Warren Buffett’s 3 Crucial Letters

Feb 19, 2023

A few weeks ago, I published an article going over Warren Buffett’s strategy early on in his career, specifically, 1957-1967. Since then, I kept on reading his shareholder letters until I got to 1987, which was the point where I arbitrarily decided to stop and begin with Terry Smith’s letters. Anyway, I thought it would be very helpful (for both of us) if I could narrow down these 3 decades of writing into the three most relevant years.

I’ll go over why each of them is of extreme relevance and I’ll be sharing a PDF at the end of the article where I compiled them, so you can read them by yourself. It goes beyond saying that Warren Buffett may be, after Graham, who contributed the highest degree of knowledge to the financial community. Me trying to summarize 3 decades of his thinking is nothing more than a sacrilege, but, again, I believe this will be a helpful experiment.

January of 1965

Firstly, I clarify the month in which this letter was written because, throughout that year, Warren wrote 3 different letters (in January, July and November).

Even though it’s practically impossible to determine which of Buffett’s writings is the most insightful, I believe It’s possible for me to state this was my personal favorite. Within it, I found some of the most valuable pieces of wisdom I have ever come across in my finance readings. Furthermore, Warren put into words some brilliant thoughts that inspired me to write the article mentioned in the introduction.

It discusses topics like:

Why he thinks other managers underperform the market
The importance of thinking and how big of a role it plays in his style
How to measure conservatism
The stomach needed to handle stock investments
He goes through a detailed explanation of his actual strategy

Some quotes:

“A public poll is no substitute for thought”
“Truly conservative actions arise from intelligent hypotheses, correct facts and sound reasoning”

In 1970, Warren discontinued and dissolved the investment fund to begin his journey as Berkshire Hathaway’s Chairman. Therefore, the following two letters correspond to him writing as BRK’s Chairman. Some quotes on his ‘retirement’:

“I am not attuned to this environment and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can get out a hero” May, 1969

1983 Letter

I found this letter as the most thoughtful piece written under BRK’s management (at least until 1987, where I’m at). I think Buffett gets to clearly reveal and elaborate on his and Charlie’s thinking process regarding to all management-included activities. At the same time, he speaks out what he believes should be the ultimate goal of all companies’ management, how to measure such performance, and what’s Berkshire’s plan to achieve so. Topics:

Explanation of Berkshire whole game plan
Long term goal
Evaluation of capital allocation skills
Management-investors alignment

Lastly, there are phenomenal quotes here which encapsulate lots of financial wisdom and are today’s reference point.

1985 Letter

As the previous ones, there are many concepts discussed and a high degree of light shred to them. However, what distinguishes this letter from others is, I think, that this one is the most human of his writings. Warren recognizes a mistake he’s made and commits himself to solve it. Taking advantage of it, Buffett states one of the most insightful, but not obvious, quotes throughout his journey:

“A textile company that allocates capital brilliantly within its industry is a remarkable textile company – but not a remarkable business”

In this letter, the topics discussed are:

Spread between market and intrinsic value
The shutting down of BRK’s textile operation
The importance of building upon true premises
Learning from other’s mistakes and some of Graham thoughts

July 1966 Page 4

This last pick is a single page of July’s 1966 letter, which I found absurdly enjoyable. Warren goes through market timing and guessing.

Personal Commentary

You can’t imagine how difficult it was for me to narrow down 30 years of writing into only 3. It really hurts leaving out other great letters. I hope you found this article useful and it leads you to read the 3 write-ups!

Don’t forget the PDF!