How Reading Shareholder Letters Can Make You a More Successful Investor and Business Person


John Micklitsch, CFA CAIA, President & Chief Investment Officer

Every year, several public company CEO shareholder letters go beyond updates about their company and tackle issues related to the overall economy, governance, business management and long-term trends. In some regard, these letters are mini-MBA courses from some of the best business minds in the world. As a result, each year we endeavor to offer you what we believe are some of the most salient points from several that we enjoy reading. Here goes.

Berkshire Hathaway Inc. 2018 Shareholder Letter, Warren Buffett – Chairman & CEO

The granddaddy of all shareholder letters, Warren Buffett’s annual shareholder letter is likely the most anticipated annual letter of its kind. In many regards, Buffett created the highly educational format that today’s most thought-provoking letters utilize. He built the template and has perfected it as a means of communication. In 2018 he continued to emphasize perhaps the most important tenant of successful investing; focus on the long-term quality of the business (as a business owner would) and tune out short-term noise.

Buffett also practices a management technique whereby he praises individuals publicly by name yet takes personal responsibility for most of Berkshire’s shortcomings in a given year. This example of leadership not only builds tremendous loyalty but is also good business. If you had a choice in terms of who you could sell your business to, would this type of leadership approach tip the scales in Berkshire’s favor? You bet it would – and Buffett is a master at building an environment conducive to getting that all important “first call” when there is a deal to be had.

This year, Buffett also emphasizes the importance of retained earnings. This is a concept that is applicable to both corporations and individuals. Corporations have retained earnings when there is a profit that they decide to keep (rather than pay out to shareholders). Individuals have retained earnings when they spend less than they make. What you do with retained earnings is equally important for both companies and individuals. Retained earnings, invested wisely, become the foundation for the future financial fortress that both businesses and individuals seek.

JPMorgan Chase & Co. 2018 Shareholder Letter, Jamie Dimon – Chairman & CEO

Chairman and CEO Jamie Dimon breaks up the JP Morgan shareholder letter into three parts:

  1. JP Morgan Chase Principles and Strategies: In this section, Dimon explains to the company’s various constituents (its shareholders, employees, customers and communities served) how the company is run via seven overarching principles and strategies. Transparency and communication build trust which creates long-term political capital with its constituents that the company can rely on if it ever needs to. This section also establishes a cultural road-map for employees. Jamie Dimon can’t possibly be in every situation that requires a decision or commitment from JP Morgan, but the Principles and Strategies section can help guide the day-to-day employee decision making process to ensure the best possible chance for positive long-term outcomes.
  2. Comments on Current Critical Issues: In this section, Dimon demonstrates thought leadership on various current topics including the strength of the banking system, privacy policy, cyber security concerns and the need to balance free markets with thoughtful regulation. With all of these, Dimon acknowledges there will be unknown risks and is realistic about their outcomes, but one can re-visit the decision-making framework he has forged in the Principles and Strategies section to formulate how the company will handle whatever comes its way. Give a person a fish and you feed them for a day. Teach them how to fish and you feed them for a lifetime.
  3. Public Policy: In this section, Dimon identifies no less than 11 issues facing public policy decision makers. While he argues the American Dream is still very much alive and reiterates the economic power of capitalism, he stresses the need for public/private cooperation, less partisanship, inclusiveness and continued investment in the business tax system, infrastructure and education as keys to effective public policy. This thought leadership undoubtedly gives Jamie Dimon, and in turn JP Morgan Chase, a seat at the table when public policy makers look to the private sector for guidance.

Dimon’s annual shareholder letter has become a textbook for leadership in Corporate America., Inc. 2018 Shareholder Letter, Jeff Bezos – Founder & CEO

Jeff Bezos, famous for emphasizing the importance of maintaining a “Day One” culture at Amazon, ends each shareholder letter with a copy of the company’s first shareholder letter from back in 1997. 21 years later, many of the same guiding principles are in still in place and can be seen in the corporate culture today. For example, back in 1997, Bezos wrote of the importance of long-termism when it comes to maintaining and extending market share, on how it treats customers, how it reinvests in the business, its hiring practices, its treatment of employees and its use of data for decision making.

In fact, Bezos’ ability to focus all of Amazon’s constituents on long-term opportunities is probably its greatest advantage because it has allowed Amazon to reinvest in the business at rates other companies could only dream of. Bezos has a section in the 2018 letter called Intuition, Curiosity and the Power of Wandering, which recalls the famous quote, “Not all who wander are lost.” For Bezos, that meant creating a culture of “builders – people who are curious, explorers. They like to invent. Even when they’re experts, they are ‘fresh’ with a beginner’s mind”. He links the creation of Amazon Web Services (AWS), which has become one of the world’s largest cloud computing platforms and one of Amazon’s crown jewels, with that same curious spirit. In 2002, when AWS was formed, nobody was looking for an AWS type of service, but the company was curious enough to ask the question and $25 billion a year in sales later, that curiosity and explorer’s spirit has paid off handsomely.

In closing, there are so many good examples of leadership and management wisdom in annual shareholder letters and we could review many more for you. But several consistent themes we believe you will find in most of the good ones is a focus on long-term thinking, the formation of a set of guiding principles that establish a cultural “true north” for the organization and finally a willingness to take calculated risk through thoughtful and careful reinvestment of corporate earnings (or personal savings in the case of individuals) for future growth. These three pillars of organizational management are a great place to start in charting your own path towards personal and financial success.

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