Here Are My Main Takeaways From Warren Buffett's Letter

Includes: BRK.A, BRK.B
by: Mohamed El-Erian

Spending part of a Saturday morning reading Warren Buffett's annual letter to shareholders is one of my cherished traditions. Over many years, the legendary investor's well written and engaging letters have provided wonderful insights, re-affirmed basic tenants of successful investing, and brought smiles to many people's faces, including mine.

This year's letter is no exception. Once again, it contains rich material on sector and corporate performance, the economy, and the art of investing. In addition to the traditional reminders about the resilience of the US economy, the dominance of market systems, the advantages of long-term investing, the bright outlook for markets overall, and the need for corporate leaders to manage the business rather than short-term earnings, this year's letter includes:

  • An attempt to calm and rationalize what has become an increasingly extreme and heated discussion about corporate buybacks;
  • A reminder of how "talented and ambitious" immigrants have been important contributors to America's "miraculous" economic journey;
  • Data showing how far ahead Mr. Buffett is on his $1 million bet that a passive S&P would outperform a basket of hedge funds selected by a fund of funds manager (as the bet ends this year, Mr. Buffett notes that Girls Inc of Omaha, the charitable beneficiary he has designated to get the winnings, "will be the organization eagerly opening the mail next January");
  • Support for passive investing and, in this context, well-deserved praise for Jack Bogle, a giant of the industry who has transformed it for the benefits of millions by acting early on the realization of the "zero-sum" nature of alpha generation and, thus, the likelihood that many active investors would earn fees for underperforming; and
  • A change in his approach to the airline industry, a sector that Mr. Buffett tended to avoid but now includes in his vast portfolio (and, tongue in cheek, is accepting of the variable pricing approach it uses to increase the price of flights to Omaha for those going there for his well-attended annual meeting).

Mr. Buffett's humbleness and down-to-earth personality is again on display in this year's letter. Unlike many others in the investing world, he is not shy to admit to mistakes in what has been a remarkably successful and inspiring career…reminding us that such mistakes can be great learning opportunities.

May this wonderful tradition last for a very long time.

This post originally appeared on Yahoo Finance.

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