Warren Buffett’s Shareholder Letter and Market Comments

Warren Buffett has issued his annual letter to shareholders in Berkshire Hathaway. It is usually worth reading for his market insights.  Last year was not a great one performance wise – annual percentage change in per share market value up only 11%. If you look back over the last 50 years of the company, and he publishes the whole track record, it is obvious that he has not been achieving the large outperformance against the market in recent years as he was up until the year 2000. That’s probably simply a reflection of the size of the company now and his inability to acquire controlling interests in good companies of late with the stock market being so buoyant.

The letter covers how the company uses insurance company floats to finance the business and the future as both Buffett and his partner Charlie Munger are now both very old.

Buffett has some interesting comments about how boards of directors have changed over the years. But he says: “The bedrock challenge for directors, nevertheless, remains constant: Find and retain a talented CEO – possessing integrity, for sure – who will be devoted to the company for his/her business lifetime. Often, that task is hard. When directors get it right, though, they need to do little else. But when they mess it up,……”

He also says this about remuneration committees: “Compensation committees now rely much more heavily on consultants than they used to. Consequently, compensation arrangements have become more complicated – what committee member wants to explain paying large fees year after year for a simple plan? – and the reading of proxy material has become a mind-numbing experience”.

Obviously he is referring to US companies primarily but the same applies to UK companies. He also has some negative comments about boardroom pay (which is even more gross in the USA than UK) and how the independence of non-executive directors is undermined by their pay, while he was happy to accept $100 per year for one directorship in the early 1960s. How times have changed!

You can read the full shareholder letter here: https://www.berkshirehathaway.com/letters/2019ltr.pdf

As I write this the markets are still falling sharply for the second day. Having been through several market downturns, I am not too fazed by the biggest ever one-day drop in my portfolio value. There will probably be some momentum in the downward trajectory as recent stock market investors will realise it’s not a one-way bet investing in shares. Shares likely to be affected by a worldwide pandemic are also particularly sharply down while there is general feeling that the long-running bull market must come to an end sometime.

But I am a dedicated follower of fashion as nobody knows how long the impact of negative news will last, what steps Governments might take to keep the economy afloat and stock markets bouyant, or what will be the emotional reaction of investors. So in general I will be selling shares as the market declines until the outlook appears more positive and when the bargains appear.

Having loads of cash is always a good thing to have so as to take advantage of opportunities as they arise.

Needless to say, this is not investment advice. You may choose to take a different path and you need to make up your own mind based on your investment strategy, long term objectives, what proportion of your holdings are in ISA or SIPPs and your tax position.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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