The Best One Yet - 💤 “Snooze Pod” — We read Warren Buffett’s Shareholder Letter (to put you to sleep) 😴

Episode Date: March 8, 2025

Since we all lose an hour of sleep during Daylight Savings tonight, we whipped up a podcast to help you fall asleep: We’re reading Warren Buffett’s Annual Shareholder Letter for Berkshire Hathaway. The world’s most legendary investor, Warren outlines how he makes every financial decision. But it’s still a *shareholder letter*, so you’ll drift off somewhere between the 5th and 9th time Warren mentions “investment thesis.”So grab your pajamas and get under the spreadsheets, it’s time to enjoy the 2nd annual… Stock Market Snooze Pod: The Sleepiest One Yet.(And here’s the whole letter if you’d like to read along from bed too): https://www.berkshirehathaway.com/letters/2024ltr.pdf Hosted on Acast. See acast.com/privacy for more information.

This is Nick. And this is Jack. And today's pod is the sleepiest one yet. We're here for our second annual stock market snooze pod. Yeties, you're about to lose one hour of sleep because of daylight savings. So besties, we're going to help drift you off to bed, get some great sleep with the boringest business story that we could find. Because Jack and I are about to read. Word by word.

Wine by line. Number by number. The entire corporate annual report of one surprise company. We're about to read the latest shareholder letter written by Warren Buffett. The letter written by the greatest investor in the world. He published it last week, but we'll put you to sleep with it tonight. It could grab some more milk or you could pop a melitone. Or you could listen to us read 2,436 words from Berkshire Hathaway's annual shareholder letter.

We're making business news for your beauty rest. We're turning Wall Street into Wall Sleep. So shut your eyes and open your ears, besties. Close your spreadsheets and open your bed sheets. Let's travel back to Omaha, Nebraska. As a 94-year-old Warren Buffett describes how he makes every single investment of his life. Yeties, today's pod is the best one yet. Because today's pod is the sleepiest one yet.

Jack, let's hit our... One story. You're either going to be really fascinated by this letter, or it'll put your right to sleep. First, a quick word from our sponsor. Warren Buffett's 2025 annual shareholder letter. To the shareholders of Berkshire Hathaway, Inc. This letter comes to you as part of Berkshire's annual report. As a public company, we are required to periodically tell you many specific facts and figures.

Report, however, implies a greater responsibility. In addition to the mandated data, we believe we owe you additional commentary about what you own and how we think. Our goal is to communicate with you in a manner that we would wish you to use if our positions were reversed. That is, if you were Berkshire CEO, while I and my family were passive investors, trusting you with our savings. This approach leads to an annual recitation of both good and bad developments at the many businesses you indirectly own through your Berkshire shares. Mistakes, yes, we make them at Berkshire. Sometimes I've made mistakes in assessing the future economics of a business that I've purchased for Berkshire, in each a case of capital allocation gone wrong. A decent batting average in personnel decisions is all that can be hoped for. The Cardinal Sin is delaying the correction of mistakes or what Charlie Munger called thumb-sucking. Problems, he would tell me, cannot be

wished away. They require action, however uncomfortable that may be. During the 2019 to 23 period, I've used the words mistake or error 16 times in my letters to you. Many other huge companies have never used either word over that span. Amazon, I should acknowledge, made some brutally candid observations in its 2021 letter. Elsewhere, though, it has generally been happy talk and pictures. I have also been a director of large companies at which mistake or wrong were forbidden words at board meetings or analyst calls.

That taboo, implying managerial perfection, always made me nervous. If you start fooling your shareholders, you will soon believe your own baloney and be fooling yourself as well. Pete Legal, one of a kind. Let me pause to tell you the remarkable story of Pete Legal, a man unknown to most Berkshire shareholders,

but one who contributed many billions to their aggregate wealth. Pete died in November, still working at 80. I first heard of Forest River, the Indiana company Pete founded and managed, on June 21, 2005. On that day, I received a letter from an intermediary detailing relevant data about the company, a recreational vehicle RV manufacturer.

The writer said that Pete, the 100% owner of Forest River specifically wanted to sell the Berkshire. He also told me the price that Pete expected to receive. I liked this no-nonsense approach. I did some checking with RV dealers, liked what I learned, and arranged a June 28th meeting in Omaha. Pete bought along his wife, Sharon, and daughter Lisa. When we met, Pete assured me that he wanted to keep running the business but would feel more comfortable if he could assure financial security for his family. Pete next mentioned that he owned some real estate that was leased to Forest River and had not been covered in the June 21 letter. Within a few minutes, we arrived at a price for those assets as I expressed no need for appraisal by Berkshire,

but would simply accept his valuation. Then we arrived at the other point that needed clarity. I asked Pete what his compensation should be, adding that whatever he said, I would accept. This, I should add, is not an approach I recommend for general. use. Pete paused as his wife, daughter, and I leaned forward. Then he surprised us by saying, well, I look at Berkshire's proxy statement, and I wouldn't want to make more than my boss, so pay me $100,000 a year. After I picked myself up off the floor, Pete added, but we will earn X, he named a number, this year, and I would like an annual bonus of 10% of any earnings

above what the company is now delivering. I replied, okay, Pete, but if Forest River makes any significant acquisitions, we will make an appropriate adjustment for the additional capital thus employed. I didn't define appropriate or significant, but those vague terms never caused a problem. The four of us then went to dinner at Omaha's Happy Hollow Club and lived happily ever after. During the next 19 years, Pete shot the lights out. No competitor came close to his performance. Every company doesn't have an easy-to-understand business, and there are very few owners or managers like Pete. And of course, I expect to make my share of mistakes about the businesses Berkshire buys and sometimes Aaron evaluating the sort of person with whom I'm dealing.

But I've also had many pleasant surprises in both the potential of the business as well as the ability and fidelity of the manager. And experience? Our experience is that a single winning decision can make a breathtaking difference over time. Mistakes fade away. Winners can forever blossom. I never looked at where a candidate has gone to school. Never. Of course, there are managers who attended the most famous schools. But there are plenty, such as Pete Legal,

who may have benefited by attending a less prestigious institution, or even by not bothering to finish school. Look at my friend Bill Gates, who decided that it was far more important to get underway in an exploding industry that would change the world than it was to stick around for a parchment that he could hang on the wall. Read his new book, Source Code.

Not long ago, I met by phone Jessica Tuncle, whose step-grandfather Ben Rosner long ago ran a business for Charlie and me. Ben was a retailing genius, and, in preparing for this report, I checked with Jessica to confirm Ben's schooling, which I remembered as limited. Jessica's reply? Ben never went past sixth grade. I was lucky enough to get an education at three fine universities, and I avidly believe in lifelong learning. I've observed, however, that a very large portion of business talent is innate with nature-swamping nurture. Pete Legal was a natural. Now a quick word from our sponsor. Last year's performance in 2024, Berkshire did better than I expected, though 53% of our 189 operating businesses

reported a decline in earnings. We were aided by a predictable large gain in earnings. We were aided by a predictable large gain investment income as treasury bill yields improved and we substantially increased our holdings of these highly liquid short-term securities. Our insurance business also derived a major increase in earnings led by the performance of GEICO. In five years, Todd Combs has reshaped GEICO in a major way, increasing efficiency and bringing underwriting practices up to date. Geico was a long-held gem that needed major repolishing, and Todd has worked tirelessly in getting the job done. Though not yet complete, the 2024 improvement was spectacular. In general, property casualty insurance pricing strengthened during 2024, reflecting a major increase in damage

from convective storms. Climate change may have been announcing its arrival. However, no monster event occurred during 2024. Someday, any day, a truly staggering insurance loss will occur, and there's no guarantee there will be only one per annum. All told, we recorded operating incomes of $47 billion in 2024. We regularly, endlessly, some readers may grown, emphasize this measure rather than the gap-mandated earnings that are reported on page K-68. Our measure excludes capital gains or losses on the stocks and bonds that we own, whether

realized or unrealized. Over time, we think it highly likely that gains will prevail. Why else would we buy those securities? though the year-by-year numbers will swing wildly and unpredictably. Our horizon for such commitments is almost always far longer than a single year. In many, our thinking involves decades. These long-termers are the purchases that sometimes make the cash register ring like church bells. Surprise, surprise.

An important American record is smashed 60 years ago. Present management took control of Berkshire. That move was a mistake, my mistake, and one that plagued us for two decades. Charlie, I should emphasize, spotted my obvious error immediately. Though the price I paid for Berkshire looks cheap, its business, a large northern textile operation, was headed for extinction. The U.S. Treasury, of all places, had already received silent warnings of Berkshire's destiny. In 1965, the company did not pay a dime of income tax.

an embarrassment that had generally prevailed at the company for a decade. That sort of economic behavior may be understandable for glamorous startups, but it's a blinking yellow light when it happens at a venerable pillar of American industry. Berkshire was headed for the Ashcan. Fast forward 60 years, and imagined the surprise at the Treasury when that same company, still operating under the name Berkshire Hathaway, paid far more in corporate income tax than the U.S. government had ever, received from any company. Even the American Tech Titans that commanded market values in the trillions.

To be precise, Berkshire last year made four payments to the IRS that totaled $26.8 billion. That's about 5% of what all of corporate America paid. Huge numbers can be hard to visualize. Let me recast that $26.8 billion that we paid last year in taxes. If Berkshire had sent the Treasury a $1 million check every 20 minutes throughout all of 2024, visualize 366 days and nights because 2024 was a leap year, we would still have owed the federal government a significant sum at year end. Indeed, it would be well into January before the Treasury would tell us that we could take a short breather, get some sleep, and prepare for our 2025 tax payments.

Where Your Money is. Is Berkshire's equity activity ambidextrous? In one hand, we own control of many businesses holding at least 80% of the investee's shares. Generally, we own 100%. These 189 subsidiaries have similarities to marketable common stocks, but are far from identical.

The collection is worth many hundreds of billions of dollars and includes a few rare gems. Many good but far from fabulous businesses and some laggards that have been disappointments. We own nothing that is a major drag, but we have a number that I should not have purchased. In the other hand, we own a small percentage of a dozen or so very large and highly profitable businesses

with household names such as Apple, American Express, Coca-Cola, and Moody's. Many of these companies earn very high returns on the net tangible equity required for their operations. At year end, our partial ownership holdings were valued at $2,60. $72 billion. Understandably, really outstanding businesses are very seldom offered in their entirety. But small fractions of these gems can be purchased Monday through Friday on Wall Street, and very occasionally they sell at bargain prices. We are impartial in our choice of equity vehicles,

investing in either variety based upon where we can best apply your and my family's savings. Often, nothing looks compelling. Very infreaching. Very infreaching. frequently, we find ourselves knee-deep in opportunities. Greg Abel, the future CEO, has vividly shown his ability to act at such times as did Charlie. With marketable equities, it is easier to change course when I make a mistake. Berkshire's present size, it should be understood, diminishes this valuable option. We can't come and go on a dime. Sometimes a year more is required to establish or divest an investment. Despite what some commentators currently view as an extraordinary cash position at Berkshire,

the great majority of your money remains in equities. That preference won't change. While our ownership and marketable equities moved downward last year from $354 billion to $272 billion, the value of our non-quoted controllable equities increased somewhat and remains far greater than the value of the marketable portfolio. Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities, mostly American equities, although many of these will have international operations of significance. Berkshire will never prefer ownership of cash equivalent assets over the ownership of good businesses, whether controlled or only partially owned. 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 runaway currency. Businesses, as well as individuals with desired talents, however, will usually find a way to cope with monetary instability as long as their goods and services are desired by the country's citizenry. So, too, with personal skills. Lacking such assets as athletic excellence, a wonderful voice,

medical or legal skills, or, for that matter, matter any special talents, I have had to rely on equities throughout my life. In effect, I have depended on the success of American businesses, and I will continue to do so. One way or another, the sensible, better yet imaginative deployment of savings by citizens is required to prevail an ever-growing societal output of desired goods and services. This system is called capitalism. It has its faults and its abuses. In certain respects, more egregious now than ever, but it also can work wonders unmatched by any other economic system. America is Exhibit A.

Our country's progress over its mere 235 years of existence could not have been imagined by even the most optimistic colonists in 1789 when the Constitution was adopted and the country's energies were unleashed. True, our country in its infancy sometimes borrowed abroad to supplement our own savings. But concurrently, we needed many Americans to consistently save and then needed those savers or other Americans to wisely deploy the capital, thus made available. If America had consumed all that it produced, the country would have been spinning its wheels. The American process has not always been pretty. Our country has forever had many scoundrels and

promoters who seek to take advantage of those who mistakenly trust them with their savings. But even with such malfeasance, which remains in full force today, and also much deployment of capital that eventually floundered because of brutal competition or disruptive innovation, the savings of Americans have delivered a quantity and quality of output beyond the dreams of any colonist. From a base of only four million people, and despite a brutal internal war early on, pitting one American against another, America changed the world in the blink of a celestial eye. In a very minor way, Berkshire shareholders have participated in the American miracle by foregoing dividends, thereby electing to reinvest rather than consume.

Originally, this reinvestment was tiny, almost meaningless, but over time it mushroomed, reflecting the mixture of a sustained culture of savings combined with the magic of long-term compounding. Berkshire's activities now impact all corners of our country, and we are not finished. Companies die for many reasons, but unlike the fate of humans,

old age itself is not lethal. Berkshire today is far more youthful than it was in 1965. So thank you, Uncle Sam. Someday, your nieces and nephews at Berkshire hope to send you even larger payments than we did in 2024. Spend it wisely.

Take care of the many who, for no fault of their own, get the short straws in life. They deserve better. And never forget that we need you to maintain a stable currency and that result requires both wisdom and vigilance on your part. The annual gathering in Omaha

I hope you will join us for is on May 3rd. We are following a somewhat changed schedule this year, but the basics remain the same. Our goal is that you get many of your questions answered, that you connect with friends and that you leave with a good impression of Omaha. The city looks forward to your visits.

We will have much of the same group of volunteers to offer you a wide variety of Berkshire products that will lighten your wallet and brighten your day. As usual, we will be open on Friday from noon until 5 o'clock with lovable squish mallows, underwear from Fruit of the Loom, Brooks running shoes,

and a host of other Berkshire items to tempt you. Again, we will have only one book for sale. Last year, we featured poor Charlie's Almanac and we sold out. 5,000 copies disappeared before the close of business on Saturday. This year, we will offer 60 years of Berkshire Hathaway. My wise and good-looking sister, Bertie, of whom I wrote last year,

will be attending the meeting along with two of her daughters, both good-looking as well. Observers all agree that the genes producing this dazzling result flow down only the female side of my family. Sob. Bertie is now 91, and we talk regularly on Sundays using old-fashioned telephones for communications. We cover the joys of old age and discuss such exciting topics as the relative merits of arcane. In my case, the utility is limited to the avoidance of falling flat on my face. But Bertie regularly one-ups me by asserting that she enjoys an additional.

benefit. When a woman uses a cane, she tells me, men quit hitting on her. Bertie's explanation is that the male ego is such that little old ladies with canes simply aren't an appropriate target. Presently, I have no data to counter her assertion, but I have suspicions. At the meeting, I can't see much from the stage, and I would appreciate if the attendees would keep an eye on Bertie. Let me know if the cane is really doing the job. My bet is that she will be surrounded by males. For those of a certain age, the scene will bring back memories of Scarlett O'Hara and her horde of male admirers in Gone with the Wind. The Berkshire directors and I immensely enjoy having you come to Omaha,

and I predict that you'll have a good time and likely make some new friends. February 22nd, 2025, Warren E. Buffett, Chairman of the Board. I think that's it, Nick. Jack, I think that's it, too. I think I'm ready for some shut-eye. Do you pop a melatonum? Somewhere in between Warren saying investment thesis and insurance premiums, I've popped two melatonins, Jack. Yeties.

Have a good 23-hour day tomorrow. Nick and I. We'll see you Monday.