Nuggets of Wisdom from Berkshire Hathaway’s Annual Shareholder Letter (2020)

This weekend, Warren Buffett of Berkshire Hathaway released their annual shareholder letter, and while there are always a ton of business insights in these annual letters, here are a few nuggets of wisdom:

– Berkshire’s superstar business is insurance.

– Benefiting nicely from Trump’s tax cuts (now 21%, down from 35%) Berkshire paid 1.5% of all corporate earnings to the U.S. Treasury in 2019, Warren Buffet proudly stated.

– Warren Buffett advised shareholders to focus on operating earnings vs, quarterly and annual gains or losses from (BRK.A) investments.

– Buffett references John Maynard Keynes on “Well-managed industrial companies do not, as a rule, distribute to the shareholders the whole of their earned profits. In good years, if not in all years, they retain a part of their profits and put them back into the business. Thus there is an element of compound interest.”

– Berkshire looks for the following in a business when looking to invest: “Earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price.”

On a big day for Berkshire Hathaway, what generated the most headlines this weekend is talk of the future of the company, when both Warren Buffett and Charlie Munger are gone, as both are men are getting older. Buffet assured shareholders, “Your company is 100 percent prepared for our departure.”

And on another subject, a few days ago Charlie Munger (Vice Chairman of Berkshire) took a jab at EBITDA as an earnings metric. “Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA. You’re almost announcing you’re a flake”, said Munger. That made me laugh.

American capitalism is alive and well.