Chairman and CEO of Berkshire Hathaway (NYSE: BRK.A) Warren Buffett sits down every year and pens a letter to his shareholders. His annual letter has reached cult status thanks to Buffett?s fame and following, however at its core his annual letter, which regularly runs to over 20 pages, provides a deep body of information about the operations and performance of Berkshire Hathaway?s multitude of businesses over the previous 12 months.
One reason Buffett takes the time to write a detailed letter to shareholders each year is that he doesn?t provide one-on-one time for any investors — whether they be fund…
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Chairman and CEO of Berkshire Hathaway (NYSE: BRK.A) Warren Buffett sits down every year and pens a letter to his shareholders. His annual letter has reached cult status thanks to Buffett’s fame and following, however at its core his annual letter, which regularly runs to over 20 pages, provides a deep body of information about the operations and performance of Berkshire Hathaway’s multitude of businesses over the previous 12 months.
One reason Buffett takes the time to write a detailed letter to shareholders each year is that he doesn’t provide one-on-one time for any investors — whether they be fund managers, analysts or small shareholders –- to ask him questions in private. He does this to maintain a level playing field for all interested parties.
The level of information and insight that Buffett provides each year to his fellow shareholders compared with the information many Australian companies provide in their annual reports is like comparing chalk and cheese. Berkshire’s report is not glossy and full of pictures and catch phrases, rather it is full of details that actually matter and can help an investor reach an opinion about the company.
In a fabulous article for the Australian Financial Review, Matthew Drummond explores the issue of access to company information. Through an interview with Peter Morgan who was a renowned fund manager at Perpetual (ASX: PPT) and Greg Perry, who was a top gun fund manager at Colonial First State, now the funds management arm of Commonwealth Bank (ASX: CBA), Drummond sheds light on the access to information that fund managers and analysts enjoy.
Getting current fundies and analysts to admit to receiving beneficial information would of course be near impossible, however the retired Morgan and Perry talk freely. Morgan described exclusive meetings as “unethical” while Perry suggested that “there is info you’ve gleaned from those meetings that other people don’t get.”
Buffett’s approach is far from perfect and few would describe it as the best approach — particularly given how easily information can be disseminated through the internet these days — but it is better than many, given that he firmly adheres to the rule of treating all owners (shareholders) and other interested parties equally.
NIB Holdings (ASX: NHF) is one company that deserves recognition for providing significant detail and access to shareholders. NIB’s reports are regularly full of detailed information that helps an investor make an informed decision, and many of its presentations are webcast. That’s not to say NIB’s management doesn’t also provide one-on-one time to select investors too.
Buying businesses run by managers who think like owners and hence have owners’ interests as their priority is critical to identifying long-term investments with the best chance of outperforming. Even owning a great business, if it is run by unethical management will struggle to create shareholder value in the long term.
One of the most obvious ways to identify a sound management team is in how they treat shareholders. If they provide privileges to just a handful of shareholders, fund managers and analysts, and also fail to communicate effectively with shareholders, there is a reasonable chance investors would be better off steering clear.
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Motley Fool contributor Tim McArthur owns shares in Perpetual and NIB Holdings.