There’s a reason they call him the Oracle of Omaha.
For decades now investors have pored over Warren Buffett’s annual letter to shareholders, hoping to soak up whatever wisdom they can from the business icon. Every year Buffett uses the letter to muse on economic cycles, as well as the perennial investing principles that have powered Berkshire Hathaway Inc. into an enterprise valued at almost $1 trillion.
But corporate boards and C-suites should also heed Buffett’s advice. His letter is full of lessons on how to run a company and manage your investors. Here are the big takeaways from this year:
Talk to your shareholders like they’re Bertie. When Buffett crafts his report, he thinks of writing for Bertie, his 90-year-old kid sister. “Bertie, like most of you, understands many accounting terms, but she is not ready for a CPA exam,” he explains. “She follows business news – reading four newspapers daily – but doesn’t consider herself an economic expert.”
To be fair, many of Omaha, Nebraska-based Berkshire’s shareholders are probably not as up on the news as Bertie, or as savvy an investor. But most companies could use a reminder that they should strive to communicate with investors in plain English. It helps avoid the “optimism and syrupy mush” that Buffett says are endemic of investor-relations and communications consultants. And if a company can’t explain its business model clearly and concisely, that should probably be a red flag to investors.
There’s a lot of money to be made in doing nothing. This isn’t a new Buffett lesson — it’s a core tenet of value investing, and Buffett is famously a value guy. But he hit hard on the do-nothing theme this year, nodding several times to the beauty of being a bystander. Case in point: The day he first invested in the Dow Jones Industrial Average in 1942, the index fell below 100; today it’s around 39,000. “America has been a terrific country for investors,” he writes. “All they have to do is sit quietly, listening to no one.” As for Bertie, Buffett notes that she’s been made very rich by not making a single trade in 43 years.
Big rewards don’t always have to come with big risks. Silicon Valley startup culture has indoctrinated us with the belief that you don’t get the big payout unless you put everything on the line. Berkshire is just the antithesis. Buffett writes that the company is always prepared for “the time of an economic paralysis” and that “extreme fiscal conservatism is a corporate pledge.” It’s not a particularly sexy approach, but it somehow hasn’t hampered Berkshire in clinching the title of largest GAAP net worth recorded by any US company.
Read the full article here by Beth Kowitt of Bloomberg News, Advisor Perspectives
