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good morning everyone february 27th warren buffett released his annual shareholder letter for berkshire hathaway and i have it here in front of me if you want to know where to get it you can go to berkshire berkshirehathaway.com that's the name of his company and look at this website very simple website for such a large uh company and you're going to click on here warren buffett loaded to shareholders and it's this one here 2020. as you can see he actually has uh his letters from 1977 but he actually has been writing these since i believe the 1950s and so much longer than what you see here and there are to give you a quick snippet into the significance of these if you read them they're all ways full of very useful information it gives you an idea of how a great investor thinks and how he projects forward they usually convey the thought of looking multiple years ahead he's never looking a little bit ahead but also they're very entertaining they're actually interesting to read and so let's get into this one one little caveat i'll start almost any review that you'll read on the internet will never capture the full essence of the letter you can only get that from reading the full letter but they are long and having said that let's get into what i found to be interesting so let's bring it up right here and all these letters usually start with this return of the smp versus berkshire hathaway had you invested in each what would have happened and if you look right here if you had invested from 1965 till 2020 in the smp you would have made a monster return 23 000 amazing which compounds to 10.2 had you invested in berkshire hathaway you would have made 2.8 million unbelievable return which compounds to 20 by the way this is a very interesting part when you look at it there's just an annual compounding gain percent you only gain double percent per year but when you gain like 10 one year 10 the next year on top of each one when you do that with 20 it looks like this right because the compound just becomes unbelievable that's one of the mad that's the magic of compounding i remember who actually came up with that uh quote but that just shows you right there uh these numbers right here show you the magic compound okay let's get into the letter so the his first his first uh page sort of talks about earnings at berkshire so some of this stuff might be a bit nerdy but he talks about earnings at berkshire and how it's reported and he talks about the importance of operating earnings okay so if you look at it the earnings of the gap recognized earnings of 42.5 billion for 2020 are actually broken down into unrealized capital gains capital gains and he talks about really what you want is operating earnings now this is a very important point these are earnings from the actual uh from performance of the company and what he's trying to say is don't worry about the sale when we sell stuff sell parts of a company or something like that and make money that you should be looking at how honestly we make money and right here even during periods when they are not the largest item operating earners are not the largest item even when they're not the largest item they're the most important item so that's an interesting point moving on not to dwell on that if you aren't you know if you don't really care to hear about gap earnings he talks about his mistake these this is a common thing in pressure or sorry correction in buffett's letters is he is very candid right so in here he talks about purchasing pcc precision cast parts and how it was a mistake and here's what's awesome it's one of the best in the business the ceo is a passionate manager pours great energy into it how could it be still a mistake he paid too much and so he talks about that here and this goes back to how you can great get a great company so or buy a great product such as apple but if you pay too much money it's still a mistake you did not earn enough so i give the example of an apple iphone is a great phone but if you would you buy it for 5000 bucks no you paid too much so getting into this next section he talks it's called two strings to our bow so he always also has fancy names for his sections they're very uh it's very interesting so he says two talks about two strings to our bow and to give the essence of this he talks about how berkshire hathaway has been labeled a conglomerate but he doesn't really like that term and he kind of explains why in in a nutshell he talks about how often with conglomerates they buy businesses in their entirety but there's problems with that strategy most great businesses do not want to be sell they don't want to be sold and so what is left if your conglomerate is you have these so and so businesses right a great business does not want you to come and buy it they want to remain in operation and so what he gets to eventually is there that what he likes to do and this is sort of the essence of berkshire hathaway and how they're different than the other company is he will buy businesses in the whole if he finds them there that he does that for sure but what he also does is he will buy large stakes in public companies and leave the management and all that intact he lets them run themselves but he takes the earnings they they siphon the earnings and so the company when he finds a company that's just basically a cash machine he will purchase it no problem but he leaves the rest of the attack so he doesn't sort of start running it himself all right that's working so he breaks it down most of berkshire's valley resides in four businesses three controlled in one inch we have only a five point four percent interest all for our jewels this by the way for five point four percent interest one he's talking about is uh apple and we'll get into that but he talks about basically how a lot of their business is actually in a railroad be uh nsf which is like berkshire uh i actually forgot what it stands for uh the insurance industry and berkshire hathaway energy and and uh and of course apple and he talks about what kind of returns that they've got from these companies one point i forgot to go over with the conglomerate was actually over here he makes he quotes ronald reagan it said that hard work would never kill anyone but i say why take the chance awesome really funny and uh what he's talking about there is with these conglomerates you know berkshire hathaway will remain a collection of controlled and non-controlled businesses in a sense she's going to let them work hard for him okay moving on to family jewels i want to bring your attention to essentially the last part okay where he talks about apple okay and in this family jewels and section and how we increase your chair he's talking about share repurchases now this is interesting from the past i thought um warren buffett was generally against these however there is a point where it makes sense if the intrinsic value of the company on is so basically if the value of if the price that that is in the stock market for the company is below its intrinsic value so let's say a share is really worth 300 but the sell the price of that share on the stock market currently is 200 he will buy it it makes sense because it increases yo you as a shareholder it increases your uh value sorry your wealth and so it's a good deal he'll buy and he's talking about here he gives the example of apple and so in apple they bought a 36 billion dollar steak okay since buying that apple has returned 775 million annually in dividends they sold a section of it and earned and got 11 billion dollars for it okay and despite that even though they initially only bought their initial stake was 5.2 at apple they now still own 5.4 percent and this increase was costless to us okay this increase was costless to berkshire hathaway so basically with share repurchases what's happened with apple is they initially bought a 5.2 percent stake they've made since then seven about a billion almost in dividends plus 11 billion by selling small portion of that session plus their original ownership stake has actually increased plus not to mention the cost of apple has gone up big time so that's just him breaking down the power of share repurchases and to show you what bert berkshire did they spent 24.7 billion dollars repurchasing shares in 2020 and what the effect of that has been whoops let's bring that back so if you look over here he saw he mentions that with those share repurchases we increase your ownership by 5.2 in berkshire without you so much as touching your wallet cool moving on he talks about some investments and you can see them over here now some of the interesting ones that i wanted to bring up because we know about a lot of these but verizon they recently bought verizon and i have a video if you go look through them of when he just they just recently purchased verizon and i go over the intrinsic value i believe is for that company but what i want to bring your attention to and i um is this byd company byd is a chinese chinese tesla you want to call it and essentially if i remember correctly li liu who is another major investor who's a friend with charlie munger wenger who's a friend with warren buffett is how this came to their attention just look at this monster return is what i want to show you is 232 million was their cost what they bought it for when they invested and now it's worth almost 6 billion dollars this is just these are just unbelievable numbers so this is the type of thing that warren buffett was really famous for in the past is just get earning these giant monster returns now having said that i do believe those days are over you know berkshire hathaway with i mean is it worth to it i'm just going to say 250 billion i think that number is way off i think but how you gonna but even just 250 billion you can't compound that annually at 20 and 30 anymore that's just not possible unless i mean the whole economy of the whole world is only so big and there's only so much room but that's he really is a whale he really he was a minnow and now he's a whale in the ocean moving on there's the next section is a tale of two cities and if you know anything about his letters he really likes it he's a storyteller and he goes on about a lot of businesses here a couple stories he talks about geico he talks about clinton homes the history of several of you know entrepreneurship in the united states and you know the last line here concludes it pretty you know accurately essentially our unwavering conclusion is never bet against america he's talking about the entrepreneurship spirit tailwinds in the us are in favor of uh basically business so do not best against america then he talks about the berkshire hat partnership over here so that's the next type next section now this here you know he he talks about what he did in the past and how he started his money and managing money for family what i want to bring up here is how he uh how he looks at shareholders he looks at them as friends he looks on them as family he looks at them as partners specifically and how this started with is when you see it when buffett started managing money he had a very interesting um way of charging you for it and the you know if you go right now and you invest money somewhere let's say a mutual fund there's a management fee management fee and it will usually be something like let's say around two percent every year no matter what no matter what will be two percent you will get so if the stock market goes up ten percent you know you will you will get eight percent if the stock market drops at minus ten percent your returns will be minus twelve percent so you will get charged this fee this was sort of the management fee structure that is quite common what he did was he charges you zero percent okay so number one he'll charge you zero percent to to invest your money number two the first six percent that you make that's yours that's a hump okay so no matter what he will not charge anything if he only earns six percent anything above six percent okay so six percent plus anything above that right anything whoops anything uh i put that sign the wrong way anything above six percent anyway you get the point that's when he'll charge you a management fee amazing right that's as honest as it gets and this is how he started and by the way this method it was then replicated by other great investors uh i believe monger did it okay i know pabrai if you guys know uh manish pubrae he did this as well and by the way pabrai just an interesting fact during the great financial crisis 2008-2009 i believe there was a huge loss in the funds and for it took him many years to get to profit to get back to profit in all those years he charged nothing okay until he got his shareholders or sorry shareholders until he got his fund back to profit uh then he started charging above that six percent so that's just an interesting little history there okay last section i want to go over is this a berkshire number that may surprise you and he talks about how uh berkshire owns more american based ppe property plant and equipment so he's talking about infrastructure [Music] then in the us more infrastructure than any other company okay and it's worth 154 billion the next company in line is at t with property plant and equipment equal to 127 billion just an interesting thing now i also like that he clarifies this does not in itself signal an investment triumph he talks about how actually a good investment is earning the most amount of money on the least amount of money shelled out and but he does break this down up into bnsf that's the railroad berkshire hathaway energy which uh which they're working on and here's again another little insight into how a person like warren buffett thinks and it's right here let me tell you one about one of bhe's endeavor so berkshire hathaway energy okay they are talking about they started brickway virtual highway energy in 2006 and expected to can be completed by 2030. these are the type of timelines that very long-term investor thinks about and the the main important here the main point i want to bring up to here is if you think about it many people on that you see trading stocks trade stocks they're looking to make a quick buck they're looking to cash that hot potato pass it on to somebody else and for a little bit more money yeah the one the richest the best investors the wealthiest investors don't even they don't even care about day to day or even possibly month-to-month fluctuations they are thinking many years they're thinking of building something and just earning on it for many years to come and that's the essence i for me of this letter is have long-term horizons build something that counts and finally he talks about the annual meeting here they're going to have it in los angeles and i believe that's because monger couldn't make the last one because it's difficult for him to travel he's it's difficult for him to move and so they're going to happen in los angeles and i believe we're going to be able to ask them questions so anyway that's my breakdown of the berkshire berkshire hathaway warren buffett shareholder letter if you have time you're sitting around you have nothing to do ever and you feel like reading some interesting stories and anecdotes read this letter yourself there's some good information but that is my breakdown of all the important points if you found this information helpful please hit that like and subscribe button until next time