The Most Important Takeaway from Warren Buffett’s Annual Letter

Better late than never, I suppose.
My colleagues at Wyatt Research have already read and digested Warren Buffett’s annual letter to Berkshire Hathaway (NYSE: BRK-B) shareholders. I, on the other hand, have been a bit slow on the uptake. I’ve just now gotten around to my homework. To be less charitable and more honest, I’ve been derelict in my duties.
I’m a laggard because I had a good idea of what lay ahead.
I’ve been reading Buffett’s annual letter to shareholders regularly for the past 20 years. Though the prose is fresh, as it always is, the overall theme is little differentiated from past years. Buffett explicates why Berkshire is a conglomerate, why it will continue to be a conglomerate, why it’s to Berkshire’s advantage to be a conglomerate, and why Berkshire will become an even bigger conglomerate.
In addition, Buffett expounds the cash flow beauty of property and casualty insurance when done properly. He again explains Berkshire’s no-dividend policy.
Though the reading is entertaining, most of the content is repetitive to someone whose business (like mine) is to follow equity markets. Not much new is revealed to someone familiar with Berkshire and Buffett.
That said, an epiphany struck me while reading Buffett’s latest missive to shareholders: It is impossible to replicate Buffett’s investing success, for reasons few investors understand.
Millions of words and thousands of pages have been devoted to Buffett and his investing style. Many investors hang on every word in an attempt to improve their investing results. Others, I’m sure, hang on every word because they believe some sort of divining will occur that will impart Buffett’s magic.
No such divining will occur, because everything about Buffett’s success is qualitative, not quantitative. There is no blueprint for his success.
This insight occurred to me when Buffett broached “intrinsic value.” There is no such thing. All value is subjective. If you were to give independent analysts the same data, no two will arrive at the same “intrinsic value.”
When Buffett speaks of intrinsic value, he really speaks of his expectations for future value. He then measures his expectations for future value against present value. If he believes discounted future value exceeds present value, then he’s more likely to buy.
Investing is really an entrepreneurial endeavor. Successful entrepreneurs, and therefore successful investors, are able to anticipate the future better than most.
What’s more, no amount of hard quantified data will enable entrepreneurs to always anticipate the future accurately. The future is unquantifiable.
No two entrepreneurs are alike, and no two investors are alike. A successful entrepreneur or investor rarely becomes successful through rote imitation. Think of the difference and degree of success that separates Elvis and Elvis impersonators.
Exceptional returns are the result of an alert, curious, unquantified mind. Though often perceived otherwise, Benjamin Graham’s most successful student – Buffett – is no Graham clone. Had Buffett stuck stubbornly to Graham’s methodology he would be no Warren Buffett (which he admits in his letter).
By all means learn from Buffett, but don’t blindly imitate him. You can’t know why he does what he does or when he will do what he will do. You’re no mind reader.
If you want to be a successful investor, you’ll increase your odds by developing sound entrepreneurial and investor instincts unique to you.

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