Warren Buffett's annual letter to Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) shareholders is out, and as usual, it didn't disappoint. The letter is filled with more than its fair share of easily understandable financial results, witty commentary, and loads of patented Buffett wisdom.
While there were countless gems to choose from, I scoured the letter for the best of the best. Listed below are the seven most amazing quotes from Buffett's annual letter.
1. "If such humiliating comparisons continue, I'll have no choice but to cease talking about them."
In 2013, Berkshire investment managers Todd Combs and Ted Weschler had investment returns exceeding Buffett's. The two managers now manage portfolios valued over $7 billion each. More than that, according to Buffett, "they've earned it."
The question of who will take over as CEO is still a fantastic mystery. While it's no sure thing Combs or Weschler will earn the position, it's awfully tempting to imagine Todd and Ted as the next Warren and Charlie.
2. "The advantage of being a bi-sexual is that it doubles your chances of a date on Saturday night."
As usual, Buffett turns the complex interworking of Berkshire Hathaway into a hilariously simple idea.
By using Woody Allen's quote, Buffett explains that since Berkshire both buys and operates businesses as well as investing in stocks, it doubles the company's chances of finding great investment opportunities. This is a strategy that has proven extremely successful, and one that should continue to work for decades to come.
3. "Indeed, who has ever benefited during the past 237 years by betting against America?"
I think you have to imagine Buffett saying this with an America flag translucently waving, and "God Bless America" playing in the background.
Buffett explained that Charlie and he have "always considered a 'bet' on ever-rising U.S. prosperity to be very close to a sure thing." This is a great reminder for those of us who get caught up in the doom and gloom of the daily market swings that betting on the U.S. economy is one of the best bets you can make.
4. "Trucks taking on the same job guzzle about four times as much fuel."
I don't know about you, but when I imagine trains I still have this picture of dense smoke and two soot-covered men shoveling coal into a fire pit. Turns out that's not really how it works anymore.
In fact, railroads are timely, fuel-efficient, and fairly environmentally friendly. According to Buffett, BNSF can carry, "a ton of freight about 500 miles on a single gallon of diesel fuel."
Burlington Northern (BNSF) has turned out to be one of Buffett's greatest investments. Amazingly, Buffett noted that BNSF "carries about 15% (measured by ton-mile) of all inter-city freight." This is a business with huge competitive advantage, and one that will make Berkshire a ton of money for years to come.
5. "If they absorb Mrs. B's lessons, they need none from me."
Buffett said that every year students from universities across the country visit Berkshire Hathaway, and he'll always start the tour at Nebraska Furniture Mart (NFM.) A business that won't move the needle, but one that's story encapsulates the type of company Buffett runs.
Rose Blumkin (Mrs. B) emigrated from Russia, and at the time spoke no English. She started NFM with nothing but $72,000 in net worth and $50 in cash, and would build NFM into the "two highest-volume home furniture stores in the country." Let me tell you, if that doesn't get you a little choked up, you're a robot.
6. "After all, if a moody fellow with a farm bordering my property yelled out a price every day"
Learning that Buffett owned a farm wasn't surprising. He did, however, turn his anecdotal story of owning that farm into the greatest metaphor of the stock market ever.
Buffett explained, it's as if a moody farmer lived next door and shouted prices at you all day. How much he'd buy your farm for, and how much he'd sell his for. The point is that while the farmer's prices may go up or own, the earnings potential of the farm remained intact.
Therefore, if you truly understand the business you're investing in, the mood of the farmer only matters if he's selling his farm cheaply, or offering to buy yours at a premium. So for investors everywhere, the next time you get caught up in market fluctuations, just imagine you're being yelled at by a moody farmer -- and if that visual doesn't calm you down nothing will.
7. "A low-cost S&P 500 index fund will achieve this goal."
Here's where it gets tricky. The opinions of the market can be much more confusing if you don't understand (or can't roughly predict) the future earnings of a business.
Buffett noted, "I have good news for these non-professionals: the typical investor doesn't need this skill."
Remember, as Buffett alluded to earlier, he has faith in the U.S. economy. So, Buffett suggested for those investors that have neither the time nor the inclination to follow stocks closely, investing in a low-cost index fund can achieve "wonderfully over time."
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