‘Uncle’ Warren Buffett’s Annual Shareholder Letter Reveals Market Insight

Chris Versace

Chris Versace is a financial columnist and equity analyst with more than 20 years of experience in the investment industry.
Man counting money

Like many investors, whether individual or even mutual and hedge fund managers, I look forward to the Chairman’s Letter penned by Warren Buffett inside Berkshire Hathaway’s (BRK.A) annual report. The latest one, which recaps 2014, was released over the weekend, and, as usual, Buffett offers some insight into the company as well as sage advice for investors.


Before we get started, there’s no way to sugarcoat it — in 2014, Buffett and his team underperformed the S&P 500. Berkshire’s per share book value rose 8.3% in 2014, trailing the 13.7% increase in the S&P 500 (including dividends). I’ll explain what happened soon, but the short story here is the company had several underperforming investments. I find it a rather sobering reminder that even once you’ve done all your homework, there are still pitfalls to be had in the market.

Remember, though, that like my approach in the Growth & Dividend Report, Buffett is a long-term or patient investor, and that strategy continued to outperform the market over the longer term. If we look at the compound annual gain in Berkshire Hathaway over the 1965-2014 period, the math kicks out a 19.4% return. That’s significantly better than the 9.9% annual gain the S&P 500 averaged during the same period. Again, it probably makes sense to listen to what Buffett has to say with an open mind.

Here are my takeaways from the Chairman’s Letter:


Attentive readers will notice that Tesco, which last year appeared in the list of our largest common stock investments, is now absent. An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.

At the end of 2012 we owned 415 million shares of Tesco, then and now the leading food retailer in the U.K. and an important grocer in other countries as well. Our cost for this investment was $2.3 billion, and the market value was a similar amount.

Exclusive  More Important Than the Fed

In 2013, I soured somewhat on the company’s then-management and sold 114 million shares, realizing a profit of $43 million. My leisurely pace in making sales would prove expensive. Charlie calls this sort of behavior “thumb-sucking.” (Considering what my delay cost us, he is being kind.)

During 2014, Tesco’s problems worsened by the month. The company’s market share fell, its margins contracted and accounting problems surfaced. 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.

We sold Tesco shares throughout the year and are now out of the position.

The lesson here is to ensure the reasons behind your initial investment are still valid. If the data starts to turn, keep a watchful eye to see if it is a blip or the start of something more ominous. In this case, Buffett clearly held on too long, and, as he points out, it cost him.

If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may, ironically, end up doing some very risky things. Recall, if you will, the pundits who six years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit. People who heeded this sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement. (The S&P 500 was then below 700; now it is about 2,100.)

Exclusive  High Hopes for Much-Hyped Bitcoin

Investors should never fear price volatility — but, rather, embrace it as an opportunity to buy quality companies — growers and dividend payers — at more affordable prices. Much like a shark, we must always be looking for new opportunities while minding our existing investments.

In striving to achieve the desired per-share number, a panting CEO and his “helpers” will often conjure up fanciful “synergies.” (As a director of 19 companies over the years, I’ve never heard “dis-synergies” mentioned, though I’ve witnessed plenty of these once deals have closed.) Post mortems of acquisitions, in which reality is honestly compared to the original projections, are rare in American boardrooms. They should instead be standard practice.

Mergers and acquisitions (M&A) deal making boomed in 2014, and it looks like it will continue further in 2015, but Buffett is correct in that companies need to do a shakedown analysis of what went wrong. Did we ever hear Time Warner (TWX) or AOL (AOL) discuss how that mega-merger failed miserably relative to all the hyped expectations and synergies that content and connectivity marriage was supposed to deliver?

Understanding what went wrong or failed to materialize is an important part of the investing cycle. It’s also standard practice in the Growth & Dividend Report — after all, how are we supposed to improve our investing skills if we simply turn a blind eye to a position that doesn’t work out? Understanding what shifted against us and so on is crucial in helping us not repeat the same mistake.

Anything can happen anytime in markets. And no advisor, economist, or TV commentator — and definitely not Charlie nor I — can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.

Exclusive  Top Traits of CEOs Baron Capital Backs

Cable TV and regular TV pundits and programs are designed to trap your eyes and ears. Remember, it is ratings that dictate their advertising revenue streams, not informing you about what is really going on in the world. My subscribers are probably sick of me reminding them to look below the headlines, but each month I wade into the data to present them with the latest and greatest economic data in the context of the world around us.

While I’ve never met Buffett, it seems to me at least that our investing styles overlap in several areas. Perhaps that’s why I’ve been able to deliver so many double-digit percentage winners to Growth & Dividend Report subscribers.

You can read the entire Chairman’s Letter for yourself.

Here’s a link to my appearance yesterday on TheStreetTV where I discussed the mismatch between the falling domestic movie box office and the lofty share prices of movie theater stocks. I’m not sure how the herd expects those companies to deliver… those high-margin snacks and drinks can’t be bought if people aren’t showing up to the theater!

This week I am scheduled to appear on The Rick Amato Show on the One American News Network to talk about the economy, stocks and, more likely than not, what the February Employment Report will look like.

In case you missed it, I encourage you to read my e-letter column from last week about why the market may be peaking. I also invite you to comment in the space provided below.

share on:

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader


Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle


DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops