Reading annual reports can be a lot like taking an Ambien on a long flight after a few glasses of wine: if it doesn’t put you to sleep it will definitely befuddle you. That’s why it is so refreshing to read Warren Buffett’s yearly letters. His tremendous knack for candidness, plain speaking, vividness and audience focus is refreshing and instructive.
Candidness: Most annual reports, Enron notwithstanding, are not actually dishonest. They don’t lie outright, but they do make it difficult to figure out the truth, especially when that truth reflects unfavorably on the leadership. Buffett’s self-effacing candidness actually increases his credibility.
“And now a painful confession: Last year your chairman closed the book on a very expensive business fiasco entirely of his own making.” (2009)
“During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. I will tell you more about these later. Furthermore, shop I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.” (2008)
“Before making this commitment, Bill and Scott again asked for my advice. Initially, I was pretty puffed up about the fact that they were consulting me. But then it dawned on me that the opinion of someone who is always wrong has its own special utility to decision-makers.” (2004)
Plain speaking: This is a close cousin of candidness—you know exactly what the words mean. Buffett himself weighs in on why plain speaking is so rare:
“We sometimes encounter accounting footnotes about important transactions that leave us baffled, and we go away suspicious that the reporting company wished it that way.” (2006)
“From the start, Charlie and I have believed in having a rational and unbending standard for measuring what we have – or have not – accomplished. That keeps us from the temptation of seeing where the arrow of performance lands and then painting the bull’s eye around it.” (2009)
“But I’ll make more mistakes in the future – you can bet on that. A line from Bobby Bare’s country song explains what too often happens with acquisitions: “I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.” (2007)
Vividness: One way to keep readers from digging too deeply is to bore them; that would account for the bland, forgettable language. Buffett doesn’t have that problem. He makes things vivid through analogies, stories, visual imagery and lively language.
“As we view GEICO’s current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere.” (2008)
“You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.” (2007)
“Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires
significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” (2007)
Audience focused: Buffett always tries to make things as easy as possible for his audience to follow. He also makes you feel like he’s chatting with you in a personal conversation, not above you from a podium bathed in lights.
“To build a compatible shareholder population, we try to communicate with our owners directly and informatively. Our goal is to tell you what we would like to know if our positions were reversed.” (2009)
“Before you read further, let me underscore the obvious: Berkshire has a dog in this fight, and you should therefore assess the commentary that follows with special care.” (2009)
“Warning: It’s time to eat your broccoli – I am now going to talk about accounting matters. I owe
this to those Berkshire shareholders who love reading about debits and credits. I hope both of you find this discussion helpful. All others can skip this section; there will be no quiz.”
If Warren Buffett can demonstrate plain speaking in something so bland as an annual report, there is no reason you can’t in any business communication.