How To Get Rich (Slowly): Lessons from Berkshire Hathaway’s 2020 Annual Letter

Nobody’s perfect. Berkshire Hathaway’s 2020 annual letter starts by admitting a mistake but ends with an optimistic tone about American business. In between, it’s sprinkled with stories from Berkshire’s history and Warren Buffett’s investing career. Let’s dive in.

I’ve Made a Huge Mistake

Even legends make mistakes. In January 2016, Berkshire Hathaway acquired Precision Castparts, a manufacturer of advanced metal components, for $37.2 billion. In 2020, it wrote-down Precision Castparts’ value by $11 billion, a whopper of a mistake. It’s Buffett’s error and he owns up to it. He offers no excuses or rationalizations, a level of forthrightness rare in corporate America.

Source: Giphy

The Lessons of History

Anyone who started investing the last decade has only known bull markets and everyone is a genius in a bull market. Spoiler alert: stocks don’t always go up.

The Attraction of Unsexy Businesses

Boring businesses don’t make for good headlines, but they can make for good investments. Berkshire Hathaway is an amalgamation of wholly owned businesses like Acme Brick Company, BNSF, and Central States Indemnity Company, and partially owned businesses (equity investments) like Apple, Bank of America, and Coca Cola.

  • Founded in 1956, Clayton Homes, which builds and sells manufactured homes, today generates over $1 billion in annual profits.
  • Sales at GEICO, an insurer with quirky commercials, grew from $238,288 in 1937 to $35 billion in 2020, a CAGR of 15% over 83 years.
  • The value of Nebraska Furniture Mart increased from $72,264 in 1946 to $60 million in 1983, a CAGR of 20%.

Want More From The Buffett?

For more on Buffett, here are lessons from Berkshire Hathaway’s 2019 annual letter including Wall Street incentives, the value of dry powder, and understanding limitations.

Source: Rick Wilking/Reuters via Markets Insider, Warren Buffett drinks 5 cans of Coke a day — here’s why he switched from Pepsi after nearly 50 years, November 30, 2019.

Finance at Indeed. Previously finance at Etsy and internet equity research at Deutsche Bank. Find me @kjlabuz.

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