The Architect and the Contractor

Warren Buffett’s tribute to longtime partner Charlie Munger… The Berkshire Hathaway annual shareholder letter… Five quick takeaways… Insurance for the win… What to watch this week… Greg Diamond signals caution…

A tribute to the architect…

As is customary around this time of year, Warren Buffett’s Berkshire Hathaway (BRK-B) published its annual report over the weekend… along with Buffett’s highly anticipated letter to shareholders.

Like Berkshire’s annual shareholder meeting (which happens later this year in May), the report is always combed through by investors – although not for the reason you might think.

Yes, it contains the formal financial statements of the world’s eighth-largest company by market cap (nearly $890 billion). But what investors really look for are the 93-year-old Buffett’s frequent nuggets of plainly written investment wisdom in his Chairman’s Letter.

Buffett – one of the best-known and richest investors in the world – says he tries to write shareholder letters so his sister can easily understand them. This one had Buffett’s regular “Letter to My Sister Bertie” tone, but it was a little different than usual…

It was Berkshire’s first annual report since Charlie Munger, Buffett’s longtime business partner, passed away in November. So Buffett preceded his regular letter with a tribute to Munger, fittingly typed in an old-school “certificate of appreciation” style font.

Stansberry’s Investment Advisory lead editor Whitney Tilson knows Buffett… knew Munger personally… and knows more about Berkshire than any other person I (Corey McLaughlin) know. As he shared in his free daily newsletter today…

At the very front of the annual report, Buffett shared this beautiful eulogy of Munger, which I want to share in its entirety – including Buffett’s formatting:

As Whitney says, we should all hope to have at least one friend who would write something so heartfelt about us.

The tribute also gave great insight into why the pair were so successful working together through the analogy of the architect (laying out the vision) and the general contractor (executing it).

In short, Buffett and Munger understood and respected each other’s roles and skills, which allowed the entire operation to flourish.

As for the rest of the report…

As we said above, the report and Buffett’s letter are full of investment thoughts. But I read through them on Saturday and picked up a few practical notes, like:

• Berkshire’s property and casualty (P&C) insurance businesses are still doing well in this era of higher interest rates and inflation… and they’re still the “engine propelling Berkshire’s growth,” as they’ve been since 1967.

• Buffett continues to be bullish on Occidental Petroleum (OXY). This may sound simple, but in big part it’s because of its vast oil and gas holdings (and carbon-capture potential) that Buffett says “are very much in our country’s interest.”

• A weakening yen compared with the U.S. dollar, combined with rising profits for Japanese businesses that Berkshire has invested in (which we talked about last week), delivered nearly $2 billion in gains alone for Berkshire.

• Buffett believes that despite rising costs and challenges in the U.S. railroad business – which has hurt the performance of Berkshire’s BNSF Railway, the largest rail system in North America – the industry will be around for another century.

• Buffett shared his regular criticism of standard accounting methods… noting that his own preferred “operations earnings” metric for Berkshire, as opposed to industry-convention “net earnings,” reported $37.4 billion for 2023.

Some big-time wisdom…

If you’re looking for some great, timeless investment wisdom… Buffett also wrote about why “Berkshire is built to last” and how the company is ready for inevitable market panics that “will happen.” He wrote…

Though the stock market is massively larger than it was in our early years, today’s active participants are neither more emotionally stable nor better taught than when I was in school. For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants.

One fact of financial life should never be forgotten. Wall Street – to use the term in its figurative sense – would like its customers to make money, but what truly causes its denizens’ juices to flow is feverish activity. At such times, whatever foolishness can be marketed will be vigorously marketed – not by everyone but always by someone.

Occasionally, the scene turns ugly. The politicians then become enraged; the most flagrant perpetrators of misdeeds slip away, rich and unpunished; and your friend next door becomes bewildered, poorer and sometimes vengeful. Money, he learns, has trumped morality.

That last paragraph sounds a lot like thoughts you may have read before in the pages of Stansberry Research. After all, nobody will look out for your money and investments like you.

For more details and wisdom, you can read the full report for yourself here.

A couple of things to watch this week…

It’s another busy week of quarterly earnings. I don’t anticipate anything moving the markets like how Nvidia (NVDA) did last week, but we’re keeping an eye out for insights we can glean.

The biggest economic data point of the week comes on Thursday morning. That’s when the latest version of the Federal Reserve’s preferred inflation gauge – the personal consumption expenditures (“PCE”) price index, covering January – will be published.

Headline PCE, measured year-over-year, has been trending down from 3.3% in August, for example, to 2.6% in December 2023. But month-over-month price growth popped to 0.2% in December, up from a slight 0.1% deflation in November and flat October numbers.

If January PCE shows greater than 0.2% monthly growth (which would make for a pace substantially higher than the Fed’s 2% annual rate), expect some volatility in the stock and bond markets as Fed interest-rate-cut expectations likely get pushed even further into 2024 than they already have been.

Finally, there’s one more thing I want to make sure everyone has the chance to see…

Presidential election year, meet stocks…

Our friend Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, is going live with a brand-new presentation on Thursday night, and it’s one you won’t want to miss…

In short, Marc’s sharing a critical election-year event that’s about to happen…

As we write today, Congress is again struggling to figure out ways to inevitably spend other people’s money and fund the government (and keep inflation going). Marc’s presentation could help you beat this inflation.

In this free event, Marc plans to share insight about cycles he has seen repeat time and time again over decades in the markets during presidential-election years – and why he believes a critical turning point in this one is fast approaching as primary election season continues.

I’ve said this before, but every time I listen to Marc talk, I learn something – and usually multiple things – from his decades of experience in the markets… and the powerful Power Gauge investing tool he developed.

Plus, just for signing up to watch, you’ll get access to free bonuses, including the names of three stocks Marc believes are election “ticking time bombs.” Marc is also going to give away a pair of free recommendations during his presentation: one stock to buy and another one to avoid.

It’s worth signing up and watching for those alone. At the start of 2023, Marc did the same thing. He recommended streaming service Netflix (NFLX), which soared 52% last year, and he told his audience to sell Tesla (TSLA), which went on to fall nearly 60%.

Click here to register now.

New 52-week highs (as of 2/23/24): AbbVie (ABBV), Abbott Laboratories (ABT), Automatic Data Processing (ADP), Amazon (AMZN), American Express (AXP), Booz Allen Hamilton (BAH), Berkshire Hathaway (BRK-B), Brown & Brown (BRO), CBOE Global Markets (CBOE), Canadian National Railway (CNI), Costco Wholesale (COST), Pacer U.S. Cash Cows 100 Fund (COWZ), Copart (CPRT), Cintas (CTAS), Dell Technologies (DELL), Enstar (ESGR), Comfort Systems USA (FIX), Franklin FTSE Japan Fund (FLJP), Fortive (FTV), Home Depot (HD), ICON (ICLR), Iron Mountain (IRM), Jack Henry & Associates (JKHY), JPMorgan Chase (JPM), Linde (LIN), Nucor (NUE), Procter & Gamble (PG), Parker-Hannifin (PH), Ferrari (RACE), Regeneron Pharmaceuticals (REGN), Sprouts Farmers Market (SFM), Sherwin-Williams (SHW), Spotify Technology (SPOT), SPDR Portfolio S&P 500 Value Fund (SPYV), ProShares Ultra S&P 500 (SSO), Stellantis (STLA), Stryker (SYK), TFI International (TFII), Tenaris (TS), ProShares Ultra Financials (UYG), Veralto (VLTO), Vanguard S&P 500 Fund (VOO), Waste Management (WM), and Health Care Select Sector SPDR Fund (XLV).

In today’s mailbag, feedback on Dan’s Friday essay, including thoughts on Reddit seeking to become a publicly traded company, a “shoeshine boy” report about Nvidia, and a theory about inflation… Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

“My teenage son will occasionally go on rants at dinner about professional sports-related topics like a squawking parrot. We know where he gets his ‘facts’. We call it ‘the collective wisdom of Reddit’.” – Stansberry Alliance member Paul H.

“I was in a dive bar [last] Wednesday and overheard two blue-collar workers (who know each other but do not work together) telling each other they had both bought shares in NVDA the day before (right before the earnings report). I was already aware at that time the NVDA stock price had tripled in the past year and thought that was nuts LOL.” – Subscriber Webby G.

“Dan, I loved this article. You, Porter, and Steve warned in the dot-com era that when plumbers and taxi drivers touted a stock it was time to run for the exits…” – Subscriber John B.

“Dan – Dude, what a great article on the fed history and Burns. I always find this an interesting subject. One area that is just not getting any play on inflation is this insane move to double the minimum wage. To me, this is being ignored as a source of inflation.

“I was hanging out with some friends in my gym, these guys own small businesses. They are getting killed. New York is upping things to $16 or $17 an hour [this year and in 2026, respectively]. It’s really easy to see why prices have to go up or automation comes into play.

“I just heard [some Pennsylvania legislators are proposing to] raise the minimum wage from $7.25 to $15 by 2026. This is massively inflationary. What does a company have to do? Raise prices…” – Subscriber John S.

All the best,

Corey McLaughlin
Baltimore, Maryland
February 26, 2024