Friday, September 2, 2016

The CEO's Letter

Each year just about every CEO sends out a letter to shareholders via their Annual Report. It cheer-leads all the best parts of the year a company had. John Lancaster wrote a good piece in The New Yorker that you can read here regarding letters to and from the Chairman.

It's loaded with quality information and stories. Including many from Warren Buffet and his mentor Benjamin Graham.  Here are a few excerpts.

Because Buffett ignores the short-term fluctuations of the stock market and doesn’t mind long stretches when the valuations of companies in his portfolio are depressed, he needs shareholders who see things the same way. His way of heading off this potential trouble is to practice what he calls “shareholder eugenics.”
He wants the highest-quality owners he can find, and that’s why he goes to such trouble to educate them. Even the look of the letters—deliberately plain to the point of hokiness, with old-school fonts and layout hardly changed in fifty years—is didactic. The message is: no flash here, only substance. Go to the company’s Web site, arguably the ugliest in the world, and you are greeted by “A Message from Warren E. Buffett” telling you that he doesn’t make stock recommendations but that you will save money by insuring your car with geico and buying your jewelry from Borsheims. As he says elsewhere, “Our compensation programs, our annual meeting and even our annual reports are all designed with an eye to reinforcing the Berkshire culture.”...

...The investor’s predicament hasn’t changed in the ninety years since Ben Graham went to 26 Broadway to ask the managers of Northern Pipeline to give the shareholders back their money. The reply he got was: “You must give us credit for knowing better than you what is best for the company and its stockholders.” All company managements think that, and always have, even if they’re increasingly careful about how and when they say so. For the rest of us, the difficulty is in telling the guys who can be trusted with your money from the guys who can’t. 

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