Dear Reader,
Today is National Letter to an Elder Day. It’s a wonderful opportunity to write to an elderly friend.
And it’s a wonderful day to discuss 94-year-old Warren Buffett’s shareholder letter that came out Saturday.
Remember the lost art of letter writing?
My goodness, writing a good letter, you really have the time to explore and think deeply about things.
It’s something I try to have my kids do as often as possible.
Anyway, today I want to talk about Buffett’s shareholder letter that came out Saturday.
I consider it required reading for anyone who wants to understand the mind of the world’s greatest investor.
At 94, he may not be doing this much longer.
We’re very lucky to be alive in this time. Buffett’s been the greatest teacher I’ve ever had in my life that I’ve never met.
I read all his shareholder letters, they’re posted on his website, www.BerkshireHathaway.com, going back to 1977.
For anyone who really wants to understand the mind of the world’s greatest investor…
For anyone who wants to become really good at investing…
This is required reading. I urge you to read them.
In the early 2000s I started going through them.
When you read the ones from 1977, ’78, ’79, it’s like nobody knows him. He’s not famous yet.
He’s just a guy running a company.
And he’s describing how to look at opportunity by looking at certain economic characteristics of companies.
He explains why these characteristics are better than those and so on.
It’s a clinic. It’s a masterclass on how to do that kind of thing – how to really focus on the right type of investments.
The great thing is, since he’s talking about business, it not only works in the stock market, but also in the companies many of you are running right now.
It helps you think about how to run them better, smarter, etc.
But today I want to talk to you about a few things from his latest shareholder letter.
If you’re a regular Diary reader you already know he’s been a net seller of stocks, just like we have and just like most professional investors have in this overvalued market…
You already know he stopped buybacks three quarters ago when the market went bonkers.
But in this shareholder letter he does give two warnings about our currency. And that is very unlike him.
He wrote to the leaders of our country:
“And never forget that we need you to maintain a stable currency and that result requires both wisdom and vigilance on your part…
“Paper money can see its value evaporate if fiscal folly prevails.
“In some countries, this reckless practice has become habitual. And in our country’s short history, the U.S. has come close to the edge.
“Fixed coupon bonds provide no protection against the runaway currency.”
What Buffett’s saying here is when you spend like crazy, you really harm your currency and then people won’t want to buy bonds.
He’s saying what we’ve been talking about here…
If the 30-year paying 4.5% won’t cover inflation because you’re printing so much money… when you’re looking at 7%, 10% inflation then 4.5% coupon bonds provide no protection.
Warren Buffett’s a “praise by name, criticize by category” guy.
He’s not going to talk about any particular leader on the left or right.
He’s going to speak to policy.
I feel the same way – whether you’re on the right or the left, what’s really important to us as investors is policy.
We’ve got to be objective, open-minded. So this is as “warning” as Buffett can get.
Two separate warnings at two different points.
And look, we have spiraling fiscal problems.
The budget deficit topped almost $2 trillion in fiscal year 2024. Our interest expense topped a trillion dollars for the first time ever.
That violates Ferguson’s Law, which states that if a country’s interest expense becomes greater than its defense expense the country faces decline.
This is arguably why the Trump administration is rushing to reduce our footprint globally.
It harkens back to the Roman Empire.
Remember, when the Roman Empire was under massive fiscal constraint, they started pulling their troops and outposts from Britain and other places to reduce their footprint.
We are at that phase.
Thankfully, the Trump administration seems very serious about cutting costs, because somebody has to do it.
The only thing we can hope for is that they focus on the big stuff – reforming entitlements to some degree because everything else is a drop in the bucket.
Have a wonderful day, and remember to write that letter if you can.
“The Buck Stops Here,”
