Billionaire Warren Buffett once said that American businesses and bourses are certain to be worth more in the future, supporting his statement on the grounds of innovation, gains, productivity, entrepreneurial spirit and a plenitude of capital. An astute business magnate, billionaire, philanthropist, legendary investor, and influential leader – an inexplicable Buffett is renowned for his penchant for ingenuity, frugality, and humility.
Over the years, the mogul has bestowed infinite wisdom on investments, CEOs, and businesses. Buffett’s untouchable, successful track record for having taken his company, Berkshire Hathaway’s $100 investment to nearly $3.8 million in the last 58 years, is a testament to why he is worth listening to.
Buffett’s annual letter always conveys timeless knowledge to the business world, which in 2022 revolves around focusing on what’s important, risk management, the value of stock repurchasing, share buybacks, learning and adapting and allowing your winners to run.
Buffett and his right-hand man, Charlie Munger, also the Vice chairman of Berkshire are geniuses and masters in educating investment philosophies – with trademark folksy instances and layman language, they make complex concepts accessible to non-professional investors too. Buffett has previously expressed his distaste for cryptocurrency, mainly Bitcoin.
Buffett Chides Managers And CEOs Who Always “Make The Number”:
Of his opinion on companies outperforming the S&P 500 for long periods, Buffett believes that there are certain skilled individuals – 10 or so CEOs he identifies, who could be expected to achieve this feat. But he refutes the forecasts of companies who are consistent in exceeding earnings targets and is wary of the same.
Pondering over the certitude of such distinguished earnings actually being ‘adjusted’, Buffett is not impressed and adjuncts it to belie a detrimental corporate culture.
Previously acknowledging that he cannot predict market movements, or offer any reliable enlightenment to anyone else, Buffett knows his limits and advises CEOs and investors to do the same.
“Since I know of no way of reliably predicting market movements, I recommend you purchase Berkshire shares only if you expect to hold them for a minimum of five years.”
Lately, companies and analysts are glissading into a recurrent theme of focusing on “numbers”, paying no heed to the actuality of Generally Accepted Accounting Principles (GAAP), the reason being the exclusion of one-off expenses to delineate the continuity in performance.
Buffett and Munger consider this practice very misleading and fear that the convenient ostracizing does not hide the real costs. Of the adjustments, two expenses that exasperate the billionaire are the omission of “stock-based compensation” and “restructuring costs.”
“The numbers of the management who are looking for any means to report and feature ‘adjusted earnings’ higher than their company’s GAAP earnings, is indeed growing every year.”
Buffett and Munger cringe when they hear managers being admired for ‘making the numbers’ because businesses are often unpredictable for the numbers to be met always. While the chances of surprises entail, a CEO whose focus is reigning over Wall Street would always be tempted to “make up” the numbers.
Why Buffett Fears Fatal Repercussions On The Corporate Culture:
Disclosure practices in the financial world are interpreted deeply by aspiring investors and fledgling businesses too, and CEOs are endangering the corporate culture by making up numbers. Buffett admonishes this practice and also fires off at investment managers who charge hefty fees for trying to outperform the market.
Buffett suspects that investors have wasted more than $100 billion on Wall Street in the past decade owing to high-cost index funds, because these aren’t reaped by clients, but managers.
On the reason behind looking at other companies’ performance ranks, Buffett and Munger arrive at conclusions of future estimates based on the past numbers and are asking managements that are regularly waning away from the real costs under the garb of ‘adjusted per-share earnings’ to stop doing so. CEOs who are overtly searching for loopholes in the market are not realizing that they are fostering a culture for their subordinates to deceive them as well. After all, bad behavior is prone to contagion. Many businesses have been desecrated because insurers have underestimated their loss reserves.
