The Tell: 7 highlights from Warren Buffett’s Berkshire Hathaway investor letter

Whatever you think of Warren Buffett, the billionaire investor has a way with words.

His annual investor letters, issued over about the last 50 years, are pored over for clues to Berkshire Hathaway’s BRK.A, +0.87% BRK.B, +1.01%  plans, but also, and usually more productively, for the lessons the 87-year-old Buffett—and his right-hand man, Berkshire Vice Chairman Charlie Munger—have gleaned over the years as the world’s pre-eminent value investor.

Read: Warren Buffett’s Berkshire Hathaway got $29 billion boost from tax plan in 2017

This year’s letter, coming in at 17 pages, is notably shorter than past missives. It truncates much of the usual discussion on Berkshire’s non-insurance businesses. Buffett said that discussion “has become both repetitious and partially duplicative” of information regularly included in Berkshire’s 10-K regulatory filing. For that reason, he said, this year’s letter offered a simple summary of those business activities, pointing investors to the filing for more details.

Read Warren Buffett’s annual letter to investors

Meanwhile, the letter still offered up plenty of interesting nuggets for Buffettologists and investors in general. Here are some of the highlights:

Deal-making CEOs

In explaining why he thinks it’s so difficult to find stand-alone companies to buy at a “sensible” price, Buffett blames a buying frenzy driven in part by overly eager corporate managers who are egged on by their boards:

“If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.”

Read: Warren Buffett: No luck finding companies to buy at a ‘sensible’ price

On leverage and sleeping well

“Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.”

Stop on in

Buffett touts one of the deals Berkshire did get done in 2017, its acquisition of a 38.6% partnership interest in travel-center operator Pilot Flying J, or PFJ. He offers this plug:

“When driving on the Interstate, drop in. PFJ sells gasoline as well as diesel fuel, and the food is good. If it’s been a long day, remember, too, that our properties have 5,200 showers.”

Liquidity and the ‘kindness of strangers’

In a discussion of Berkshire’s insurance float—the pool of money collected from premiums but not yet paid out in claims—Buffett talks about the desire for ample liquidity:

“Charlie and I never will operate Berkshire in a manner that depends on the kindness of strangers—or even—that of friends who may be facing liquidity problems of their own. During the 2008-2009 crisis, we liked having Treasury bills—loads of Treasury bills—that protected us from having to rely on funding sources such as bank lines or commercial paper.

“We have intentionally constructed Berkshire in a manner that will allow it to comfortably withstand economic discontinuities, including such extremes as extended market closures.”

‘In America…’

Buffett regularly argues that the very long-term outlook for the U.S. economy—and stocks SPX, +1.60%  —is undeniably bullish:

“Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their ‘chart’ patterns, the ‘target’ prices of analysts or the opinions of media pundits. Instead, we simply believe that if the businesses of the investees are successful (as we believe most will be) our investments will be successful as well. Sometimes the payoffs to us will be modest; occasionally the cash register will ring loudly. And sometimes I will make expensive mistakes.

“Overall—and over time—we should get decent results. In America, equity investors have the wind at their back.”

Watch those fees

Buffett is a stock picker, but he’s adamant most investors are better off sticking with passive, low-cost, index-tracking products. In a section where he again bashes Wall Street and hedge funds, he reminds:

“Performance comes, performance goes. Fees never falter.”

See: Warren Buffett says famous hedge-fund bet delivered an unforeseen lesson

‘Willingness to look foolish’

“Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period—or even to look foolish—is also essential.”

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