I have shared these before and find them very interesting and entertaining snippets of our current economic climate. Below I have shared my favorite snippet from Warren’s 2016 letter and a link to the full document. The letter is only 28 pages long and contains some dry items, but also some valuable nuggets, please enjoy.

Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.

I believe, however, that none of the mega-rich individuals, institutions or pension funds has followed that same advice when I’ve given it to them. Instead, these investors politely thank me for my thoughts and depart to listen to the siren song of a high-fee manager or, in the case of many institutions, to seek out another breed of hyper-helper called a consultant.
That professional, however, faces a problem. Can you imagine an investment consultant telling clients, year after year, to keep adding to an index fund replicating the S&P 500? That would be career suicide. Large fees flow to these hyper-helpers, however, if they recommend small managerial shifts every year or so. That advice is often delivered in esoteric gibberish that explains why fashionable investment “styles” or current economic trends make the shift appropriate.

The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it. Their money, they feel, should buy them something superior compared to what the masses receive.

In many aspects of life, indeed, wealth does command top-grade products or services. For that reason, the financial “elites” – wealthy individuals, pension funds, college endowments and the like – have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars. This reluctance of the rich normally prevails even though the product at issue is –on an expectancy basis – clearly the best choice. My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than $100 billion over the past decade. Figure it out: Even a 1% fee on a few trillion dollars adds up. Of course, not every investor who put money in hedge funds ten years ago lagged S&P returns. But I believe my calculation of the aggregate shortfall is conservative.

Much of the financial damage befell pension funds for public employees. Many of these funds are woefully underfunded, in part because they have suffered a double whammy: poor investment performance accompanied by huge fees. The resulting shortfalls in their assets will for decades have to be made up by local taxpayers.
Human behavior won’t change. Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something “extra” in investment advice. Those advisors who cleverly play to this expectation will get very rich. This year the magic potion may be hedge funds, next year something else. The likely result from this parade of promises is predicted in an adage: “When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”

Long ago, a brother-in-law of mine, Homer Rogers, was a commission agent working in the Omaha stockyards. I asked him how he induced a farmer or rancher to hire him to handle the sale of their hogs or cattle to the buyers from the big four packers (Swift, Cudahy, Wilson and Armour). After all, hogs were hogs and the buyers were experts who knew to the penny how much any animal was worth. How then, I asked Homer, could any sales agent get a better result than any other?

Homer gave me a pitying look and said: “Warren, it’s not how you sell ‘em, it’s how you tell ‘em.” What worked in the stockyards continues to work in Wall Street.

Link to the full 2016 Warren Buffett Berkshire Hathaway Annual Letter 2016

Yesterday Berkshire Hathaway released its Annual Report and amongst the standard numbers and forecasts livest the wisdom of Warren Buffett “Oracle of Omaha.” I have plucked a few for reference as if you ever get a chance to read Buffett he provides some of the most profound guidance without direction one can find.

On future acquisitions (p. 5):

With the acquisition of Van Tuyl, Berkshire now owns 91⁄2 companies that would be listed on the Fortune 500 were they independent (Heinz is the 1⁄2). That leaves 4901⁄2 fish in the sea. Our lines are out.

On experience investing (p. 6):

“I’ve mentioned in the past that my experience in business helps me as an investor and that my investment experience has made me a better businessman. Each pursuit teaches lessons that are applicable to the other. And some truths can only be fully learned through experience.”

Buffett citing a Peter Arno’s cartoon (p. 6):

There are certain things that cannot be adequately explained to a virgin either by words or pictures.

It never hurts to always advertise (p. 10):

Indeed, at least 40% of the people reading this letter can save money by insuring with GEICO. So stop reading and go to geico.com or call 800-368-2734.

On making investment mistakes (p. 15):

I have not, nonetheless, made my last mistake in purchasing either businesses or stocks. Not everything works out as planned.

The definition of investing quoted from 2011 annual report (p. 18):

the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future.

About unsolicited offers (p. 23):

We’ve found that if you advertise an interest in buying collies, a lot of people will call hoping to sell you their cocker spaniels.

On CEO lessons on business valuations in acquisitions (p. 27):

The intrinsic value of the shares you give in an acquisition must not be greater than the intrinsic value of the business you receive.

About asking Wall Street for investing advice (p. 31):

But sitting tight is seldom recommended by Wall Street. (Don’t ask the barber whether you need a haircut.)