What Can We as Investors Learn from Warren Buffett, Jeff Bezos and Jamie Dimon?

Published:

Authors:
John Micklitsch, CFA CAIA, President & Chief Investment Officer


Warren Buffett, Jeff Bezos and Jamie Dimon are considered to be some of the most influential and sought-after business leaders in the world today. Fortunately for us, all three write widely anticipated (and free!) annual shareholder letters that emphasize some of their best thoughts on high performing organizations, business culture and personal success. With the current year’s crop of annual shareholder letters well underway, we decided to highlight some of the most salient points from each of their 2017 editions, with a particular eye towards applying their everyday wisdom to being a better investor. We hope you enjoy the takeaways.

Warren Buffett – Berkshire Hathaway 2017 Annual Shareholder Letter

Warren Buffett has described Berkshire Hathaway’s annual shareholder letter as written in a manner, and containing the facts, he and his partner Charlie Munger would prefer to read if they were sitting in the shareholder’s shoes – 2017 certainly delivers on this promise. For starters, Buffett stresses that investors stay within their comfort zone when it comes to their investments. At Ancora, we call this the sleep-at-night factor and we believe understanding what you own and why you own it is an important part of establishing a long-term investment plan you can stick to, in good times and in bad.

For years, Buffett only reported the change in the book value of Berkshire’s stock, understanding that if the business is doing well, the stock price will eventually take care of itself. Said another way to investors, focus on what you can control (diversification, quality and time) and tune out the rest that is beyond your control. The other lasting piece of advice Buffett gives investors in the current letter is to avoid buying on margin. Buffett sums up this recommendation with a particularly timeless observation, “Our [Berkshire’s] aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.” Bottom line, use margin very sparingly, if at all, in your personal investments in order to avoid the potential for permanent loss of capital due to poor timing or poor selection. A well-diversified, high quality investment portfolio that is fully paid for should provide enough return over time to satisfy most investor’s needs.

Jeff Bezos – Amazon 2017 Annual Shareholder Letter

If Warren Buffett’s Berkshire Hathaway annual letters are famous for their homespun wisdom and charm, Jeff Bezos’ Amazon letters are written like somebody who has little time or use for indirectness or innuendo. Even the format of the letter is to the point. In this year’s edition, Bezos gets right into the topic of organizational culture and whether or not high standards, and skills like leadership, are teachable. The answer, according to Bezos, is a resounding yes! However, the key is to know what high standards look like and to be able to define the scope of what it will take to get there. This is where the investing analogy applies. To construct a high standards portfolio, you have to know what one looks like. Typically, this means a combination of stocks and bonds and, increasingly, alternatives in order to maximize the benefits of diversification and to potentially enhance risk adjusted returns.

The other key, says Bezos, to establishing high standards is to fully understand the scope of time and effort it will take to achieve them. Becoming wealthy from investments alone takes time. Any shortcuts taken to get there faster often will have the adverse impact of weakening the very foundation you are trying to build in the first place. If you know going in that the process to high standards will take time, then you will most likely be less tempted to diverge or give up at the first signs of difficulty or challenge. Bezos also ends each letter with a link back to his original Amazon shareholder letter. The point in doing so is to re-establish that “Day 1” mentality and to review the hustle and determination it takes to get on top and stay on top. The same holds true with your investments and the financial discipline to continue to save and stay on top of your expenses.

Jamie Dimon – JP Morgan Chase 2017 Annual Shareholder Letter

Jamie Dimon has been a legend on Wall Street for multiple decades. As the CEO of a truly global financial services company, his letter reflects the breadth of perspective on business and public policy that his seat affords him. In addition, his steady hand during the 2008-2009 financial crisis and his famous 500,000 share open market purchase of JP Morgan stock in March of 2016, near the bottom of the market correction that year, have earned him universal respect. So when Jamie talks, people listen. In his 2017 letter, Dimon starts off with the same ‘take care of the business and the share price will take care of itself’ mindset as Buffett. Dimon also talks about the importance of sound capital allocation decisions, as those decisions represent the foundation for future growth.

How you as an individual choose to allocate your annual income has an equally important impact on the growth of your net worth and personal growth down the road. Do you seek good uses of your capital by investing in quality assets and investment strategies, and do you invest in yourself for continued professional and personal development? Do you invest in the good and bad times in the market? Dimon summarizes this philosophy in the following quote, “Our stock price is a measure of the progress we have made over the years. This progress is a function of continually making important investments, in good times and not-so-good times, to build our capabilities — people, systems and products. These investments drive the future prospects of our company and position it to grow and prosper for decades.” Dimon also goes on to talk about the destructive nature of bureaucracy and complacency in large companies.

Households and small businesses have to fight the same battle to prevent unnecessary bloat from creeping into their financial picture and decision-making processes. As the saying goes, a penny saved is a penny earned, but we would add that a penny saved is really like four pennies earned, if given enough time to compound at attractive rates of return. Dimon goes on to say that the risks that banks take are not the same risks as going to the racetrack or a casino. He vigorously opposes the gambling analogy. The same is true for investments. There is a higher probability of permanent loss of capital at a casino the longer you sit at the table, whereas in investing, if you invest in a diversified fashion in quality assets and strategies, the chances of any loss of capital, let alone permanent loss of capital, are actually quite low given enough time. Dimon has an entire section dedicated to the question, “What keeps us [at JP Morgan] up at night?” But the real point is, he has a list. Because once you start to identify the worrisome things in your financial life, you can begin to solve them. Identifying the problem is often the majority of the solution.

Lastly, Dimon makes the case that in order to create comprehensive and thoughtful public policy you have to know what the concerns are of the other party and take the best of their point of view into consideration. Only then can you begin to see where you may be missing an important perspective. The analogy for investing is that in order to be an effective investor you must know both the bull and bear case. If you are a bull, you cannot become so blindsided that you miss some of the valid points the bears are making, and vice versa. It’s about finding a balance in the markets that makes for solid, long-term investment related decisions.

In closing, there are many important lessons in annual shareholder letters. Buffett, Bezos and Dimon’s letters are among the best. What the three have in common is that good culture wins, it is important to surround ourselves with high standards, continue to invest in good times and bad and take a long-term view. If that collective advice is good enough for those three respected organizations, it’s probably good enough for investors to follow as well.

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