Warren Buffett is the CEO of Berkshire Hathaway. He is a legendary investor. Part of his genius lies in his ability to communicate about complex business topics in a very humble, down home manner. Here are a few of my favorites from the 2012 letter, released this weekend.
"A number of good things happened at Berkshire last year, but let’s first get the bad news out of the way." (I love the way Buffett counter-intuitively goes right to the negative. In doing so, he controls the agenda.)
"Whatever Berkshire’s results, my partner Charlie Munger, the company’s Vice Chairman, and I will not change yardsticks. It’s our job to increase intrinsic business value – for which we use book value as a significantly understated proxy – at a faster rate than the market gains of the S&P. If we do so, Berkshire’s share price, though unpredictable from year to year, will itself outpace the S&P over time. If we fail, however, our management will bring no value to our investors, who themselves can earn S&P returns by buying a low-cost index fund." (Part of Buffet's humility is strongly based in his sense of accountability to his stakeholders. He speaks and acts the part.)
"Our insurance operations shot the lights out last year. While giving Berkshire $73 billion of free money to invest, they also delivered a $1.6 billion underwriting gain, the tenth consecutive year of profitable underwriting. This is truly having your cake and eating it too....This collect- now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit....If our premiums exceed the total of our expenses and eventual losses, we register an underwriting profit that adds to the investment income our float produces. When such a profit is earned, we enjoy the use of free money – and, better yet, get paid for holding it. That’s like your taking out a loan and having the bank pay you interest." (Insurance is complex, full of parochial terms. Buffett simplifies and uses non-technical terms so his stakeholders can understand their investment.)
"Berkshire’s yearend employment totaled a record 288,462 (see page 106 for details), up 17,604 from last year. Our headquarters crew, however, remained unchanged at 24. No sense going crazy." (The perceived lack of largesse plays to Buffett's perceived "humble" foundation.)
"America’s destiny, however, has always been clear: ever-increasing abundance. If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you." (His optimism in America is unbridled. It helps him position himself as a CEO of CEO's.)
"Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership." (Always a curve ball. Buffett on the newspaper industry. And he is right!)
"Charlie and I believe that all shareholders should have access to new Berkshire information simultaneously and should also have adequate time to analyze it, which is why we try to issue financial information after the market close on a Friday and why our annual meeting is held on Saturdays. We do not talk one-on-one to large institutional investors or analysts. Our hope is that the journalists and analysts will ask questions that will further educate shareholders about their investment. Neither Charlie nor I will get so much as a clue about the questions to be asked. We know the journalists and analysts will come up with some tough ones, and that’s the way we like it. All told, we expect at least 54 questions, which will allow for six from each analyst and journalist and 18 from the audience. If there is some extra time, we will take more from the audience. Audience questioners will be determined by drawings that will take place at 8:15 a.m. at each of the 11 microphones located in the arena and main overflow room." (Buffett's communications strategy. Transparent and clear. You know what to expect).
"And that ends today’s accounting lecture. Why is no one shouting “More, more?” (Buffett knows that his audience doesn't care about the technical language. They just want to know that the organization is on top of the difficult issues. The tongue-in-cheek approach play to his humble roots)
-- Post From My iPad
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