Around this time every year, the Berkshire Hathaway shareholder letters are eagerly awaited by investors. Written by one of the most successful investors in history, Warren Buffett, the company’s CEO and chairman, these letters are full of wit and wisdom. In today’s blog, we will touch on the issues in the 2018 letter as they relate to the Monday Morning Millionaire Program.
The Program emphasizes the habits of highly effective investors. There are six (see below) and this year’s Berkshire Hathaway letter, like most of the earlier ones, touches on all of them.
Noteworthy is the fact that net profits fell in 2018 while operating earnings rose to a new high. Many of our members run professional practices such as medicine, dentistry, veterinary medicine, optometry and others. Such a scenario is almost impossible in a professional practice.
Berkshire Hathaway is an investment company. How did it incur a drop in annual net profits in a year in which operating earnings rose to a new high?
Habit number three (see below) is: “Buy the US economy as a whole”. That is, don’t pick stocks. Berkshire Hathaway deviated from this habit by picking a single company, namely the company formed by the 2015 merger of Kraft and Heinz. (Buffet himself orchestrated the merger together with the Brazilian private-equity firm 3G Capital Partners L.P.)
Further underscoring habit number three in the 2018 letter to the shareholders, Buffet continues to be strongly optimistic about the American economy and its future.
Not mentioned in the letter, Buffet has instructed the executors of his estate to place 90% of his assets into a low-cost S&P 500 index fund which is an accurate reflection of the American economy. He is convinced that this will produce better results than other methods of investing employing paid managers.
The Monday Morning Millionaire Program recommends this approach, exactly.
For our core portfolios let us keep the habits of highly effective investors in mind at all times.