Attentive readers will notice that Tesco, which last year appeared in the list of our largest common stock investments, is now absent. An attentive investor, I'm embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling … In 2013, I soured somewhat on the company's then- management and sold 114 million shares, realizing a profit of $43 million. My leisurely pace in making sales would prove expensive. Charlie calls this sort of behavior 'thumb-sucking.' (Considering what my delay cost us, he is being kind.) During 2014, Tesco's problems worsened by the month ... In the world of business bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by you meet his relatives."
This delightful passage is from Warren Buffett's most recent letter to shareholders of Berkshire Hathaway. It captures his wit and wisdom and ability to distil business lessons - bad business sagas often can be like a soap operatic serial - but most of all it captures Mr Buffett's capacity for self-deprecation. This is a man, after all, who has not only willed his billions to charity but to a foundation with someone else's name on it because he is convinced his friend and bridge partner Bill Gates has a better strategy to put those billions to work.
The loss in question was $444 million, only 0.2 per cent of Berkshire's net worth. But Mr Buffett is as much a teacher as an investor in these shareholder letters. Presumably, he deemed the Tesco experience worth dwelling on because he hopes others will learn from his mistake. In an accompanying letter from Berkshire's 91-year-old vice-chairman, Charlie Munger, Mr Munger says that one of Mr Buffett's aims was to "personally contribute, like [value-investing legend] Professor Ben Graham, to the spread of wisdom attained".
The 2014 letter is especially long because it commemorates 50 years since the company was founded in 1964. It has been parsed over for clues about whether his successor will be Ajit Jain or Greg Abel, both more directly mentioned in Mr Munger's accompanying letter.
The letter, however, is well worth reading and rereading for all it teaches about investing, work and ultimately, since both are building blocks to being happy, about life. Early on, there is a pretty robust defence of investing in shares: "The inescapable conclusion from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in (US) Treasuries, whose values have been tied to American currency."
This is especially relevant because with the advances in medicine, many of us face the prospect of a life expectancy that is likely to be closer to Mr Munger's 91 than the mid-70s of an earlier generation. And we need to be precise about what we define as risk. As Mr Buffett points out, "In business schools volatility is almost universally used as a proxy for risk ... It is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray."
Another wonderful bit of advice from Mr Buffett for CEOs on an acquisition trail is to ignore bankers' typical tendency to tout the " 'customary' premiums-to-market price that are currently being paid for acquisitions - an absolutely asinine way to evaluate the attractiveness of an acquisition - or whether the deal will increase the acquirer's earnings per share". Beware of so-called synergies and focus instead on ensuring that the "intrinsic value of shares you give in an acquisition must not be greater than the intrinsic value of the business you receive".
Unusually, for letters to shareholders but not for Mr Buffett's annual missives that have been compiled into a book, there are plenty of laugh-out-loud moments as you retrace the journeyBerkshire Hathaway has made over the past 50 years from being an investment company with a dud investment in textiles in the 1960s to the much admired company it is today. Famously, the annual meeting has become a pilgrimage for thousands of grateful shareholders. This year's will feature the "fourth International Newspaper Tossing Challenge". Mr Buffett estimates he tossed half a million newspapers as a teenager with a daily newspaper delivery run. "So I think I'm pretty good. Challenge me! Humiliate me ... I'll buy a Dilly bar for anyone who lands his or her throw closer to the doorstep than I do." Mr Buffett and Mr Gates will also kick off a table tennis challenge against a US 2012 Olympics woman player who we learn did not even yield a point to Mr Buffett when he played her, aged nine.
A curmudgeonly Bloomberg commentator has opined that such antics all add to the folksy aura Mr Buffett has long enjoyed and benefits Berkshire's stock price. Even if true, so what? Mr Buffett's wry account on how he goofed up in not selling out of the textile company that gave Berkshire its name has this gem. "The northern (American) textile industry is finally extinct. You need no longer panic if you hear I've been spotted wandering around New England."
This country has a few easygoing and down-to-earth corporate leaders - Harsh Mariwala, Arundhati Bhattacharya, Rajan Anandan and Nandan Nilekani among them - but self-deprecation is a trait so rarely seen in Indian public life, it might as well be un-Indian. Which is my excuse for ending on a self aggrandizing note. Years ago as a pedantic fact-checker at Fortune magazine in New York, I called Mr Buffett's office in Omaha to ask what he meant by the term "elephant-bumping affairs". Mr Buffett called back to explain that he was referring to giant leadership summits - such as World Economic Forum-styled events today. These were conferences where big egos went to meet other big egos, Mr Buffett explained. To Mr Buffett's eternal credit, he attributes much of Berkshire's success to good investment calls by Mr Munger. And somehow still finds time for newspaper throwing antics with his grateful shareholders.
This delightful passage is from Warren Buffett's most recent letter to shareholders of Berkshire Hathaway. It captures his wit and wisdom and ability to distil business lessons - bad business sagas often can be like a soap operatic serial - but most of all it captures Mr Buffett's capacity for self-deprecation. This is a man, after all, who has not only willed his billions to charity but to a foundation with someone else's name on it because he is convinced his friend and bridge partner Bill Gates has a better strategy to put those billions to work.
The loss in question was $444 million, only 0.2 per cent of Berkshire's net worth. But Mr Buffett is as much a teacher as an investor in these shareholder letters. Presumably, he deemed the Tesco experience worth dwelling on because he hopes others will learn from his mistake. In an accompanying letter from Berkshire's 91-year-old vice-chairman, Charlie Munger, Mr Munger says that one of Mr Buffett's aims was to "personally contribute, like [value-investing legend] Professor Ben Graham, to the spread of wisdom attained".
The 2014 letter is especially long because it commemorates 50 years since the company was founded in 1964. It has been parsed over for clues about whether his successor will be Ajit Jain or Greg Abel, both more directly mentioned in Mr Munger's accompanying letter.
The letter, however, is well worth reading and rereading for all it teaches about investing, work and ultimately, since both are building blocks to being happy, about life. Early on, there is a pretty robust defence of investing in shares: "The inescapable conclusion from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in (US) Treasuries, whose values have been tied to American currency."
This is especially relevant because with the advances in medicine, many of us face the prospect of a life expectancy that is likely to be closer to Mr Munger's 91 than the mid-70s of an earlier generation. And we need to be precise about what we define as risk. As Mr Buffett points out, "In business schools volatility is almost universally used as a proxy for risk ... It is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray."
Another wonderful bit of advice from Mr Buffett for CEOs on an acquisition trail is to ignore bankers' typical tendency to tout the " 'customary' premiums-to-market price that are currently being paid for acquisitions - an absolutely asinine way to evaluate the attractiveness of an acquisition - or whether the deal will increase the acquirer's earnings per share". Beware of so-called synergies and focus instead on ensuring that the "intrinsic value of shares you give in an acquisition must not be greater than the intrinsic value of the business you receive".
Unusually, for letters to shareholders but not for Mr Buffett's annual missives that have been compiled into a book, there are plenty of laugh-out-loud moments as you retrace the journeyBerkshire Hathaway has made over the past 50 years from being an investment company with a dud investment in textiles in the 1960s to the much admired company it is today. Famously, the annual meeting has become a pilgrimage for thousands of grateful shareholders. This year's will feature the "fourth International Newspaper Tossing Challenge". Mr Buffett estimates he tossed half a million newspapers as a teenager with a daily newspaper delivery run. "So I think I'm pretty good. Challenge me! Humiliate me ... I'll buy a Dilly bar for anyone who lands his or her throw closer to the doorstep than I do." Mr Buffett and Mr Gates will also kick off a table tennis challenge against a US 2012 Olympics woman player who we learn did not even yield a point to Mr Buffett when he played her, aged nine.
A curmudgeonly Bloomberg commentator has opined that such antics all add to the folksy aura Mr Buffett has long enjoyed and benefits Berkshire's stock price. Even if true, so what? Mr Buffett's wry account on how he goofed up in not selling out of the textile company that gave Berkshire its name has this gem. "The northern (American) textile industry is finally extinct. You need no longer panic if you hear I've been spotted wandering around New England."
This country has a few easygoing and down-to-earth corporate leaders - Harsh Mariwala, Arundhati Bhattacharya, Rajan Anandan and Nandan Nilekani among them - but self-deprecation is a trait so rarely seen in Indian public life, it might as well be un-Indian. Which is my excuse for ending on a self aggrandizing note. Years ago as a pedantic fact-checker at Fortune magazine in New York, I called Mr Buffett's office in Omaha to ask what he meant by the term "elephant-bumping affairs". Mr Buffett called back to explain that he was referring to giant leadership summits - such as World Economic Forum-styled events today. These were conferences where big egos went to meet other big egos, Mr Buffett explained. To Mr Buffett's eternal credit, he attributes much of Berkshire's success to good investment calls by Mr Munger. And somehow still finds time for newspaper throwing antics with his grateful shareholders.
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