Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 398

Three key takeaways from Buffett's annual letter

Berkshire Hathaway (BRK.A) (BRK.B) Chairman Warren Buffett recently released his annual letter to shareholders, along with the company's 2020 earnings.

Despite negative comments from Berkshire partner Charlie Munger last week about the market mania surrounding GameStop (GME), Bitcoin and SPACs, Buffett didn’t directly mention any of that in his letter. Instead, he extolled the virtues of long-term investing.

Here, we take a look at a few highlights from this year’s missive.

Bond investors' 'bleak future'

When it comes to fixed income investing, Buffett doesn’t pull any punches: "Bonds are not the place to be these days."

He points out that the yield on the 10-year Treasury bond had fallen 94% between September 1981 and year-end 2020, and he reminds readers that around the globe, some investors are earning negative returns on sovereign debt. The solution to investing in a low-yield world isn’t stretching for income with lower-quality fare: the debacle in the savings and loan industry some 30 years ago is proof of that, notes Buffett.

"Fixed income investors worldwide - whether pension funds, insurance companies or retirees - face a bleak future," he concludes.

Buybacks, Apple, and the 'jewels'

Berkshire spent US$24.7 billion last year buying back its own shares, and Buffett notes that the firm has continued to repurchase shares in 2021. Why the buying spree? Because doing so enhances Berkshire’s intrinsic value per share for current shareholders while still leaving the firm with ample cash (to the tune of US$138 billion), he explains.

Further, the buybacks provide current shareholders with greater interest in what Buffett calls the four 'jewels' of the firm: controlling interests in its property and casualty business, railroad BNSF, Berkshire Hathaway Energy, as well as its 5.4% stake in Apple (AAPL). He wrote:

"In no way do we think that Berkshire shares should be repurchased at simply any price. I emphasise that point because American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked. Our approach is exactly the reverse."

Investing for the long term

Buffett breaks down Berkshire’s shareholder base into several buckets, including index funds, active institutional investors, active individual investors, and long-term individual investors. Buffett says he appreciates the mix, though he has no interest in attracting shareholders who don’t appreciate the firm’s "hamburgers and Coke" style. He writes:

"The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and 'stories,' they will not lack suitors. 'Technicians' will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop."

For more on this topic, see Buffett's 2020 scorecard

Buffett has a special affinity for the Berkshire 'lifers', the long-term investors who treat an investment in Berkshire as a partnership. He notes: 

"Productive assets such as farms, real estate and, yes, business ownership produce wealth - lots of it. Most owners of such properties will be rewarded. All that’s required is the passage of time, an inner calm, ample diversification and a minimisation of transactions and fees."

Buffett confirmed that Berkshire Hathaway’s annual meeting will be held on May 1 and will again be virtual this year. However, the event will be run out of Los Angeles rather than Omaha, and Munger will appear (after being absent last year). So will Vice Chairmen Ajit Jain and Greg Abel.

And if we’re lucky, maybe Buffett’s ukulele will make an appearance this year, too.

 

Susan Dziubinski is Director of Content for Morningstar.com. This article does not consider the circumstances of any investor.


Try Morningstar Premium for free


 

RELATED ARTICLES

Warren Buffett changes his mind at age 93

Win some, lose some: Buffett's 2020 scorecard

Buffett's meeting takeaway: extreme caution

banner

Most viewed in recent weeks

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Welcome to Firstlinks Edition 606 with weekend update

The boss of Australia’s fourth largest super fund by assets, UniSuper’s John Pearce, says Trump has declared an economic war and he’ll be reducing his US stock exposure over time. Should you follow suit?

  • 10 April 2025

Latest Updates

Economics

Does Buffett’s farewell represent peak America?

Buffett's surprise decision to step down as Berkshire Hathaway's CEO sparked reflection on his legendary legacy and concern for America’s future, as he warned of unsustainable deficits and possible cracks in U.S. exceptionalism.

Taxation

Labor should focus on cutting Government spending

Reining in the Government's appetite for spending wouldn't just ease the country's fiscal burden. It would also clear the way for the meaningful tax reforms that are needed to boost Australia's ailing productivity.

Economy

The Liberals need to return to Menzies’ values

The former Liberal Minister and Chief of Staff to John Howard gives a blunt assessment of the election defeat and how the party needs to get back to its roots and merge its values with the needs of the community.

Gold

Gold $5,000?

Following the gold price's recent surge, headlines have popped up with increasingly bold predictions - US$5,000, even US$20,000 an ounce? This looks at the fundamentals and the credibility of these bullish predictions.

Economy

Are pension rules impacting fertility?

Australia’s push to delay retirement has boosted workforce participation - but at a cost. New research shows the measures have unintentionally impacted fertility rates, and the trend will be hard to reverse.

Investment strategies

Profiting from panic: inside the mind of a contrarian investor

Recent years have been challenging for contrarian investors, though 2025 has brought wild market swings, and with it, more opportunity. MFS' Zahid Kassam discusses contrarianism and his favourite global stocks.

Economics

America's green transition is taking a beating

The green transition in the US has made great progress in recent years, but the wheels are falling off. This is largely due to economic pressures, lack of financing, and the new tariffs instituted by Trump.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.