Warren Buffett's newsletter is worth reading every year. I would just like to focus on one sector he targeted harder than ever in his 2015 anniversary letter - banks and the financial industry in general:
Mr. Buffett has long ridiculed the financial industry, but this year's letter, laced with references to bankers, lawyers and consultants as "a lot of mouths with expensive tastes," seemed to amp up the pugnacity and was clearly noted by the industry, which pored over the letter.
At one point in the letter, Mr. Buffett argues: "Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20 percent to 50 percent premiums over market price for publicly held businesses. The bankers tell the buyer that the premium is justified for 'control value' and for the wonderful things that are going to happen once the acquirer's C.E.O. takes charge."
He goes on to say that "a few years later, bankers - bearing straight faces - again appear and just as earnestly urge spinning off the earlier acquisition in order to 'unlock shareholder value.' Spinoffs, of course, strip the owning company of its purported 'control value' without any compensating payment."
No doubt, Mr. Buffett speaks the truth. There are countless examples of the build-it-up-and-tear-it-down phenomenon, most recently illustrated by Hewlett-Packard, which grew through mergers and now plans a series of spinoffs.
PS: The bet between Buffett and an investment banker (still running, but with a clear lead for Warren at the moment) is also worth remembering:
There's just four years left in the 10-year bet between billionaire Warren Buffett and a New York hedge fund firm, and it seems clear that Buffett will win handily.
More investment magic from one of the world's richest men? Not at all. Buffett's side of the bet was one anybody could have taken: Buy the Standard & Poor's 500 Index starting in January 2008 through a very low-cost index fund and wait. The hedge fund could do whatever it wanted and presumably owns a collection of hedge funds.
The initial bet was $320,000 in bonds that would be worth $1 million in a decade's time, with the gains going to charity. (Buffett put up his own money.)
As of early 2014, Morningstar reports, the hedge fund approach was up 12.5% after fees, while Buffett's index fund was up 43.8%. A good part of the difference comes down to fees: Buffett bought an index fund that charges just 0.05% as an expense ratio, while hedge funds typically cost 2% and a whopping 20% of profits.
Executive Summary: Fees and markup costs do matter, especially over longer periods of time. Keep these fees small. That's all :)