Numbers are staggering. Berkshire Hathaway, the holding chaired by Warren Buffett and Charlie Munger, earned $44.94 billion last year vs $24.07 billion in 2016, in large part thanks to tax cuts decided by the Trump administration. Operating earnings actually declined to $14.46 billion from 17.58 billion a year ago. Tax cut contributed $29.11 billion to results, which « derives from a reduction of net deferred income tax liabilities that arose as a result of the reduction in the U.S. corporate income tax rate from 35% to 21%. »
A more meaningful number for understanding the valuation of BRK is the evolution of the net asset per share. Last year, the number grew 23% last year to $211,750, outperforming S&P 500 by 1.2%. CAGR return for book value per share over 1965-2017 is 19.1% vs 9.9% for S&P 500.
But the other most important element of BRK release of its 4Q earnings is Buffett’s annual letter to shareholder. This year, Buffett covers the following topics :
This is a classic read although rather unusual. I had the chance to attend a presentation by James Montier (now at GMO) at a Morningstar conference in Amsterdam a couple of years ago. In his intro, Daniel Needham unearthed his note on happiness. Although it probably has little to do with value investing, it is interesting to see that as an equity strategist at DkW, Montier had the liberty to write on such an important topic in life…
Michael Mauboussin is a highly respected investor, teacher, speaker and book writer. I came across a number of his notes in the past (including this one which I liked a lot). Thanks to the Internet and the many people who share good thinking, most of his notes are there to grasp and read.
While re-populating my blog, I came into his 1997 reflections on valuation. As Graham/Buffett nicely put it: price is what you paid, value is what you get. So to earn decent return when investing, you need to know the value so you can pay a price that gives you a good margin of safety.
The full note is available to read here. I just wrote down a couple of remarks that make sense to me and hopefully give you a quick overview of why it might be useful and what you will find inside.
Key purpose of the note is to defend the value-based approach of investing, to keep in mind what really matters in valuation and not to fall into « market myths ».
If you don’t know Greenlight Capital and its founder David Einhorn, you can watch the following video where he presents his investment style. He really his a brilliant mind in investing, someone you should listen to. A younger Warren Buffett of some sort 🙂
Ok. Now stop everything you’re doing and take 50 min of your time listening to Charlie Munger. Mr Munger is the most amazing person to listen to about life, human values and of course investing. If you want to know/feel the guy, read a great biography by Janet Low.
For those unfamiliar with Seth Klarman, he is the founder of the Baupost Group, and one of the most respected and admired value investors. I think it’s both because of his track record, his core values as an investor (patience and discipline among others) but also his humanitarian values that put him on par with Warren Buffett and Charlie Munger.
His words/remarks/interviews are very rare, so any opportunity to hear/read him is a fantastic one for investors willing to improve their process/thinking about investing/life in general.