No JSE-speak from Warren Buffett

One of the most engaging features of the Berkshire Hathaway annual letter is Warren Buffett’s ability to transform difficult and obscure accounting vernacular into a simple communication to shareholders.

He explains that he developed his congenial writing style in the early days of Berkshire’s history to keep partners such as his sister — whom he admits was financially illiterate — informed about how their investments were doing.

In his letter, the latest of which was published last weekend, Buffett goes to lengths to describe in plain language what each company in the partnership does and how much money it earned. He avoids acronyms, business jargon and complicated charts. He highlights his successes and admits his failures. He doesn’t fudge any numbers or try to make rigid projections about future earnings.

The letter is warm and wholesome, a reflection of Buffett’s unpretentious personality.

Buffett’s sociable approach to connecting with the financial and business community is in stark contrast to most locally listed companies on the JSE that recently reported financial results. Instead of emulating Buffett, who uses the opportunity to market Berkshire’s operating businesses to a wide selection of stakeholders and onlookers, our companies turn the occasion into a mind-numbing accounting affair, aimed at gratifying a limited band of stock market analysts.

For neutrals, the search for the bottom line is a harrowing experience, compelling them to wade through torturous commentary, unintelligible terminology and streams of numbers and percentages, punctuated with symbols that point to pages of small print. When it comes to the earnings number, the creativity of the accounting staff shines, offering readers a varied choice of options from normalised or core to underlying or adjusted.

Buffett’s Midwest commonsense values are not only visible in the way he converses with shareholders but in the way he tackles the hunt for businesses. If you need a computer or a calculator to decide whether to invest, he says, then don’t do it. Invest in something that shouts at you. If it’s not obvious then walk away.

The Berkshire letter never covers those matters we spend hour upon hour deliberating: inflation, monetary policy and the outlook for the global economy. Buffett’s reason is that he never wastes time talking about something he knows little about. To ignore what you know about businesses for prophecies about the economy that you don’t know is just silly, he counsels.

Buffett is immensely proud of US enterprise and acknowledges that in more than 200 years of existence there has been no incubator for unleashing human potential like America. It’s the foundation of his love for marketable stocks. The 90year-old Buffett says he began his interest in investing at age 11.

Although Berkshire records only the dividends it receives on its group of businesses, it’s the continued investment of those unrecorded earnings that builds value for the company.

While we analyse markets daily and adjust plans accordingly, Buffett sits back, patiently allowing the retained earnings in his portfolio of investments to do their work, knowing that if a business does well, the stock price eventually follows. “What worked for Carnegie and Rockefeller has, over the years, worked its magic for millions of shareholders as well.”