Warren Buffets annual letter

Warren Buffet, chairman and CEO of Berkshire Hathaway, released his annual shareholder letter on February 23. The much awaited letter from the “Oracle of Omaha” has been required reading for investors for decades. “Ably-managed businesses” and “durable economic characteristics” are the six most important words in his letter. He attributes his success to these two investing principles. However, these two very issues are at the heart of digital disruption, transformation and future success of companies everywhere.

Business disruption is everywhere and is being impacted by regulatory issues, skills shortages, technology disruption, trade conflict, immigration to name a few. Much of this is out of any one company’s leadership and management. However, how organizations understand and deploy the tools available to them is firmly within their control. Buffet, notably has issued a stark warning on cybersecurity risk. The vast majority of corporate boards don’t have the skills to understand the upsides or downsides of new technologies. As a result, the companies they oversee are underperforming when it comes to digital transformation, as are many companies around the world. Just 11% of the companies is the S&P 500 have a technology committee on their corporate board.

Buffet also chose to downplay the emphasis on book value going forward. A new rule requires public companies to account for unrealized paper gains or losses and Berkshire boasts a huge stock portfolio that includes stakes in some of the country’s largest corporations leading to volatile swings in its book value. Buffet wrote. “Our advice? Focus on operating earnings, paying little attention to gains or losses of any variety.”