I’m sorry that I can’t add to your meager list of readable chairman letters. One of my all-time favorites was the annual letter written by the founders of Leucadia National, Ian Cummings and Joseph Steinberg. It could be outrageously funny—and honest. Leucadia is now part of Jeffries.
A big reason I don’t have a longer list today is that, at 83, I’m not continually looking for new investments. In my earlier days, I found that I could easily dispense with 9 out of 10 annual reports by merely reading the first paragraph of the chairman’s letter. It would give me a pretty good idea of whether I could count on the company to make us money. It taught me to look for signs. That was in the heyday of stock-option non-accounting. The second or third sentence might read something like: We are pleased to report a 20% increase in net income from $100 million to $120 million. But the sentence included, parenthetically, $1 to $1.1 per share. In other words, half of earnings were absorbed by the issuance of stock options. A sign today would be: “We are pleased to report an increase in your company’s dividend.” Even though earnings were mediocre. Try reading a letter for a bad earnings year!
Charlie Munger often advised that we have three boxes on our desk: IN, OUT, and TOO DIFFICULT or NOT WORTH IT. And he urged us to use the third frequently.
A useful heuristic in saving time—using the NOT WORTH IT box—is to note how quickly we pick up an annual report to read the chairman’s letter. For me Leucadia was one; the other was and is Berkshire. Without doubt Warren’s annual letter has many investors reading it the morning it is released. Why don’t chairmen/women aim to make their letters worth reading? Warren once said to me that he grades his performance on how few shares trade. If you look forward to reading the annual letter, you will likely be less inclined to take a profit—or a loss, which could, with patience, turn into a lasting profit.
Proxy statements are possibly even better than annual letters when it comes to detecting corporate BS. General rule of thumb is that the longer the proxy and the more illustrations it has, the more red flags it raises. Berkshire’s proxy is famously brief. It doesn’t need to be long because there are no convoluted schemes to stealthily enrich management and directors, and so the explanation of what’s actually taking place requires much less space.
A list of people who passed on the Buffett Partnership in the late 50's and its 12yr, net to LPs 29.5% CAGR, would be an interesting read. Besides Ringwalt, I'm aware of Don Keough, a neighbor of Warren's who 25 years later was President of Coca-Cola and 50 years later even served as a BRK directors himself. Can you recall any others?
Hi Doug - That's a great question. I feel like I read an article once that talked to a few people who passed on the chance to invest in the partnership. I'll try and see if I can find that one.
In the same vein, I believe Carol Loomis' husband bought 200 shares for them around $40? for $8000 in the early 70's. A year later he sold half the position after it quickly doubled, but they've kept the other 100 shares all these years since (minus a few donations). But as for the shares they sold 50 years ago, who needs another 73 million anyway?
I’m sorry that I can’t add to your meager list of readable chairman letters. One of my all-time favorites was the annual letter written by the founders of Leucadia National, Ian Cummings and Joseph Steinberg. It could be outrageously funny—and honest. Leucadia is now part of Jeffries.
A big reason I don’t have a longer list today is that, at 83, I’m not continually looking for new investments. In my earlier days, I found that I could easily dispense with 9 out of 10 annual reports by merely reading the first paragraph of the chairman’s letter. It would give me a pretty good idea of whether I could count on the company to make us money. It taught me to look for signs. That was in the heyday of stock-option non-accounting. The second or third sentence might read something like: We are pleased to report a 20% increase in net income from $100 million to $120 million. But the sentence included, parenthetically, $1 to $1.1 per share. In other words, half of earnings were absorbed by the issuance of stock options. A sign today would be: “We are pleased to report an increase in your company’s dividend.” Even though earnings were mediocre. Try reading a letter for a bad earnings year!
Charlie Munger often advised that we have three boxes on our desk: IN, OUT, and TOO DIFFICULT or NOT WORTH IT. And he urged us to use the third frequently.
A useful heuristic in saving time—using the NOT WORTH IT box—is to note how quickly we pick up an annual report to read the chairman’s letter. For me Leucadia was one; the other was and is Berkshire. Without doubt Warren’s annual letter has many investors reading it the morning it is released. Why don’t chairmen/women aim to make their letters worth reading? Warren once said to me that he grades his performance on how few shares trade. If you look forward to reading the annual letter, you will likely be less inclined to take a profit—or a loss, which could, with patience, turn into a lasting profit.
Hi Arthur - I've been meaning to read the old Cummings/Steinberg letters from Leucadia and now they're going right to the top of my list. Thanks!
Kevin, I would love to hear what you think!
Proxy statements are possibly even better than annual letters when it comes to detecting corporate BS. General rule of thumb is that the longer the proxy and the more illustrations it has, the more red flags it raises. Berkshire’s proxy is famously brief. It doesn’t need to be long because there are no convoluted schemes to stealthily enrich management and directors, and so the explanation of what’s actually taking place requires much less space.
Berkshire's proxy is such a breath of fresh air compared to so many others.
MFF.AX on the ASX.
Thanks James, I'll check that out!
Mark Leonard at Constellation Software - exceptional and great learning material
Thanks Max!
A list of people who passed on the Buffett Partnership in the late 50's and its 12yr, net to LPs 29.5% CAGR, would be an interesting read. Besides Ringwalt, I'm aware of Don Keough, a neighbor of Warren's who 25 years later was President of Coca-Cola and 50 years later even served as a BRK directors himself. Can you recall any others?
Hi Doug - That's a great question. I feel like I read an article once that talked to a few people who passed on the chance to invest in the partnership. I'll try and see if I can find that one.
In the same vein, I believe Carol Loomis' husband bought 200 shares for them around $40? for $8000 in the early 70's. A year later he sold half the position after it quickly doubled, but they've kept the other 100 shares all these years since (minus a few donations). But as for the shares they sold 50 years ago, who needs another 73 million anyway?