Warren Buffett’s letter to Berkshire Hathaway shareholders began with a special tribute to Charlie Munger. Buffett described Munger as the architect of Berkshire Hathaway, while he himself served as the general contractor.
It was Munger who persuaded Buffett to shift his investing approach from Benjamin Graham’s deep value (cigar butt) strategy to purchasing high-quality businesses. It wasn’t that Graham’s method was ineffective; rather, it was not scalable.
Buffett took this advice to heart and built Berkshire into the conglomerate we recognize today.
I am uncertain about Buffett’s current well-being, but I believe Munger’s passing will deeply affect him emotionally, especially considering he described their relationship in the tribute as part older brother, part loving father.
This year also marks the first time Charlie Munger will not accompany Buffett at the Annual General Meeting (AGM). Buffett announced that Greg Abel, who oversees the non-insurance operations and is the CEO designate of Berkshire Hathaway, along with Ajit Jain, who manages the insurance businesses within Berkshire Hathaway, will join him in addressing shareholders’ questions on May 4, 2024.
Buffett humorously mused that the key leaders of Berkshire all hail from Omaha—Buffett and Munger were born there, and Abel and Jain have lived there for years prior to joining Berkshire. He quipped, “Is it Omaha’s water? Is it Omaha’s air? “
Buffett’s annual letters have remained consistent, reflecting the stability of his investment philosophy—it is timeless. Each year, he reminds investors of the principles worth practicing:
Invest in America, and don’t bet against it.
Own businesses with good economics that are enduring, run by competent and trustworthy managers.
Good economics include the ability to deploy additional capital at high returns in the future.
Investors should avoid a permanent loss of capital at all costs.
Buffett acknowledged that Berkshire has evolved into a colossal company, and its sheer size presents challenges—Berkshire has the highest net worth among American companies, accounting for 6% of the S&P 500’s total net worth. This scale significantly reduces the number of investment opportunities that can meaningfully contribute to Berkshire’s returns.
Furthermore, competition for the same investment ideas has intensified, driving up demand and prices for those shares. Additionally, Buffett noted the lack of suitable large-scale investment opportunities outside the U.S.
As a result, Berkshire Hathaway’s cash and investments in U.S. treasury bills have surged to $163 billion from $125 billion a year ago.
Buffett posited that Berkshire might have to wait for stock market downturns to effectively deploy its vast capital. He cautioned investors not to expect eye-popping performances from Berkshire, suggesting that aiming to outperform the average American corporation with less risk is reasonable, but anything beyond that is wishful thinking.
Berkshire’s investment landscape has drastically changed, now dominated by challenges related to its size and competitive landscape.
However, the silver lining for individual investors is the absence of the scale and competition issues Buffett faces. Even the Graham method remains applicable for individuals, as scale is not a concern. Buffett’s lack of opportunities does not imply a dearth for all investors. While his principles are solid, not every investor needs to adhere strictly to his methodology. Buffett is unique. Our differences, objectives, and risk tolerances shape our investment choices. We need to forge our own investment journeys.
