A lot has changed since 2000. Friends and Will and Grace are no longer two of the most popular comedies on TV, the St. Louis Rams are far from Super Bowl champs, and U.S. debt is just slightly higher than $5.6 trillion. But, if just one thing hasn't changed in 14 years, it's Warren Buffett's letter to Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) shareholders and Buffett's infinite wisdom.
Every year, the letter is chock-full of investing insight and witty commentary. Here are five of Buffett's best lines from 14 years ago.
1. "We have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement."
Berkshire Hathaway acquired a number of businesses in 2000. A list that included: Justin Industries (brick), Shaw Industries (carpet), Johns Manville Corp. (insulation), and Benjamin Moore Paint.
Justin Industries, along with being a "premier producer of brick in Texas," is a leader in Western Boots. During the 2012 annual Berkshire Hathaway shareholders meeting (nine hours), the company sold "1,090 pairs of Justin boots, (that's a pair every 30 seconds)."
Shaw Industries took a hit after the housing crisis, but according to Buffett was, "the world's largest carpet manufacturer." And as Buffett would suggest in 2011, "housing will come back -- you can be sure of that."
Johns Manville Corp. and Benjamin Moore Paint, similarly, have taken hits due to the slowing of building and construction after the housing crisis. Both, however, are leaders in their industries.
Notice a theme?
Buffett has consistently bought into companies with an identity. Companies that do one or two things fantastically well, and will continue to do those one or two things for decades to come.
2. "Only in the sales presentations of investment banks do earnings move forever upward."
Buffett was explaining that a few of the businesses he had acquired were in a slump -- however, "we don't care about the bumps; what matters are the overall results."
This is, as usual, great advice for today's investors. The market will go up, and the market will go down, but when you invest in great businesses, the overall results will outweigh the downs.
3. "The financial consequences of these boners are regularly dumped into massive restructuring charges or write-offs that are casually waved off as 'nonrecurring.'"
Buffett got up on his soap box and was throwing haymakers like Mike Tyson as he discussed the lack of accountability taken by CEOs when they make poor acquisitions.
He went on to say, "Agonizing over errors is a mistake. But acknowledging and analyzing them can be useful, though that practice is rare in corporate boardrooms."
For investors, it's important to understand that companies are run by human beings who are going to make mistakes. The real question is, how do they handle those blunders? And are they willing to speak with shareholders about the rationale behind those decisions?
4. "A formulation that my grandsons would probably update to 'A girl in a convertible is worth five in the phonebook.'"
Most of us see Buffett as having the Midas touch for picking stocks. He, however, doesn't believe he's smart enough to pick the winners from the losers.
Therefore, Buffett sticks to a very simple formula laid out by Aesop thousands of years ago. The formula is, "A bird in the hand is worth two in the bush."
On its own, that's utter nonsense, so luckily, Buffett broke it down.
First, how certain are you this company will grow, or even has birds in the bush? Second, how long will it take for the birds to leave the bush? And lastly, your bird in the hand is long-term U.S. bonds. So, how much better yielding is this opportunity?
5. "Their answers averaged 19%."
Okay, so it's not a particularly funny sentence, but let me add some color.
The year 2000, as many of you will remember, saw the height and the inevitable popping of the dot-com bubble. And as Buffett would explain, the exuberance in the market was far from rational.
One piece of evidence came from a Paine Webber-Gallup survey of investors conducted in December 1999, in which the participants were asked their opinion about the annual returns investors could expect to realize over the decade ahead. Their answers averaged 19%. That, for sure, was an irrational expectation: For American business as a whole, there couldn't possibly be enough birds in the 2009 bush to deliver such a return.
Between 1995 and 1999, the S&P 500's average return was 26%. In the five years following the survey, in 1999 it averaged -2%. How's that for forecasting the market?
For investors, don't expect to find a bald eagle in the bush everyone's standing around -- rather, it's when everyone is convinced the bush is empty that you'll find your best buys.