Highlights from Berkshire Hathaway’s 2016 Letter to Shareholders

On Saturday, February 25th, Berkshire Hathaway released its much-anticipated 2016 letter to shareholders in which Warren Buffett presents his company’s results for the year and shares his inimitable insights and wisdom. Here are some highlights:

  • Berkshire has undergone a “gradual shift from a company obtaining most of its gains from investment activities to one that grows in value by owning businesses.”
  • The company’ present course is to:
    • Continue to build insurance operation;
    • Acquire large and diversified non-insurance firms
    • Make deals largely with cash
  • In discussing the issues surrounding issuance of additional shares, Buffett is forthright in admitting mistakes. “I made one egregious error,” he writes, “acquiring Dexter Shoe for $434 million in 1993. Dexter’s value promptly went to zero. The story gets worse: I used stock for the purchase.”
  • Buffett drives home his unwavering confidence in the U.S. economy: “American business—and consequently a basket of stocks—is virtually certain to be worth far more in the years ahead.” While he acknowledges that the years ahead will periodically suffer market declines, he writes, “No one can tell you when these traumas will occur—not me, not Charlie, not economists, not the media.”
  • Asserting that share repurchases only make sense (for continuing shareholders) if the shares are bought at a price below intrinsic value, Buffett argues, “Before even discussing repurchases, a CEO and his or her Board should stand, join hands and in unison declare, ‘What is smart at one price is stupid at another.’ “

More in tomorrow’s blog.