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


 

  •   10 March 2021
  • 2
  •      
  •   

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

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Latest Updates

Shares

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Investment strategies

Making a case for the 40 year mortgage

The housing debate tends to focus on prices, interest rates and deposits. Yet an overlooked feature of the mortgage itself could help buyers enter the market sooner without abandoning prudent lending standards.

SMSF strategies

Red flags to watch out for when considering an SMSF

Thinking about an SMSF? Before you sign anything, learn how to spot the difference between genuine advice and a sales pitch, understand the real costs, and avoid the compliance mistakes that attract ATO attention.

Investment strategies

Not all income is created equal

Market conditions are shifting as familiar yield sources quietly lose momentum. Australian public credit may be the most compelling source of income in today's market but many investors haven't noticed the shift. 

Investment strategies

The market paid for change, not comfort

Reporting season has delivered a clear message: the market is no longer paying simply for quality, resilience or an earnings beat. It is paying for change in earnings expectations and the outlook ahead. 

Investment strategies

Will AI destroy investor capital?

Some of history's most important innovations changed the world while leaving investors much poorer. As trillions pour into AI, a familiar pattern may be emerging, one that rewards society far more generously than capital.

ASX reporting season: Signals, surprises, stock stories

August reporting season delivered strong earnings and bigger-than-expected dividends, but beneath this, a more nuanced story emerged. First Sentier Investors’ David Wilson and Christian Guerra unpack the key trends.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 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.