Nowhere does this gift go on public display more than in his annual letter to shareholders.
It’s worth setting aside 30 minutes to absorb the 20 pages like a novella.
But I’ve cherry-picked the slices of narrative that I found particularly amusing, starting with Buffet’s philosophy:
Long ago, Charlie laid out his strongest ambition: “All I want to know is where I’m going to die, so I’ll never go there.” That bit of wisdom was inspired by Jacobi, the great Prussian mathematician, who counseled “Invert, always invert” as an aid to solving difficult problems. (I can report as well that this inversion approach works on a less lofty level: Sing a country song in reverse, and you will quickly recover your car, house and wife.)
He’s right.
I just tried this with a Merle Haggard tune and it works, a sad reminder that no matter how many times I played the Beatles song “I Am The Walrus” backwards, I could never make out “Paul is dead.”
This next one isn’t as entertaining but shows the power of conversational language:
We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that both operating and capital decisions are occasionally made with which Charlie and I would have disagreed had we been consulted. Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner oriented attitude that is invaluable and too seldom found in huge organizations. We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly – or not at all – because of a stifling bureaucracy.
There’s no double-talk.
He explains his approach to management, acknowledging the periodic downside.
BTW, I defy you to find another shareholder letter that includes the word “magnificently.”
But quintessential Buffet occurs when he turns to self-deprecation as a mechanism to disarm:
And now a painful confession: Last year your chairman closed the book on a very expensive business fiasco entirely of his own making.
For many years I had struggled to think of side products that we could offer our millions of loyal GEICO customers. Unfortunately, I finally succeeded, coming up with a brilliant insight that we should market our own credit card. I reasoned that GEICO policyholders were likely to be good credit risks and, assuming we offered an attractive card, would likely favor us with their business. We got business all right – but of the wrong type.
Our pre-tax losses from credit-card operations came to about $6.3 million before I finally woke up. We then sold our $98 million portfolio of troubled receivables for 55¢ on the dollar, losing an additional $44 million.
GEICO’s managers, it should be emphasized, were never enthusiastic about my idea. They warned me that instead of getting the cream of GEICO’s customers we would get the – – – – – well, let’s call it the non-cream. I subtly indicated that I was older and wiser.
I was just older.
Forget the shareholders.
Imagine how this mea culpa played with Geico’s executives who were originally overruled. Something about seeing the big boss fall on his sword allows everyone to move on.
And I love the pacing of this narrative.
Deeper in the letter he discusses the over supply in the housing market:
There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.
The man has a sense of humor and he’s not afraid to use it, a trait that surfaces again in this ditty:
Naturally, our fellows caved in and agreed to this value-destroying deal. “We need to show that we are in the hunt. Besides, it’s only a small deal,” they said, as if only major harm to shareholders would have been a legitimate reason for holding back. Charlie’s reaction at the time: “Are we supposed to applaud because the dog that fouls our lawn is a Chihuahua rather than a Saint Bernard?”
Of course, the letter is peppered with one-line zingers like:
Charlie and I enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy.
Even if you’re not a middle-aged man, you get the drift.
Stepping back, what allows the storytelling to come through?
First, Buffet is true to himself. To borrow from the social media world, he’s absolutely authentic which comes through in his narrative.
Plus, he writes with a conversational tone. He’s not trying to come off as the smartest guy in the room.
And finally, he uses an element in short supply in business, humor. I’m not talking Robin Williams nanu nanu humor but the type of that makes you crack a smile.
Note: I penned a guest post on this very same topic that ran on VentureBeat yesterday. In the home-turf version, I drop in large chunks of Buffett’s narrative so you can see how the words are strung together. I suppose this version also goes for an extra-cheap smile (laugh is too strong a word).