Buffett's 2023 Shareholder Letter: Lessons for Investors
There was a lot to unpack in Buffett's 2023 Shareholder letter. It was the first letter to come out after Buffett's investment partner, Charlie Munger died.
Buffett added a letter to the beginning of 2023’s edition to acknowledge Munger’s contributions to Berkshire. He has often been credited for changing Buffett’s perspective of investing, and shifting his, and then Berkshire, towards quality companies. Buffett calls Munger the ‘architect’ of present Berkshire, whereas Buffett was the general contractor that carried out this vision.
Back to Investment Principles
Aside from this special note - Buffett’s letters always follow a certain theme. He doesn't focus on the hot stocks that investors gravitate to. He focuses on reminding investors about how to invest successfully.
He notes in this letter: “Though the stock market is massively larger than it was in our early days, today’s active participants are neither more emotionally stable nor better taught than when I was in school. For whatever reasons, markets now exhibit far more casino-like behaviour than they did when I was young. The casino now resides in many homes and daily tempts the occupants.”
Four Timeless Investment Lessons
He goes on to say that investors should focus on fundamental principles. The first is clarity of purpose when investing. We advocate for that through having structure and a plan – starting with an investment policy statement (IPS) and going through the portfolio construction process.
His second point is focusing on quality investments, or in Buffett's words, 'wonderful businesses'. This is about seeing yourself as a business owner. We invest in companies for their future earnings. Think about whether businesses are profitable over the long-term. Understand whether they have sustainable competitive advantages – or moats – that will protect them from competition and stop them from eroding their earnings.
Then, it is favouring companies run by good managers. Capital allocation decisions will ultimately determine the level of success of the company. It is good managers that will know where best to distribute profit – whether that be investing in growth, distributing dividends or share buybacks.
The last point is that the fundamental principle of success is practicing fiscal conservatism. And this is a promise that he makes to shareholders of Berkshire. He holds a sizeable amount of cash, and he treats this as an insurance policy on Berkshire – which he calls a fortress-like building thought to be fireproof. Buffett plans to safeguard the shareholders so they are not exposed to the risk of a permanent loss of capital. Cash naturally plays an important role in that strategy. In a personal investment strategy, this is your emergency fund.
Buffett-Style Companies
These principles culminate into the types of businesses that Buffett and Berkshire Hathaway love to own – and own forever.
The three businesses discussed in the podcast are Coca-Cola (KO), Occidental Petroleum (OXY), and American Express (AXP).
Our US colleague Susan Dubinski wrote a great summary on some of the lessons to take from the letter and what our analysts think about the three stocks.
My colleague Mark LaMonica wrote about ASX shares that have the DNA of a Buffett company.
