Financial Literacy

The Highlights of Berkshire Hathaway’s 2016 Letter to Shareholders

February 25 marked one of the holiest days of the year for value investors. That’s because Berkshire Hathaway (NYSE: BRK) Chairman Warren Buffett released his annual letter to shareholders.

Buffett’s memos are more than just updates on his company. They’re educational texts. And they come loaded with useful investment advice, expert analysis, and Buffett’s signature wit.

Berkshire Hathaway always releases the letters on a Saturday morning in late February or early March. Then, millions of aspiring investors spend days poring over them.  If you have time to read through the entire 2016 letter, then by all means, do it yourself. But be aware: This year’s issue is almost 30 pages long.

To help get you started, we’ve collected some highlights from the Oracle of Omaha’s 2016 letter.

Thoughts on Value Investing

Buffett is known as a voice of optimism in the cynical world of Wall Street.

Buffett’s faith in American equity markets has inspired countless value investors. Alexander Green often quotes this “positive outlook” section of Buffett’s letters.

This year, Buffett’s outlook is as hopeful as ever. “American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead,” he wrote.

The Berkshire chief is well aware of the political risks clouding the current bull market. He was an outspoken opponent of President Trump during the 2016 election season.

In spite of these concerns, Buffett is confident about America’s economic future.


America: Already Great

“You need not be an economist to understand how well our system has worked,” Buffett wrote, pointing out the 75 million owner-occupied homes and 260 million cars as markers of American progress.  “Just look around you.”

What does Buffett credit for our prosperity? In a word: capitalism.

“Above all, it’s our market system – an economic traffic cop ably directing capital, brains and labor – that has created America’s abundance.”

Our editors are inclined to agree with Buffett on this one.

His thoughts on capitalism end with an oft-repeated Buffett-ism. “Babies born in America today are the luckiest crop in history.”

He goes on to explain how rising productivity, technological advancement and other forces will push the market to new heights, even if there’s another downturn soon.

On that subject, Buffett’s latest letter makes a point to call out doomsday predictors. “Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle,” he wrote.

But maybe the biggest lessons in Buffett’s latest letter are his comments on fear, and how you can profit from misguided bearishness.

“First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

Buffett would likely agree with Alex Green’s contrarian investing mindset. “Contrarians understand that fear and greed cause people to push prices too high or too low,” he wrote back in July.

“So the key is to look at market fluctuations as your friend rather than your enemy. That way you can profit from folly rather than participating in it.”

Reading the Berkshire Hathaway letter to shareholders is a sacred ritual for value investors. The Oracle of Omaha never fails to deliver some useful insights in his yearly update. If you have a chance, take a peek at the full letter. Let Buffett teach you how to be rich.

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