Warren Buffett’s Shareholder Letter

Last week, Warren Buffett released his 2016 shareholder letter.  The letter provided valuable insight into Warren Buffett, his investment strategy, and his long term outlook on the American economy.  I have included some items that I felt were interesting:

– Berkshire Hathaway Inc. has returned an average 20.8% annual gain since 1965 as compared to a 9.7% annual gain for the S&P 500.  That represents a 1,972,595% return since 1965.

– Great Quote – “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.

– Buffett’s worst mistake – Acquiring Dexter Shoe in an all stock purchase transaction worth $434 million. The value of Dexter Shoe subsequently went to $0 but the 25,203 on Berkshire Hathaway shares Buffett used to purchase the company was worth $6 billion by the end of 2016.

– Berkshire Hathaway Inc. is the largest home builder in the US, building roughly 5% of all new American homes, though in all fairness, Clayton Homes, a subsidiary of Berkshire, builds manufactured homes with an average sales price below $150,000.

Warren Buffett spends much of the newsletter discussing the bright future of the US economy and its workforce. He also spends time highlighting that hedge funds (and other similar investment vehicles) have a very low chance of beating the general market over the long term.

Reading Warren Buffett’s annual letter offers a free glimpse into the thought process of most likely the best investor of all time, or at least of our lifetime. Buffett’s approach to investing demonstrates that if an investor doesn’t react to negative, short term news but considers a long term approach, he/she will reap substantially more gains.

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