To The Moon

Warren Buffett's annual letter for 2023

The wait is over. Find out what Buffett said in 2023's annual letter to shareholders.

28-Feb-2023 •Samridh Rela

Warren Buffett's annual letter to Berkshire Hathaway shareholders is akin to an investing workshop. Every year when the man decides to share his wisdom, you can be sure every investor in the world stops to listen.

Buffett has never been of the cryptic sort, something that has added to the popularity of these annual letters. Even this time, he kept it simple, focusing on business ethics, capitalism, choosing a business partner, and the power of compounding.

Business ethics

The investing legend has never held back when it came to morality in business. In the recent annual letter, he said, "When large enterprises are being managed, both trust and rules are essential. Berkshire emphasises the former to an unusual - some would say extreme - degree. Disappointments are inevitable. We are understanding about business mistakes; our tolerance for personal misconduct is zero."

Capitalism

It's safe to say the greatest investor of all time understands a thing or two about capitalism.

In the letter, he mentions, "Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently delivering a gusher of improved goods and services. Schumpeter called this phenomenon "creative destruction."

Choosing a business partner

One of Buffett's greatest acquisitions was his business partner, Charlie Munger. Appreciating Munger, he said, "Find a very smart high-grade partner - preferably slightly older than you - and then listen very carefully to what he says."

The power of compounding

Warren Buffett is the only investor to feature in the top five spots of Forbes' world's wealthiest list. Through the power of compounding, he turned his $2.6 billion into $47 billion in two and a half decades.

Shining some light on how he did it, Buffett said in his recent letters, "In August 1994 - yes, 1994 - Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion - then a very meaningful sum at Berkshire.

The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke's quarterly dividend checks. We expect that those checks are highly likely to grow.

American Express is much the same story. Berkshire's purchases of Amex were essentially completed in 1995 and, coincidentally, also cost $1.3 billion. Annual dividends received from this investment have grown from $41 million to $302 million. Those checks, too, seem highly likely to increase."

On Charlie Munger

Buffett has always said that Munger's wisdom has been pivotal to his success.

In the recent letter, Buffett shared how the 99-year-old Munger thinks.

You have to keep learning if you want to become a great investor. When the world changes, you must change.

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.

You don't, however, need to own a lot of things in order to get rich.

All I want to know is where I'm going to die, so I'll never go there.

There is no such thing as a 100 per cent 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.