Stewardship and the Berkshire Hathaway example
Stewardship has always been something we obsess about at Nedgroup Investments and is one of the three pillars that we base our strategy on – the others being delivering good performance over the long-term and making it simple and easy to do business with us. Broadly, stewardship refers to the very serious responsibility of managing other people’s monies and always acting in the clients’ best interests.
As a company I believe is exemplary in terms of displaying stewardship, I always look forward to reading Berkshire Hathaway’s annual shareholder letter, which is written by the Chairman of the Board, Warren Buffett. The latest letter has recently been released. It is very different to most shareholders’ letters.
Firstly, Warren Buffett has been the Chair and writing these letters since 1965 – a remarkable 58 years! Over this period Berkshire has compounded at 19.8% per annum versus the S&P 500 (the index that tracks the 500 largest companies in the US) at 9.9%per annum. This excess of about 10% per annum, compounded over almost six decades has resulted in eye-watering results. Over that period the index has gained a very respectable 24,708%. In one of the best real-life examples of compounding an investment in Berkshire has grown 3,787,464%! So, there is good reason to read his letters carefully as his investment acumen is beyond doubt and his longevity almost unrivalled.
Secondly, it is very different in the tone that he writes. He writes in an easily understandable manner and clearly appreciates and recognises his responsibility to his shareholders. He opens this year’s letter with “Charlie Munger, my long-time partner, and I have the job of managing the savings of a great number of individuals. We are grateful for their enduring trust, a relationship that often spans much of their adult lifetime. It is those dedicated savers that are forefront in my mind as I write this letter.”
It is a wonderful reminder of the responsibility that all who manage others’ money must be good stewards of their client’s hard-earned savings. He is candid, openly admitting and discussing mistakes they have made which he takes full ownership for – a very refreshing and rare characteristic.
Thirdly, the letters are highly educational. Each year he addresses key, complex and controversial topics and has an uncanny ability to remove the noise, get to the crux of the issue and provide real clarity. And he is a living example of the child who called the emperor naked! He calls it as it is and specifically calls out inappropriate, foolish, and unethical behaviour of much of the financial and investment industry.
Finally, he has a wicked sense of humour and even at 92, remains mischievous and clearly gets delight from many of the small things in life. He is renowned for his poor dietary habits, consuming litres of Coca-Cola (he has been an investor since the early 1990’s) and many, many See’s peanut brittle and chocolate bars (he has been an investor for more than half a century).
He is quick to give gratitude and has worked closely with Charlie Munger since 1978. Charlie is now 99 years old and still incredibly sharp, coherent, and full of wit (even if somewhat blunt and concise). In the letter, Warren highlights some of Charlie’s quotes from a recent podcast. Here are my five favourites covering patience, rationality, leverage, continuous learning and more:
“The world is full of foolish gamblers, and they will not do as well as the patient investor. Patience can be learned. Having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage.”
“If you don’t care whether you are rational or not, you won’t work on it. Then you will stay irrational and get lousy results”
“There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count on getting rich twice.”
“You have to keep learning if you want to become a great investor. When the world changes, you must change.”
“Early on, write your desired obituary – and then behave accordingly.”
More than 15 years ago, I had the privilege of attending a Berkshire Hathaway meeting in Nebraska Omaha. I listened in awe as these old men (then in their seventies and eighties respectively) held the floor for hours on end to a stadium full of fans/shareholders.
We are fortunate that in an investing world that has changed so much, we still have the opportunity read and learn both investing and life lessons from an absolute legend, the Sage of Omaha, Warren Buffett.