Michael D’Angelo, Staff
Berkshire Hathaway’s CEO, Warren Buffett (right), and Vice Chairman, Charles Munger (left). Buffet is famously referred to as the “Oracle of Omaha.” His value investing strategies have created impressive returns for his company, which he views as a “collection of businesses.”
Warren Buffett is a big name in the financial sector. He is known for his down to earth approach when it comes to investing and his frugal personality despite being worth billions.
Buffett is the definition of the old-school Midwesterner who places his hope and confidence in his fellow Americans. He disdains Wall Street, instead choosing to operate his infamous holding company, Berkshire Hathaway, from Omaha, Nebraska. He is so frugal he chooses to purchase a McDonald’s breakfast sandwich with exact change every day before he goes into the office but chooses the cheaper option if the markets performed poorly the day prior. In addition, he still lives in the same house that he purchased in the early 1950s.
Buffett accumulated his wealth by practicing a value investment strategy he learned from Benjamin Graham. This strategy relies on analyzing a company’s book value to determine if it is worth less than the market price. If this occurs, the stock is considered to be an undervalued and a cheap option. Buffett emphasizes buying cheap companies with value and knowing how the company operates. Buffett and Berkshire Hathaway own shares of major companies like Coca-Cola, Apple, General Motors and Verizon.
In the past week, both Buffett and his company have been popping up over news headlines in many financial publications. This is due to the release of Buffett’s annual letter to shareholders and Berkshire’s 2020 annual report. I had the opportunity to read through Buffett’s letter and despite some criticism regarding the letter to be socially tone-deaf, I believe he is spot on and paves a strong future for Berkshire Hathaway.
In the letter, Buffett begins by detailing Berkshire’s earnings of $42.5 billion, then he jumps to emphasizing Berkshire’s retained earnings which he believes are building “value and lots of value.” Both Buffett and Charlie Munger, Buffett’s Vice Chairman at Berkshire Hathaway, view Berkshire as a collection of businesses in which the firm has invested in the “long-term prosperity” of those businesses’ success. He writes in the letter that Berkshire’s main goal is to own parts of, or all of, a diverse group of businesses with good economic characteristics and good management.
As the letter moves on, Buffett sheds light on a mistake he made in purchasing aerospace company; Precision Castparts. He paid the wrong price for the company and misjudged the average amount of future earnings. Also, Buffett takes a shot at bonds and says that fixed income investors face a bleak future. To increase Berkshire’s profitability, Buffett repurchased back 80,998 A class shares and spent $24.7 billion in the process.
Despite not addressing the pandemic, social justice protests, and other events of the past year, Buffett confidently concludes, “never bet against America.” Also, he ridicules market gurus and says they can find equities to fit their tastes instead of buying Berkshire. He goes on to describe investing as a positive-sum game where even a monkey can randomly toss darts at a board of S&P 500 companies and profit. This is certainly a response to bull market and retail trader enthusiasm since March. Buffet the letter iterating plans to meet with his best friend, Munger, in Los Angeles and to host the annual meeting on May 1.
I enjoyed reading the letter and I agree with the legendary investor, we should have faith in America. We need to look forward to our country’s prosperity, despite so many obstacles in our way. After all, why bet against America? A country which holds a report card of economic success and entrepreneurial prosperity achieved by generations.