company,” he wrote. Doesn’t sound like he’s eager to make that mistake again.
Instead, Berkshire has been buying back stock. Share repurchases tallied almost $25 billion in 2020. Speaking to his “partners,” he wrote, “That action increased your ownership in all of Berkshire’s businesses by 5.2%,” and added that buybacks have continued since yearend. Last week, Berkshire also revealed large stakes in Chevron Corp. and Verizon Communications Inc. The company’s cash stockpile — so large it has become part of Buffett folklore — did come down a tad last quarter to $138 billion.
The topic of succession didn’t come up in Saturday’s memo either, but Buffett did reveal that the virtual May meeting will be held not in Omaha as usual but in Los Angeles, where a wheelchair-bound Munger lives. Vice Chairmen Greg Abel and Ajit Jain, who have been given more authority in recent years, will also take part in the Q&A. Perhaps more succession news is in store.
“Nobody’s going to listen to Buffett. Buffett doesn’t have the energy to say what he said 30 and 40 years ago in 2021. And that’s OK, he’s earned the right to basically chill out and be the GOAT. But there has to be other folks that take that mantle, take the baton and do it as well to this younger generation in a language they understand.” This was Palihapitiya speaking in a Bloomberg TV interview earlier this month.
Maybe Buffett’s style doesn’t fit the current moment, but a moment is all it is. Value investing has cycled in and out of fashion, and as fad securities sold off this week, there’s talk that it may be back “in” again. In any case, “energy” isn’t what earned Buffett his celebrity. It was patience, conviction, a sense of duty to his partners and a rejection of complex profit adjustments that are so often used to obscure and confuse. That philosophy should never go out of style.