“When seeking directors, CEOs don’t look for pitbulls. It’s the cocker spaniel that gets taken home.”
The above quote is one of the ideas Warren Buffett conveyed in his most recent Berkshire Hathaway annual letter to shareholders.1 Buffett drives home the point that people who serve on the boards of public companies are there to represent shareholders, not to blindly comply with company management initiatives. It is the scrutiny of board members that help drive shareholder value and prevent the company from stumbling due to poor management decisions.
Buffett makes the case for board members to be seasoned experts at running a business, particularly within the same industry.2 It’s important to seek input from someone who specializes in the topic at hand. The same applies to managing investments. No matter how skilled you are at your profession, it’s usually beneficial to work with someone who focuses solely on creating financial strategies.
As usual, one of the world’s most forthright and accessible billionaires offers a wealth of unique perspectives from his perch as chairman of Berkshire Hathaway. One such tidbit Buffett shared this year is that he favors companies that retain earnings to reinvest in the business rather than paying out a high share as dividends.3
Buffett continues to tout equities, despite the recent market downturn, for investors with a long-term perspective. In fact, he refers to the ideal equity investor as “the individual who does not use borrowed money and who can control his or her emotions.”4
Now that he’s working from home during the COVID-19 outbreak, Buffett reiterated one long-tendered recommendation. He said he’s drinking even more of his favorite beverage, Coca-Cola, of which he purchased more than $1 billion in stock back in 1988. Today, Coca-Cola remains one of his investment firm’s largest positions.5
The lesson? Acquire the stock of companies that produce products you believe in, and hold onto them for the long haul.
1 Warren Buffett. Berkshire Hathaway. Feb. 22, 2020. “To the Shareholders of Berkshire Hathaway Inc.” https://www.berkshirehathaway.com/letters/2019ltr.pdf?mod=article_inline. Accessed March 24, 2020.
2 Mitch Tuchman. Marketwatch. March 23, 2020. “Opinion: Warren Buffett’s latest advice could help you retire much richer.” https://www.marketwatch.com/story/warren-buffetts-latest-advice-could-help-you-retire-much-richer-2020-03-16?mod=home-page. Accessed March 24, 2020.
3 Will Ashworth. InvestorPlace. March 3, 2020. “10 Key Lessons Warren Buffett Shares in His Annual Shareholder Letter.” https://investorplace.com/2020/03/10-key-lessons-warren-buffett-shares-in-his-annual-shareholder-letter/. Accessed March 24, 2020.
4 Susan Dziubinski. Morningstar. Feb. 24, 2020. “4 Takeaways from Berkshire Hathaway’s Shareholder Letter.” https://www.morningstar.com/articles/968329/4-takeaways-from-berkshire-hathaways-shareholder-letter. Accessed March 24, 2020.
5 Tom Huddleston Jr. CNBC. March 17, 2020. “Warren Buffett is working from home and ‘drinking a little more Coca-Cola’ amid coronavirus restrictions.” https://www.cnbc.com/2020/03/17/warren-buffett-is-working-from-home-amid-coronavirus-restrictions.html. Accessed March 24, 2020.
Content prepared by Kara Stefan Communications
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