《Retirement of the God of Investing丨Reflecting on the Legendary Journey of Warren Buffett》Buffett’s Annual Letters to Shareholders: Key Takeaways (1974–2024) - Public in Limited Time
- FOFA
- May 26
- 5 min read
Buffett’s 1987 Letter to Shareholders: A Classic Discourse on Market Volatility
Excerpt : *"We will continue to ignore political and economic forecasts as they are distractions for investors rather than helpful insights.
Thirty years ago, no one could have predicted the Vietnam War, wage controls, two oil crises, a presidential resignation, the collapse of the Soviet Union, the Dow dropping 508 points in a single day (Black Monday, 1987), or the wild swings in Treasury yields between 2.8% and 17.4%.
Yet, surprisingly, these dramatic events didn’t hinder the long-term strategy of 'investing in great businesses' from delivering substantial returns. In fact, market crashes often present opportunities to acquire excellent companies at bargain prices.
The key is not to predict storms but to build a vessel that can sail regardless of the weather."*
Background and Analysis:
Historical Background:
On October 19, 1987, the U.S. stock market plummeted 22.6% in a single day (Black Monday), and Berkshire Hathaway’s portfolio suffered a $342 million paper loss.
Buffett used this letter to reassure shareholders, emphasizing that a company’s intrinsic value is unrelated to market fluctuations.
Core Ideas:
Avoid Macroeconomic Predictions: Economic crises and political turmoil are unpredictable and unnecessary distractions.
Focus on Business Fundamentals: Great companies can endure through cycles (e.g., See’s Candies, GEICO).
Contrarian Thinking: Market panic provides opportunities to purchase quality assets.
Subsequent Validation:
Following the 1987 crash, Buffett increased his stake in Coca-Cola (investing $1.3 billion in 1988, now worth over $25 billion).
From 1988 to 1998, Berkshire’s stock price rose by over 800%.
《Retirement of the God of Investing丨Reflecting on the Legendary Journey of Warren Buffett》Series :
Buffett’s 1999 Letter to Shareholders: A Classic Warning About "Speculative Bubbles"
Excerpt :*"In the investment world, it’s only when the tide goes out that you discover who’s been swimming naked. And right now, we are witnessing an unprecedented naked swimming party.
Many so-called 'new economy companies' are being valued based on 'eyeballs' and 'clicks' rather than profits, which reminds me of the tulip mania of 1637.
Investors must understand: the ultimate value of a stock depends on the total cash it will generate in the future—not on how many people are willing to pay a higher price tomorrow.
We (Berkshire Hathaway) will continue to stick to businesses we understand, even if it means missing out on the 'internet stock' frenzy. After all, earning money from what you understand is far better than losing money on what you don’t."*
Background and Analysis:
Historical Background:
In 1999, the NASDAQ Index surged 86%, and Amazon’s price-to-earnings ratio exceeded 300x. Buffett, who refused to invest in tech stocks, was mocked by the media as "outdated."
The following year (2000), the dot-com bubble burst, and the NASDAQ plummeted by 78%.
Core Ideas:
Cash Flow is King: A company’s value must be based on its measurable ability to generate cash.
Circle of Competence: It’s better to miss an opportunity than to invest in something you don’t understand.
Human Nature Warning: Rational investors are often seen as contrarians during speculative manias.
Subsequent Validation:
From 2000–2002, Berkshire Hathaway posted positive returns by avoiding tech stocks, while NASDAQ investors lost over $5 trillion.
After the bubble burst, Buffett bought stable cash-flow businesses like Clayton Homes and NetJets.
I. Core Investment Philosophy (Unchanged for 50 Years)
✅ 1. The Essence of Value Investing
"Price is what you pay; value is what you get." (1984)
Stresses the "margin of safety": only buy assets priced below their intrinsic value.
✅ 2. The Power of Long-Term Compounding
"Time is the friend of great businesses and the enemy of mediocre ones." (1989)
Invest with the mindset of "owning a business" rather than "trading stocks."
✅ 3. The Importance of Moats
"We prefer businesses that can earn money even if run by an idiot." (1993)
Examples: Coca-Cola (brand), GEICO (cost advantage), BNSF Railway (monopoly).
II. Key Investment Decisions Reviewed
📈 1. 1970–1980s: The Golden Era of Value Investing
1973–1974: Bought The Washington Post and See’s Candies during a market crash.
1988: Made Coca-Cola a major holding, becoming a classic case study.
💡 2. 1990–2000s: Scaling and Transformation
1999: Avoided the tech bubble, stating, "I won’t invest in businesses I don’t understand."
Post-2000: Acquired Burlington Northern Santa Fe (BNSF) Railway and Precision Castparts, strengthening industrial holdings.
⚡ 3. 2008 Financial Crisis: Contrarian Moves
Injected capital into Goldman Sachs and General Electric, securing preferred shares and high dividends, profiting significantly after the crisis.
📱 4. Post-2016: Breaking into Tech
Invested in Apple, calling it a "consumer company" rather than a tech company.
III. Principles of Business Management
🏭 1. Integrity of Management is Paramount
"When we buy businesses, our priority is the character of the managers." (2002)
💰 2. The Art of Cash Flow Management
"Insurance float is cost-free capital." (repeatedly emphasized over the years)
In 2023, Berkshire’s cash reserves hit $167.6 billion, ready for extreme opportunities.
📉 3. Iron Rules of Risk Control
"Always keep enough cash to fight another day." (2008)
IV. Transparent Communication with Shareholders
📉 1. Admitting Mistakes
1989: Admitted the acquisition of US Airways was a "major mistake."
2020: Acknowledged that reducing airline holdings "might have been wrong."
📊 2. Avoiding Blind Expansion
"We’d rather earn 0% on idle funds than invest in areas we don’t understand." (1998)
🎯 3. Long-Term Goals
"The key metric is growth in per-share intrinsic value, not stock price." (reiterated annually)
V. Recent Key Topics (2015–2024)
🔋 1. Energy Transition Investments
Acquired Occidental Petroleum (OXY) and expanded wind energy investments (Berkshire Hathaway Energy).
📱 2. Debate on Tech Stocks
"Apple is our third-largest business (after insurance and railroads)." (2022)
👴 3. Succession Plan Clarified
Confirmed Greg Abel as the next CEO (2021).
Timeless Wisdom from Buffett’s Shareholder Letters
Countering Market Sentiment:
"Be greedy when others are fearful."
Focus on Fundamentals:
A company’s cash flow is more important than macroeconomic predictions.
Integrity is Priceless:
"It takes 20 years to build a reputation and five minutes to ruin it."
2024 Reminder: "Berkshire’s strength lies in always being prepared—no matter how crazy the market gets."
(Source: Berkshire Hathaway’s official shareholder letters; key quotes annotated with publication years.)
《Retirement of the God of Investing丨Reflecting on the Legendary Journey of Warren Buffett》Series :
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