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Mar 08, 2016

Five IR takeaways from Warren Buffett’s letter

Yearly letter from major investor holds important lessons for IROs

In his annual letter to Berkshire Hathaway’s stakeholders, major investor Warren Buffett offers some invaluable insight for readers ‒ with his trademark wit and humor.

In this year’s edition, which summarizes the performance of the holding company in 2015, Buffet also explores the factors he says will define the world’s capital markets over the next 12 months.

Though the letter is intended to provide would-be Buffets with some tips for shaping their own investments, the text is also a rich source of information for publicly listed companies, particularly when it comes to forming their outreach and treatment of their stakeholders.

Below, we run down IROs’ top five takeaways from Buffet’s 2015 letter:

1. Climate change is a manageable risk

Writing about Berkshire Hathaway’s sizable insurance arm, one of its most profitable divisions, Buffet surprises most by claiming the potential devastation caused by climate change will help, not hinder, the subsidiary’s financial health.

‘As a citizen you may understandably find climate change keeping you up nights,’ Buffet continues. ‘But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.’

2. Fair disclosure is key

Buffet also reminds his shareholders that he and business partner Charlie Munger believe all stakeholders should receive information simultaneously, and have the chance to reflect on it before trading takes place. As a result, Berkshire Hathaway issues financial data late on a Friday or early on a Saturday and holds its AGM on a Saturday.

Buffet does not partake in one-on-one meetings with investors or analysts, who are treated the same as any individual shareholder of ‘limited means’ (perhaps IROs could apply a similar attitude to their packed meetings schedules).

3. Webcasts are useful

Berkshire Hathaway’s AGM will be webcast via Yahoo for the first time this year, as will questions with investors and analysts. Buffet says the reasons are twofold: it allows for near-limitless attendance ‒ certainly an issue considering that 40,000 people turned up to last year’s meeting ‒ and means investors can ensure Buffet and Munger have not ‘drifted off into la-la land’.

4. Controlling stakes are not so important

Buffet outlines his preference for a smaller, non-controlling stake in a well-run company as opposed to a majority holding in a ‘so-so business’, making reference to Woody Allen’s famous adage about bisexual dating doubling your chances of finding someone available on a Saturday night. ‘In like manner – well, not exactly like manner – our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for Berkshire’s endless gusher of cash,’ he writes.

5. The US economy is in pretty good shape

Despite what presidential candidates in the US are telling voters, American citizens are the most well off they’ve ever been, Buffet writes, both earning more and working less than their ancestors. ‘For 240 years it’s been a terrible mistake to bet against America, and now is no time to start,’ he continues. ‘America’s golden goose of commerce and innovation will continue to lay more and larger eggs.’