Since Warren Buffett took over the management of Berkshire Hathaway in 1965, he has written an Annual Shareholder Letter outlining the progress of the company, setting goals, and discussing the culture and methodology of Berkshire Hathaway. And, while a good portion of each letter is devoted to a rundown of numbers for Berkshire Hathaway, scattered throughout each article is quite a bit of Buffett’s down-to-earth mentality and some fantastic financial advice.
In this series, I’m going to go through and highlight some of the best letters from 1965 through the present. There won’t really be that much of an order, and we won’t do every year, but inside you’ll find not only an interesting insight into Berkshire Hathaway, but also history and the mind of the Oracle of Omaha himself.
Today, we’re going to take a look at the Shareholder Letter from 2015. Being the most recent letter in a long run, this letter is pretty much what we have come to expect from Buffett. But first we’ll get some background on what was going on in Berkshire Hathaway that year.
Berkshire Hathaway in 2015
2015 marks 50 years with Buffett as the head of Berkshire Hathaway. Plus, he completed his biggest deal ever during this year— Precision Castparts. While the results are not shown in this years letter, Buffett awknowledges that the “Powerhouse Five” is going to be the “Powerhouse Six” next year. This means that Berkshire Hathaway now fully owns 10 companies that would be on the Fortune 500 if they were not subsidiaries. Additionally, Berkshire increased its holdings in each of its “Big Four” investments— American Express (14.8% to 15.6%), Coca-Cola (9.2% to 9.3%), IBM (7.8% to 8.4%), and Wells Fargo (9.4% to 9.8%).
2015 Shareholder Letter Highlights
This years letter, while not groundbreaking, is plenty interesting and full of financial information for the long term investor. Berkshire gained $15.4 billion during 2015, and the value of stock by increased by 6.4%.
The most important development at Berkshire during 2015 was not financial, though it led to better earnings… Our BNSF railroad dramatically improved its service to customers last year… We invested about $5.8 billion during the year in capital expenditures, it was money well spent… BNSF maintained volume, and pre-tax income rose to a record $6.8 billion (a gain of $606 million from 2014). Matt Rose and Carl Ice, the managers of BNSF, have my thanks and deserve yours.
The BNSF Railway is easily one of largest railroads in North America, and during 2015 most railroads were not doing very great. That wasn’t the case with BNSF, though, and Berkshire— with a little capital and the proper management— was able to help BNSF increase its income.
With the PCC acquisition, Berkshire will own 101⁄4 companies that would populate the Fortune 500 if they were stand-alone businesses. (Our 27% holding of Kraft Heinz is the 1⁄4.) That leaves just under 98% of America’s business giants that have yet to call us. Operators are standing by.
After the huge purchase of Precision Castparts Corporation, Berkshire has managed to aqcuire 2% of the Fortune 500 list. We can’t forget Buffett’s simple sense of humor, which is just one of many reasons we love him, as he teases that he has operators standing by for the other 98%.
Their method… is to buy companies that offer an opportunity for eliminating many unnecessary costs and then— very promptly— to make the moves that will get the job done. Their actions significantly boost productivity… At Berkshire, we, too, crave efficiency… To achieve our goals, however, we follow an approach emphasizing avoidance of bloat, buying businesses such as PCC that have long been run by cost-conscious and efficient managers.
In 2015, after merging Kraft Heinz, Buffett received quite a bit of backlash for his relationship with his favorite partner, 3G Capital. The company has a reputation for being somewhat heartless when they’re making cuts, something that seemingly contrasts with Buffett’s morals. Buffett did not stand for that, though, and in his letter dedicated an entire section to defending 3G. Buffett explains the difference between Berkshire and 3G rather simply: 3G will purchase something and then try to improve it, while Berkshire prefers to purchases businesses that can continue running like they have been.
Many Americans now believe that their children will not live as well as they themselves do. That view is dead wrong: The babies being born in America today are the luckiest crop in history… For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.
Buffett dedicates a small section of this letter to showcase his patriotism. During this year, we saw the beginnings of the presidential election (during which Buffett was an avid Hilary Clinton supporter) and Buffett thought that it was filling everyone’s head with negativity about our country. Buffett, however, thinks there is no reason to worry— America is the best it’s ever been, and only going up from here.
There are plenty more interesting tidbits in the letter, so if you’re interested, the full letter is definitely worth a read. You can find it here. All of the letters from 1977 to the present are archived on the Berkshire Hathaway website, but there was also a compilation published in book form. It is available on Amazon for around $35.