Each year, Warren Buffett pens his shareholder letter and explains the things people can expect at the annual Berkshire Hathaway meeting, he talks about the company performance and his reasoning behind certain things that he does. This letter is always packed with plenty of insights, great words of wisdom and pithy comments. The letter this year was no different. Here are the takeaways and highlights of the letter, plus a few ways to use these various strategies in your own life.
1. The fundamentals are everything: Whether you would think it’s a good idea or not, Berkshire Hathaway has begun acquiring many newspapers. Would you like to know why? Because the business fundamentals make sense to them. “News, to put it simply, is what people don’t know that they want to know. And people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost,” says Buffett. Other people do not need to understand your decisions. But they certainly must make sense to you. Everything else will fall into place once you understand the fundamentals.
2. Opportunity through optionality: The ability to choose the correct path of success from many different choices is known as optionality. By having many options, you will have a much better chance at selecting one that is beneficial. “Because we operate in so many areas of the economy, we enjoy a range of choices far wider than that open to most corporations. In deciding what to do, we can water the flowers and skip over the weeds,” the annual shareholder letter tells us. Your optionality is severely limited if you lack imagination, have lots of debt and only operate in a specific tiny niche market. An open mind, being diversified and having available capital promote optionality. It’s better to have more options than a select few.
3. Reality vs. fantasy: you’re not going to be able to wish yourself into a better position. Warren Buffett will tell you himself that, “Wishing makes dreams come true only in Disney movies; its poison in business.” You certainly made some mistakes. You may even have some debts. You probably have some regrets. You are not alone. But ignoring your personal downfall, your bills or your business will not change these areas of your life. Learn from your mistakes, own up to them and do everything you can to get better so you can make your life better.
4. Mitigating risk allows you to survive and sleep well at night: Risk can be a tricky thing. It is necessary if you plan to produce positive returns, but risking too much can ultimately lead to your overall destruction. “Charlie and I believe in operating with many redundant layers of liquidity, and we avoid any sort of obligation that could drain our cash in a material way. That reduces our returns in 99 years out of 100,” says Buffett. “But we will survive in the 100th while many others fail. And we will sleep well in all 100.” There’s nothing wrong with taking risks. They’re obviously necessary for success. But you must also maintain a highly risk-averse base.
5. A bargain will never be excellence: There is always going to be exceptions to the rule, but over the long haul, solid investments are always going to outperform bargains. “More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price then to buy a fair business at a wonderful price,” says Buffett. You can apply this powerful and simple principle to any area of your life. But shortcuts, discounts, dishonesty, and bargains will only work temporarily, but they won’t hold up over the long run.
6. Play the game consistently: There is no big secret to the success of Berkshire Hathaway. Consistently executing good strategies based on fundamentals will always produce incredible results. It is not the trendiest thing in the world, nor is the sexiest. But it will work for you, and do so every time. “Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of ‘experts,’ or the ebb and flow of business activity,” maintains Buffett. “The risks of being out of the game are huge compared to the risks of being in it.”
7. Gain clarity by embracing uncertainty: There is no immediate certainty in life, and there is nothing wrong with that. As Warren Buffett explains, “Every tomorrow has been uncertain. America’s destiny, however, has always been clear: ever-increasing abundance.” There are a variety of opportunities available through uncertainty. You need to embrace uncertainty, instead of looking at it as a form of anxiety. When you do so you will gain clarity and create for yourself a much brighter future. Buffett says:
“A thought for my fellow CEOs: Of course, the immediate future is uncertain; America has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful). American business will do fine over time.”
Warren Buffett’s greatest contribution to this world is much more than his amazing record of accomplishment as an investor. It goes way beyond his incredibly generous philanthropic ambitions. His biggest gift to the world is his well-documented life, where he proves that working hard, being transparent, and living with integrity and constant learning lead you to a life worth living.