Warren Buffett’s Shareholder Letters Make a Surprisingly Great Book
A new volume collecting decades of letters from the Berkshire Hathaway chairman is part management manual, part Berkshire history and, somehow, part comedy.
With almost no notice, in a format as indifferent to appearances as its author, you can now get a six-decade, year-by-year accounting of the greatest exercise in the allocation of capital in US history. It is an education in business, a primer on morality, a randy hoot, a celebration of buying and (infrequently) selling, an unyielding and irrefutable critique of Wall Street and a wild improbable story of how an awful investment turned into the nation’s greatest sustainable fortune.
Berkshire Hathaway Letters to Shareholders: 1965-2024 (Explorist Productions, Oct. 14) is just that: a collection of introductory letters from annual reports, a format known for pablum and spin. But Warren Buffett wanted his letters to have eternal truth and eternal life, and their 940 large-format pages can now be read as a complete book. That book should be read by anyone who wants his or her own life to be more Buffettesque, as measured by money or patience or self-deprecation or decency. Which means that it should probably be read by everyone.
Buffett believed that Berkshire Hathaway should be viewed as “an unfolding movie, not a still photograph,” and he wrote each letter presuming that his readers had read the prior ones. Like much good writing, the Letters have a conversational tone. They were not, however, casually produced. Buffett heavily rewrote them over months. Carol Loomis, a veteran Fortune writer, began editing them in 1979. For the first few decades, Loomis and Buffett would FedEx drafts to each other to avoid getting into arguments over the phone. The journalist Alice Schroeder, in her 2008 biography of Buffett, The Snowball, quotes Buffett saying that soon after their first meeting, “Carol quickly became my best friend” other than Charlie Munger, Berkshire’s vice chairman.
Yet as crafted as Buffett’s letters are, they still accomplish what the best bound collections of letters do: compose an autobiography. And in Buffett’s case, this kind of intellectual memoir seems especially appropriate. He always preferred to be at a desk in Omaha, fueled by Cherry Coke, candy and red meat, doing what mattered most to him: applying his mind to markets and business.
In places, the Letters can be repetitive — after the fifth mention, you’ll skim Buffett’s annual appreciation of Tony Nicely of GEICO or of the crusty, imperishable Rose Blumkin of Nebraska Furniture Mart — but they also have a plot. You can come to the book cold and learn Berkshire’s entire improbable story.
Following the voluntary closing of Buffett’s investment partnership — effectively a hedge fund — in 1969, Buffett and Munger were left with Berkshire Hathaway, a struggling textile manufacturer, and two other companies. Fifteen years later, Buffett reflected that the three businesses had respectively “(1) survived but earned almost nothing, (2) shriveled in size while incurring large losses, and (3) shrunk in sales volume to about 5% its size at the time of our entry. (Who says ‘you can’t lose ’em all’?)” On why Buffett chose a dying company in a bad industry as the chassis on which to build a conglomerate, he wrote in 2014, “I’ve had 48 years to think about that question, and I’ve yet to come up with a good answer. I simply made a colossal mistake.”
But we know the ending. In stop motion, the Letters explain how that nearly hopeless beginning (which occurred during the 1968-1982 bear market) became a conglomerate with nearly 400,000 direct employees, a dozen or so mammoth stock positions in iconic companies, and a trillion-dollar market cap.
Like almost every important Wall Street fortune, the Letters make clear that the essence of Buffett’s story is not making great investments. It is building a great business. That business is, at root, a manifestation of Buffett’s character. Its core competencies are patience, logic, reciprocity, realism and imperturbability.
But Berkshire has gears, too, and the Letters show how they work. The first and largest is an insurance business that, unlike most, made money both from underwriting and from the investment returns on a growing “float.” That float mainly came from the collected premiums of GEICO’s low-cost auto insurance franchise and from large, idiosyncratic reinsurance contracts (chosen for profit, never volume targets) written by a group led by the incessantly praised Ajit Jain. (“We first met on a Saturday morning,” Buffett wrote in 2021, “and I quickly asked Ajit what his insurance experience had been. He replied, ‘None.’ I said, ‘Nobody’s perfect,’ and hired him.”)
The second is the earned reputation for fair dealing and far-seeing that allowed Berkshire to extend its competitive moat by becoming the “buyer of choice” for private companies and the capital provider of choice for public companies, especially during crises.
Third is self-possession. Buffett rolled his eyes at quarterly targets (and growth targets generally). He ignored the conventional wisdom to use leverage. He was loath to issue equity and regretted it when he did. He knew people snickered when he stubbornly built mountains of cash during overpriced bull markets, as in the 1990s and the last decade, but he usually had the last laugh when he had cash and others didn’t.
The fourth gear is the ability to shift strategy — not regularly, but with conviction. Buffett eventually came to invest in capital-intensive businesses like BNSF Railway after years spent seeking investments like See’s Candies, which grew steadily with few tangible assets. When Berkshire became too large to do otherwise, Buffett came to appreciate the advantages of multiple income streams and diversification. Most famously, he abandoned the deep value orientation of his mentor Benjamin Graham in favor of the advice of Munger, whom he called the “architect” of Berkshire Hathaway. Forever after, Berkshire’s strategy was to “find an outstanding business at a sensible price, not a mediocre business at a bargain price.”
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