Warren Buffett.
That name is synonymous with value investing. Let’s personify Investing for a minute here... If Ben Graham is the Father of Value Investing, and he arguably is, than Warren Buffett would be Investings favorite Uncle. Not only is he the favorite Uncle, but he grew up to become Investings greatest and most influential teacher. Without Buffett, who know’s where Value Investing would be today. It would probably still be wandering the ‘Street’, looking for cigars with one last puff in them…(there's one for you value investing geeks) Thankfully this didn’t happen. Because as Buffett grew and changed himself, he changed Value Investing as we knew it, and I don’t think he will ever stop. We as value investors can’t ever thank him enough for that.
What we can do, is continue to learn from him. Whether it’s an interview he does, or reading his annual reports, we need to devour everything he releases. If you’re serious about value investing, Buffett is the guy to pay attention to.
Value Investing Bible...
As you may already know, Warren Buffett, AKA the oracle of Omaha, just released his annual shareholder letter for 2016. This is similar an SEC 10K annual report, without all the lawyer talk. A 10K is what publicly traded companies, like Berkshire, are required by law to submit every year. Buffett’s report, however, get’s treated a bit differently…
We already know that Buffett is Value Investing’s favorite Uncle… However, for the people who follow his teachings, he’s more like a God...
Let me put it this way. If value investing was a Western Religion, Warren Buffett would be the Son of God. Through his values, teachings, and generosity he began to attract a large following. This following is fanatical in its devotion, travelling far and wide just to hear him speak.
His words continue to be written down and collected, year after year, and thus the Value Investing Bible is created. It’s a living document, each year Buffett adds a new chapter to the Investing Bible, to help his followers grow and change to become the best Value investor they can be.
In other words, in order for us to get into Value Investing Heaven (which I’ve heard is quite lovely), we should read the ‘Bible’ to find out how we must conduct ourselves. This annual report is that Bible, and it’s free for all to read, follower or not.
If I haven’t convinced you to take Buffett seriously, through my slightly sacrilegious analogy or my familial one, let me try a different tactic…
The Magic Compounding Machine
Since Warren Buffett took over Berkshire Hathaway in 1965, the company has been on a trajectory that has surpassed all investor expectations. In that relatively brief 52 year period, Buffett has managed to deliver to the shareholders, an average compounding rate of return of 20.8%. Said a different way, the company's stock has grown in value by 1,972,595% (holy crap, right?).
This means, that if you were lucky enough to invest, say, $1000 with Berkshire in 1965, Uncle Warren would have grown that for you, to an incredible $15,325,464.57. And that’s without any additional contributions.
If you instead decided to continue to add $1,000 every year in Berkshire stock, (a smart idea on your part), you would have increased your total gains by an almost ridiculous $88,999,775.03 to a grand total of $104,325,239.60. Those are some veeeery large numbers. That’s the magical power of compounding; even small increases, given enough time, become huge windfalls. Berkshire Hathaway is a money making machine, and the guy pulling all the levers, is Warren Buffett. Have I convinced you now?
Here’s the chart for your viewing pleasure:
What’s Next
So, this is what this next series of posts is going to be on; Buffett’s latest Shareholder Letter, AKA the ‘Bible’ and all the knowledge we can gain from it. It’s chalk full of wisdom and insight into the world of value investing. We’re going to learn a ton.
Here’s the plan, we’re going to dive deep into this annual letter, breaking it down into several subjects. Some of the highlights we’ll cover in the coming weeks include:
1. The History and Future of Berkshire Hathaway, and a management with enviable candor.
2. Why Buffett Believes in the ‘Miraculous America’
3. How a company should treat Share Repurchases and Buffett’s plea to management.
4. The Businesses Buffett currently owns, and some valuations on them today.
5. The power of Insurance Float
6. Buffett and Munger VS GAAP accounting (Generally Accepted Accounting Principles)
7. Buffett's Bet; ETF’s VS actively managed investments by professionals.
8. The Berkshire Hathaway Annual meeting
I know, it seems like a lot, but Buffett is amazing at breaking a topic down to it’s simplest form, and explaining it in an entertaining way. Which is what I’m continuously trying to do, but let’s face it, Buffett is just better at it. So far my plan is to release one new post each week, mostly because I write slowly, and want to make sure I do this right. But, if things change I’ll let you know. It’s going to be an amazing adventure, and I hope you’ll join me.
The Letters
Oh, before I go… I should mention that all of these annual reports are Free and available at Berkshire Hathaway's website. What I recommend you do is download the annual letters in the book format. The Kindle Edition is only $2.36 for what most people call an MBA in business. Here’s just one review:
“When I started learning about Warren Buffett, one of the first things I did was buy a printer that could print on both sides of the page. I got a ream of three hole paper, and filled a few binders with Buffett's letters to investors, all of which are freely available on his website. . . .
Well, now they have been helpfully compiled by my friend Max Olson. This edition includes charts I haven't seen anywhere else, showing Berkshire's cost of float (to the uninitiated: Buffett has borrowed money more cheaply than the U.S. government over the years, and used this fuel to invest at incredible rates of return), a chronological list of acquisitions, and even includes a topic index.
Kudos to Olson and Buffett for making this public. Now it's up to you, the reader, to make the best of it.” --Marcelo P. Lima
Berkshire Hathaway Letters to Shareholders
Enjoy!
See you next week.
~Ryan Chudyk~
PS.
Don’t forget to click the picture below to sign-up to my Newsletter. You’ll never miss another post, and you’ll get weekly information only email from me! and as a Bonus, receive my Next Level Investing Checklist.
Leave a Reply
Get in the Conversation, Share your opinion.