Dear Mr Buffett
Your annual letters to shareholders are legend. They're clear, simple, funny at times, and full of whimsy.
Everything, in fact, that a serious corporate communication must never be.
It is time someone spoke up and helped you realise the error of your ways.
I have taken the liberty of excerpting a few passages from the first few pages of your 2015 letter to Berkshire shareholders and providing comments.
Should you find time to review these comments, I am certain you will find them most useful. They may, in fact, go some way to helping you be taken seriously by the rest of the corporate world, who learned long ago the dangers of speaking plainly and directly.
With best wishes for your future.
WB: During the first half of those years, Berkshire’s net worth was roughly equal to the number that really counts: the intrinsic value of the business.
KG: This is too simple and makes you sound like a hick. How about "the most pertinent number"?
WB: The carrying value of the “losers” we own is written down, but “winners” are never revalued upwards.
KG: Avoid using italics for emphasis. It makes your writing sound like speech, and the last thing you need is a personal touch in a financial newsletter.
WB: We’ve had experience with both outcomes: I’ve made some dumb purchases, and the amount I paid for the economic goodwill of those companies was later written off...
KG: Two things. 1: Don’t say “I”. It suggests you’re taking personal responsibility (which you must never do). 2: “Dumb” is too direct. I suggest something safe and vague like “Berkshire has experienced its share of less-than-ideal outcomes.”
WB: Of the five, only Berkshire Hathaway Energy, then earning $393 million, was owned by us in 2003. Subsequently, we purchased three of the other four on an all-cash basis. In acquiring BNSF, however, we paid about 70% of the cost in cash and, for the remainder, issued Berkshire shares that increased the number outstanding by 6.1%. In other words, the $12.7 billion gain in annual earnings delivered Berkshire by the five companies over the twelve-year span has been accompanied by only minor dilution. That satisfies our goal of not simply increasing earnings, but making sure we also increase per-share results.
KG: Don't explain technical matters in everyday language. If shareholders can't understand what the three preceding sentences mean, tough. Let them go study economics at Yale or Harvard or something.
WB: A personal thank-you: The PCC acquisition would not have happened without the input and assistance of our own Todd Combs, who brought the company to my attention a few years ago and went on to educate me about both the business and Mark.
KG: Don’t give away so much credit to your underlings. The trick is to appear magnanimous while really taking the credit yourself. If you must mention Todd Combs, say something like “I would like to acknowledge the assistance of Todd Combs in helping me assess the potential value of the PCC purchase."
WB: With the PCC acquisition, Berkshire will own 10 1/4 companies that would populate the Fortune 500 if they were stand-alone businesses. (Our 27% holding of Kraft Heinz is the 1/4.) That leaves just under 98% of America’s business giants that have yet to call us. Operators are standing by.
KG: No they're not, so don't say it. People are stupid and might think you're serious.
WB: Our many dozens of smaller non-insurance businesses earned $5.7 billion last year, up from $5.1 billion in 2014. Within this group, we have one company that last year earned more than $700 million, two that earned between $400 million and $700 million, seven that earned between $250 million and $400 million, six that earned between $100 million and $250 million, and eleven that earned between $50 million and $100 million. We love them all: This collection of businesses will expand both in number and earnings as the years go by.
KG: Delete "We love them all." Jeez!
WB: Berkshire’s huge and growing insurance operation again operated at an underwriting profit in 2015 – that makes 13 years in a row – and increased its float. During those years, our float – money that doesn’t belong to us but that we can invest for Berkshire’s benefit - grew from $41 billion to $88 billion.
KG: See earlier comment. If people don't know what a float is, it's not your job to explain it to them.
WB: While Charlie [Munger] and I search for new businesses to buy, our many subsidiaries are regularly making bolt-on acquisitions.
KG: Just a thought, Warren. What about changing Charlie’s name to Charles? It would lend him some real gravitas, don’t you think?
WB: (With this hands-off style, I am heeding a well-known Mungerism: “If you want to guarantee yourself a lifetime of misery, be sure to marry someone with the intent of changing their behavior.”)
KG: No offence, Warren, but do you really think people are interested in your cute little insights into life?