Warren Buffett’s Annual Note to Shareholders

Warren Buffett’s letters to shareholders are always filled with wisdom. Here are three of my favorite quotes from this year’s edition:

Page 6: On Rascals

• In 1863, Hugh McCulloch, the first Comptroller of the United States, sent a letter to all national banks. His instructions included this warning: “Never deal with a rascal under the expectation that you can prevent him from cheating you.”

Buffett writes this in the context of finding able and trustworthy managers, but the same idea applies to just about everything else. If you choose to engage in an investment where you hope to benefit from a scheme promoted by rascals (meme stocks, crypto trades, sports gambling, etc.) you’ll inevitably be disappointed by the outcome.

Page 7: On the Promotion of Foolishness

• For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants. One fact of financial life should never be forgotten. Wall Street – to use the term in its figurative sense – would like its customers to make money, but what truly causes its denizens’ juices to flow is feverish activity. At such times, whatever foolishness can be marketed will be vigorously marketed – not by everyone but always by someone.

This is similar to the point I was making in last week’s note, We All Have Different Incentives.

Page 10: On Forecasting

• No one knows what oil prices will do over the next month, year, or decade. But Vicki [CEO of Occidental] does know how to separate oil from rock, and that’s an uncommon talent, valuable to her shareholders and to her country.

Similarly, two paragraphs down:

• Neither Greg nor I believe we can forecast market prices of major currencies. We also don’t believe we can hire anyone with this ability.

When the investor worth $134 billion tells you he can’t forecast the market prices of major currencies or commodities, and doesn’t know anyone else that can either, you should believe him. He tends to know what he is talking about.