Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 398

Three key takeaways from Buffett's annual letter

Berkshire Hathaway (BRK.A) (BRK.B) Chairman Warren Buffett recently released his annual letter to shareholders, along with the company's 2020 earnings.

Despite negative comments from Berkshire partner Charlie Munger last week about the market mania surrounding GameStop (GME), Bitcoin and SPACs, Buffett didn’t directly mention any of that in his letter. Instead, he extolled the virtues of long-term investing.

Here, we take a look at a few highlights from this year’s missive.

Bond investors' 'bleak future'

When it comes to fixed income investing, Buffett doesn’t pull any punches: "Bonds are not the place to be these days."

He points out that the yield on the 10-year Treasury bond had fallen 94% between September 1981 and year-end 2020, and he reminds readers that around the globe, some investors are earning negative returns on sovereign debt. The solution to investing in a low-yield world isn’t stretching for income with lower-quality fare: the debacle in the savings and loan industry some 30 years ago is proof of that, notes Buffett.

"Fixed income investors worldwide - whether pension funds, insurance companies or retirees - face a bleak future," he concludes.

Buybacks, Apple, and the 'jewels'

Berkshire spent US$24.7 billion last year buying back its own shares, and Buffett notes that the firm has continued to repurchase shares in 2021. Why the buying spree? Because doing so enhances Berkshire’s intrinsic value per share for current shareholders while still leaving the firm with ample cash (to the tune of US$138 billion), he explains.

Further, the buybacks provide current shareholders with greater interest in what Buffett calls the four 'jewels' of the firm: controlling interests in its property and casualty business, railroad BNSF, Berkshire Hathaway Energy, as well as its 5.4% stake in Apple (AAPL). He wrote:

"In no way do we think that Berkshire shares should be repurchased at simply any price. I emphasise that point because American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked. Our approach is exactly the reverse."

Investing for the long term

Buffett breaks down Berkshire’s shareholder base into several buckets, including index funds, active institutional investors, active individual investors, and long-term individual investors. Buffett says he appreciates the mix, though he has no interest in attracting shareholders who don’t appreciate the firm’s "hamburgers and Coke" style. He writes:

"The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and 'stories,' they will not lack suitors. 'Technicians' will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop."

For more on this topic, see Buffett's 2020 scorecard

Buffett has a special affinity for the Berkshire 'lifers', the long-term investors who treat an investment in Berkshire as a partnership. He notes: 

"Productive assets such as farms, real estate and, yes, business ownership produce wealth - lots of it. Most owners of such properties will be rewarded. All that’s required is the passage of time, an inner calm, ample diversification and a minimisation of transactions and fees."

Buffett confirmed that Berkshire Hathaway’s annual meeting will be held on May 1 and will again be virtual this year. However, the event will be run out of Los Angeles rather than Omaha, and Munger will appear (after being absent last year). So will Vice Chairmen Ajit Jain and Greg Abel.

And if we’re lucky, maybe Buffett’s ukulele will make an appearance this year, too.

 

Susan Dziubinski is Director of Content for Morningstar.com. This article does not consider the circumstances of any investor.


Try Morningstar Premium for free


 

RELATED ARTICLES

Warren Buffett changes his mind at age 93

Win some, lose some: Buffett's 2020 scorecard

Buffett's meeting takeaway: extreme caution

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.