In Warren Buffet’s 2018 letter to Berkshire Hathaway stockholders, it had seven key components. It was also shorter than normal at only sixteen pages. Yet it was full of information.
The first component of his letter stated that Berkshire’s book value had growth of 23%. Berkshire’s net worth grew a staggering $65.3 billion. Buffet wanted stockholders to know that the result was not only in Berkshire’s performance but also because of the Tax Cuts and Job Act.
He also told the stockholders that future earnings could be deceiving. A new accounting rule could make unrealized investment gains be included in the company’s net income. He also states that it could swing future earnings by $10 billion or more in either direction so that it did not represent true earnings.
Buffet pointed out that the company’s criteria for making stand-alone purchases “sensible purchase price” was recently hard to come by. There has been a frenzy of buying going on and that cheap debt has sent the cost of acquisitions up. He acknowledged that Berkshire not using the company’s criteria had been purchasing the stock at an all-time high.
Because of his love of insurance Buffet pointed out that the importance of “float”. That it could be invested while losses are paid out over the life of the insurance policy.
He also pointed out that Berkshire’s stock price had crashed before and it could do it again. Most of the time Berkshire’s ability to create value had at times been terrible. In 1973-1975 the company lost 59.1%, then in 1987, it lost 37.1%. Again from 1998 to 2000 it lost 48.9% and then during the Great Recession, it lost 50.7%. He warned investors that it would happen again.
Most importantly there were no new developments nor any big surprises.