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)