Warren Buffet: 2016 Shareholder Letter

Every year Warren Buffet, the long serving Chairman of Berkshire Hathaway, pens a letter to all shareholders. This letter is a public document and can be found on the Berkshire Hathaway website. In the 2016 letter, which extends to 28 pages, the Sage of Omaha outlines the year’s performance of the Berkshire Hathaway stock, and highlights a few salient features. He also touches on other financial subjects that are topical and top of mind. The 2016 letter was released on Saturday 25th February 2017.

Even if you are not a shareholder, the document is well worth the read. Buffet’s insightful comments on the state of the world and the USA economy, together with his forthright opinion on matters of the day should be obligatory reading for all. The 2016 letter did not disappoint, here are some worthwhile takeaways:

  • Berkshires gain in net worth for the 2016 calendar year was a staggering $27,5bn. This positively affected the book price of the share by 10,7%.
  • Warren stated that it is his and Charlie Munger’s job to over time deliver significant growth, bumpy or not, to shareholders. He went on to say; “that every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”
  • He regrets his decision to use Berkshire stock to buy General Reinsurance, a bucket load of stock, he added. “Today, I would rather prep for a colonoscopy than issue Berkshire shares for stock purchases.”
  • Buffet remains bullish on the USA and its economy. “Yes, the build-up of wealth in our country will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I have said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”
  • His views on times of economic turmoil and volatility. “During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted.”
  • On renewable energy: “In wind generation, no state comes close to rivalling Iowa. Where last year the megawatt-hours we generated from wind equaled 55% of all megawatt-hours sold to our Iowa retail customers. New wind projects that are underway will take that figure to 89% by 2020. When it comes to wind energy, Iowa is the Saudi Arabia of America.”
  • On the company as a whole: “Be aware, though, that it’s the growth of the Berkshire forest that counts. It would be foolish to focus over-intently on any singly tree.”
  • Berkshire Hathaway currently has $86bn in “cash and equivalents” available to deploy should acquisition targets present themselves at the right price. 95% of this amount is held by entities in the United States, and consequently not subject to any US repatriation tax. This does put Berkshire Hathaway in a uniquely strong position of being able to be a cash buyer of both listed or unlisted companies.
  • Buffet stated that the media had incorrectly reported that he would own certain stocks “forever.” “It is true that we own some stocks that I have no intention of selling as far as the eye can see (and we’re talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever.”

All in all, 2016 was another stellar year of growth for Berkshire Hathway. This years annual meeting falls on May 6th and once again it will webcast by Yahoo. The interesting fact is that this year’s meeting and interviews will be translated simultaneously into Mandarin! It may very well signal that the Berkshire Hathaway stock is finding interest in a whole new world of potential investors.

The current price the of Berkshire Hathaway (BRK) “B” class stock is $170 per share. The price of the original “A” class share is $255,970 a share. The shares are listed on the New York Stock Exchange.

The writer acknowledges that he owns BRK/B stock

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