Every February, the most anticipated event, outside of the Superbowl, is the publication of Warren Buffett’s annual letter to Berkshire Hathaway’s (BRK.A and BRK.B) shareholders. For the past four decades, these letters have become gospel for investors as well as businessmen and leaders alike. The 2017 letter, that was sent earlier this week to Berkshire Hathaway’s shareholders, was no different. While being shorter than in past years, the 16 page document offered a rare top down view of the state of the US economy along with candid commentary on the performance of Berkshire Hathaway.

The book value per share of BRK.A and BRK.B increased by 23% in 2017, beating the historical growth over 53 years of 19.1%. But of course, Buffett very modestly states in the next line that “The gain did not come from anything we accomplished at Berkshire”.

Berkshire’s stockpile of cash has swelled to a staggering $116 billion at the end of 2017, a $7 billion gain in the fourth quarter alone. On the topic of use of cash, he addresses acquisitions – of which there have been many in the industry but none at Berkshire in 2017. Buffett opines “We will stick with our simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own.”

Scrolling down the letter, here is one that will get all the investment advisors scratching their heads on how to create an effective portfolio for their clients going forward. Buffett writes “It is a terrible mistake for investors with long-term horizons ‘ among them, pension funds, college endowments and savings-minded individuals ‘ to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks.”

He finishes by taking a swipe at the fees charged by major banks and funds citing “Performance comes, performance goes. Fees never falter” and tells all investors “Stick with big, ‘easy’ decisions and eschew activity.”

Future Wealth’s View

The beauty of Warren Buffett’s letters is that same themes crop up every year, almost as if he is saying “I will repeat myself until investors finally listen”. One of the recurring themes has been his  bet on America. In his 2013 letter, he stated “Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder.” This is echoed in 2017 letter where he says that America’s best days lie ahead.

Buffett does make mistakes and is the first one to admit his bad investments. He, too, has waited too long, a process he calls “Thumbsucking”, before cutting his losses. He offers this bit of advice for those of us who hold on to losing positions hoping they will come back. He states “In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.”

For those who are looking for clues  on whether the bull market will continue into 2018, Buffett teaches like only he can:  “Remember the late Barton Biggs’ observation: ‘A bull market is like sex. It feels best just before it ends.’”

With that, he signs off until next year.