Snappy lines from Uncle Warren

Warren Buffett at 94 still writing in a crisp, appealing style in his annual letter. Is he fibbing a bit when he brags about not doing due diligence on real estate purchases? And bragging on himself for how much tax he pays, when he surely uses every dodge he can? Maybe so. He’s a mythmaker.

A decent batting average in personnel decisions is all that can be hoped for. The cardinal sin is delaying the correction of mistakes or what Charlie Munger called “thumb-sucking.” Problems, he would tell me, cannot be wished away. They require action, however uncomfortable that may be.

The philosophy:

… we own a small percentage of a dozen or so very large and highly profitable businesses with household names such as Apple, American Express, Coca-Cola and Moody’s. Many of these companies earn very high returns on the net tangible equity required for their operations. At yearend, our partial-ownership holdings were valued at $272 billion. Understandably, really outstanding businesses are very seldom offered in their entirety, but small fractions of these gems can be purchases Monday through Friday on Wall Street, and very occasionally, they sell at bargain prices.

Inflation:

Paper money can see its value evaporate if fiscal folly prevails. In some countries, this reckless practice has become habitual, and, in our country’s short history, the U.S. has come close to the edge. Fixed-coupon bonds provide no protection against runaway currency.

Businesses, as well as individuals with desired talents, however, will usually find a way to cope with monetary instability as long as their goods or services are desired by the country’s citizenry. So, too, with personal skills. Lacking such assets as athletic excellence, a wonderful voice, medical or legal skills or, for that matter, any special talents, I have had to rely on equities throughout my life. In effect, I have depended on the success of American businesses and I will continue to do so.

One way or another, the sensible – better yet imaginative – deployment of savings by citizens is required to propel an ever-growing societal output of desired goods and services. This system is called capitalism. It has its faults and abuses – in certain respects more egregious now than ever – but it also can work wonders unmatched by other economic systems.

The insurance biz:

When writing P/C insurance, we receive payment upfront and much later learn what our product has cost us – sometimes a moment of truth that is delayed as much as 30 or more years.

(We are still making substantial payments on asbestos exposures that occurred 50 or more years ago.)

This mode of operations has the desirable effect of giving P/C insurers cash before

they incur most expenses but carries with it the risk that the company can be losing money – sometimes mountains of money – before the CEO and directors realize what is happening.

After some years of reading Warren Buffett and Charlie Munger materials these letters become kind of familiar, but it’s soothing, like hearing a folktale told once again with a few variations.