Takeaways From Warren Buffett's Annual Shareholders Letter

“When seeking directors, CEOs don’t look for Pitbulls. It’s the Cocker Spaniel that gets taken home.”¹

The above quote is one of the ideas Warren Buffett conveyed in his most recent Berkshire Hathaway annual letter to shareholders.¹ Buffett drives home the point that people who serve on the boards of public companies are there to represent shareholders, not to blindly comply with company management initiatives. It is the scrutiny of board members that help drive shareholder value and prevent the company from stumbling due to poor management decisions.

Buffett makes the case for board members to be seasoned experts at running a business, particularly within the same industry.² It’s important to seek input from someone who specializes in the topic at hand. The same applies to managing investments. No matter how skilled you are at your profession, it’s usually beneficial to work with someone who focuses solely on creating financial strategies.

As usual, one of the world’s most forthright and accessible billionaires offers a wealth of unique perspectives from his perch as chairman of Berkshire Hathaway. One such tidbit Buffett shared this year is that he favors companies that retain earnings to reinvest in the business rather than paying out a high share as dividends.³

Buffett continues to tout equities, despite the recent market downturn, for investors with a long-term perspective. In fact, he refers to the ideal equity investor as “the individual who does not use borrowed money and who can control his or her emotions.”⁴

Now that he’s working from home during the COVID-19 outbreak, Buffett reiterated one long-tendered recommendation. He said he’s drinking even more of his favorite beverage, Coca-Cola, of which he purchased more than $1 billion in stock back in 1988. Today, Coca-Cola remains one of his investment firm’s largest positions.⁵

The lesson? Acquire the stock of companies that produce products you believe in, and hold onto them for the long haul.

¹ Warren Buffett. Berkshire Hathaway. Feb. 22, 2020. “To the Shareholders of Berkshire Hathaway Inc.” https://www.berkshirehathaway.com/letters/2019ltr.pdf?mod=article_inline. Accessed March 24, 2020.² Mitch Tuchman. Marketwatch. March 23, 2020. “Opinion: Warren Buffett’s latest advice could help you retire much richer.” https://www.marketwatch.com/story/warren-buffetts-latest-advice-could-help-you-retire-much-richer-2020-03-16?mod=home-page. Accessed March 24, 2020.³ Will Ashworth. InvestorPlace. March 3, 2020. “10 Key Lessons Warren Buffett Shares in His Annual Shareholder Letter.” https://investorplace.com/2020/03/10-key-lessons-warren-buffett-shares-in-his-annual-shareholder-letter/. Accessed March 24, 2020.⁴ Susan Dziubinski. Morningstar. Feb. 24, 2020. “4 Takeaways from Berkshire Hathaway’s Shareholder Letter.” https://www.morningstar.com/articles/968329/4-takeaways-from-berkshire-hathaways-shareholder-letter. Accessed March 24, 2020.⁵ Tom Huddleston Jr. CNBC. March 17, 2020. “Warren Buffett is working from home and ‘drinking a little more Coca-Cola’ amid coronavirus restrictions.” https://www.cnbc.com/2020/03/17/warren-buffett-is-working-from-home-amid-coronavirus-restrictions.html. Accessed March 24, 2020. We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. Investment Advisors Services are offered by Imber Financial Group, LLC., a Registered Investment Adviser firm and Capital Asset Advisory Services, LLC, an SEC-Registered Investment Advisor. Insurance services are offered through Imber Wealth Advisors, Inc. Imber Financial Group, LLC., and Imber Wealth Advisors, Inc., are affiliated companies.

Contingency Plans Helpful to Weather the Unexpected

Financial advisors often tell clients to keep an emergency fund of liquid assets, with enough to cover three to six months of living expenses. It makes you wonder why America’s largest companies don’t maintain a similar practice, with three to six months of emergency savings to help keep workers on payroll during difficult times.

Unfortunately, it is common during economic downturns, including pandemics, for companies to reduce hours, send workers home without pay or lay off employees altogether.¹ This is why it’s important for every household to have a contingency plan for when the unexpected happens.

If you don’t have a plan B for loss of income, savings or investment dividends — or if your plan B isn’t working and you need to come up with a plan C — we’re here for you. Give us a call to discuss ways to position assets to help establish greater financial confidence for your household moving forward.

Federal regulators recently announced that homeowners unable to pay their mortgage due to lost income from the COVID-19 pandemic may be eligible to reduce or suspend their mortgage payments for up to 12 months.² Consider your options carefully, particularly if you have enough savings to cover these payments for the foreseeable future. Homeowners will have to work out a repayment plan with their lender, which could result in higher monthly payments or extending the term of the loan.

If you have any supplemental insurance policies, you may want to pull out those contracts and read about their coverages and exclusions. For example, critical illness insurance is not likely to cover COVID-19 because it’s not a specified illness on the policy.

Small businesses are generally advised to create a contingency plan, but this is usually comprised of things like capital and credit sources, supply chain alternatives, and even a public relations crisis management plan.³ While keeping home-bound workers on the payroll is an unusual tactic, small business owners may want to consider the alternative. When the economy recovers and jobs ramp back up, you’ll have to start the recruitment process all over again and may lose out on regaining your highly trained talent.

According to the Work Institute’s 2017 Retention Report, the replacement cost is $15,000 per employee earning $45,000 a year.⁴ If the current loss of business lasts three months, how does that compare to the cost of keeping already trained and productive workers on the payroll during the pandemic?

There’s a bigger picture, as well. Those who lose their jobs and income cease to be active consumers, which slows down the economy and makes it harder for small businesses to recover.

  

¹ Carmen Reinicke. Business Insider. March 20, 2020. “The coronavirus outbreak is causing a historic spike in US layoffs. Here’s what 4 Wall Street experts are saying – and how much worse they think it can get.” https://markets.businessinsider.com/news/stocks/us-layoffs-spiking-coronavirus-expert-reaction-commentary-economy-unemployment-analyst-2020-3-1029016785. Accessed March 20, 2020.

² Chris Arnold. NPR. March 19, 2020. “U.S. Orders Up To A Yearlong Break On Mortgage Payments.” https://www.npr.org/2020/03/19/818343720/homeowners-hurt-financially-by-the-coronavirus-may-get-a-mortgage-break. Accessed March 20, 2020.

³ Mike Fried. ROI. March 16, 2020. “Five considerations for pandemic event preparedness.” https://www.roi-nj.com/2020/03/16/opinion/five-considerations-for-pandemic-event-preparedness/. Accessed March 20, 2020.

⁴ Valerie Bolden-Barrett. HR Dive. Aug. 11, 2017. “Study: Turnover costs employers $15,000 per worker.” https://www.hrdive.com/news/study-turnover-costs-employers-15000-per-worker/449142/. Accessed March 20, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Investment Advisory Services are offered by Imber Financial Group, LLC., a Registered Investment Adviser firm. Insurance services are offered through Imber Wealth Advisors, Inc. Imber Financial Group, LLC. and Imber Wealth Advisors, Inc. are affiliated companies

Affordable Housing Crisis Challenges

There are several factors contributing to the current housing shortage in the U.S. For starters, low inventory of existing homes for sale has driven up the prices of available housing, leaving many first- and second-time home buyers unable to afford to buy or trade up. Housing permits for new construction have risen throughout the past couple of years, but they haven’t kept pace with the formation of new households. And while the number of residential construction workers has increased to more than 800,000, the country is nearing full employment levels so contractors are finding it tough to add to their teams.¹

Part of the employment problem is the slowdown in immigration due to the documentation and guest worker visa process, designed to permit only highly skilled legal immigrants into the country. As a result, both the construction and agricultural industries find themselves short-handed, further contributing to the housing crisis.²

Supply of available homes has been falling steadily in recent years. Some of the greatest hardships are found at the lower end of the market. The growing number of millennials who are looking for, and can afford, housing could lessen supply even more.³ The potential impact on renters is that a high percentage of their income is devoted to housing costs.4

Fortunately for retirees, more than 78 percent of households age 65 and older own their homes. Interestingly, after age 80 the home ownership rate drops and many become renters.⁵

The issue is so severe it has a line item among Democratic candidates vying for the presidential nomination this year. Bernie Sanders has proposed a $2.5 trillion initiative for the construction of affordable and mixed-income housing, as well as the preservation of existing housing. Joe Biden proposes investing $640 billion for housing throughout 10 years that would focus on strengthening existing programs.⁶

For budget hawks, Trump’s proposed 2021 budget, while unlikely to pass in its current form, calls for a 15 percent reduction in public housing. That would result in a total reduction of $8.6 billion from housing programs compared to current levels. The president’s plan includes stricter mandates for work requirements and a higher percentage of contributions toward rent for low-income program participants.⁷

Investment Advisory Services are offered by Imber Financial Group, LLC., a Registered Investment Adviser. Insurance services are offered through Imber Wealth Advisors, Inc. Imber Financial Group, LLC. and Imber Wealth Advisors, Inc. are affiliated companies ¹ Roger Zellerites. Urban Land. Feb. 26, 2020. “Closing the Efficiency Gap in the U.S. Housing Affordability Crisis https://urbanland.uli.org/development-business/the-efficiency-gap-and-the-u-s-housing-affordability-crisis/. Accessed March 2, 2020.² Rebecca Rainey. Politico. Feb. 21, 2020. “Mulvaney: U.S. ‘desperate’ for immigrants.” https://www.politico.com/newsletters/morning-shift/2020/02/21/mulvaney-us-desperate-for-immigrants-785576. Accessed March 2, 2020.3 Diana Olick. CNBC.com. Dec. 4, 2019. “Next year will be hard on the housing market, especially in these big cities.’’ https://www.cnbc.com/2019/12/04/harsh-housing-forecast-for-2020-especially-in-these-big-cities.html. Accessed March 17, 2020.⁴ Jacob Passy. MarketWatch. Feb. 4, 2020. “Even the middle class is having trouble paying rent now.’’ https://www.msn.com/en-us/money/realestate/even-the-middle-class-is-having-trouble-paying-rent-now/ar-BBZDVi9. Accessed March 17, 2020.⁵ Linda Yang. Joint Center for Housing Studies at Harvard University. 2018. “Housing America’s Older Adults.” https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_Housing_Americas_Older_Adults_2018_1.pdf. Accessed March 2, 2020.⁶ Georgia Krameria. The Real Deal. March 2, 2020. “Here’s how Bernie, Biden and the remaining presidential candidates would tackle housing crisis.” https://therealdeal.com/2020/03/02/heres-how-bernie-biden-and-the-remaining-presidential-candidates-would-tackle-housing-crisis/. Accessed March 2, 2020.⁷ Niv Elis. The Hill. Feb. 14, 2020. “Housing advocates decry Trump budget cuts.” https://thehill.com/policy/finance/housing/484132-housing-advocates-decry-trump-budget-cuts. Accessed March 2, 2020. 

The Future of Transportation

The United States is a very large, land-mass country. Yet, it offers few options in terms of coast-to-coast mass public transit, particularly compared to other developed countries. Europe’s countries tend to be smaller and their cities more dense, making them more transit-friendly. Asian countries made enormous government investments in urban rail networks just as their urban populations began to rapidly expand.¹

In the U.S., however, many metropolitan transit systems are dated and overcrowded. The New York Metropolitan Transportation Council reports more than 6 million rapid rail trips and nearly 1 million suburban rail trips on any given weekday. One way to free up crowded subway platforms is to run more trains so there are fewer passengers on each train.² This would require substantial investments to update the nation’s passenger railway system.

To add to the problem, auto traffic congestion, air pollution and fossil fuels are widely believed to contribute to our growing climate crisis. If there is a silver lining, it’s that the challenge of developing affordable and environmentally responsible transportation options has led to innovations that may help the U.S. develop high-speed rail options comparable to other developed countries.³

Recent market volatility presents a long-overdue reminder that investing is unpredictable and performance can be upended for any number of unexpected reasons. That’s why it’s important to diversify investments and consider companies with solid, long-term growth plans in viable industries. Growth is frequently tied to demand, and transportation offers the potential for long-term investments that respond to mass population needs in a sustainable and environmentally responsible manner. If this is a sector you’d like learn more about, we can help.

To date, the U.S. government has had little success in updating the country’s railway systems due to fiscal debt concerns. Now, the push for improved rail systems is coming from the private sector, including projects with the potential to connect Washington and New York City in one hour, a high-speed train network running from Orlando to Miami, and a high-speed line between Las Vegas and the greater Los Angeles area.⁴

The city of Lincoln, Nebraska, purchased 10 battery-electric, zero-emission public transit buses. This is part of its commitment to reduce greenhouse gas emissions by 100 to 160 tons per bus per year, as compared to traditional clean-diesel buses.⁵

Another mass transit project anticipating a mammoth facelift is the traditional American airport. In terms of updating infrastructure and accommodating future demand, the investment can’t come soon enough. According to the International Air Transport Association, the number of travelers passing through airports worldwide is expected to double, rising to 8.2 billion by 2037.⁶

Because people spend so much of their travel time arriving early for security purposes and waiting during layovers, the future airport is being reimagined as an “aerotropolis.” In other words, they will combine small, technology-enabled hubs with public spaces featuring waterfalls, gardens and walking paths, as well as a plethora of retail and restaurant options.⁷

Investment Advisory Services are offered by Imber Financial Group, LLC., a Registered Investment Adviser. Insurance services are offered through Imber Wealth Advisors, Inc. Imber Financial Group, LLC. and Imber Wealth Advisors, Inc. are affiliated companies

 ¹ Jonathan English. City Lab. Oct. 10, 2018. “Why Public Transportation Works Better Outside the U.S.” https://www.citylab.com/transportation/2018/10/while-america-suffocated-transit-other-countries-embraced-it/572167/. Accessed Feb. 28, 2020.

² Hitachi. 2020. “Key Strategies for Reducing Traffic Jams.” https://social-innovation.hitachi/en-us/think-ahead/transportation/key-strategies-for-reducing-traffic/. Accessed Feb. 28, 2020.

³ Trevor Bach. US News & World Report. Sep. 10, 2019. “U.S. Cities Play Catch-Up on High-Speed Rail.” https://www.usnews.com/news/cities/articles/2019-09-10/us-cities-play-catch-up-on-high-speed-rail. Accessed Feb. 28, 2020.

⁴ Ibid.

⁵ Oil & Gas 360. Feb. 27, 2020. “Nebraska’s StarTran drives sustainability forward with 10 electric buses from New Flyer; celebrates arrival of first zero-emission bus to Lincoln.” https://www.oilandgas360.com/nebraskas-startran-drives-sustainability-forward-with-10-electric-buses-from-new-flyer-celebrates-arrival-of-first-zero-emission-bus-to-lincoln/. Accessed Feb. 28, 2020.

⁶ Honeywell. Bloomberg. 2020. “What’s the Next Hot Destination? The Airport.” https://sponsored.bloomberg.com/news/sponsors/features/honeywell/tbt/?adv=24625&prx_t=r3QFAtMA-AWCkPA. Accessed Feb. 28, 2020.

⁷ Ibid.