As CEOs go, Warren Buffett is not only one of the best; he’s also one of the longest-serving chief executives of any major American company.
So it comes as no surprise that his annual shareholder letter is read more often and more eagerly anticipated by investors than almost any other chief executive in America.
Buffett’s quotes and wisdom about investing and life are legendary. In fact, they are so popular that Max Olson published Buffett’s un-edited shareholder letters from 1965 through 2012.
“Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds,” Buffett wrote in 1988.
I could go on, but I’m sure you’ve read many of them over the years.
You can find out a lot about a company or CEO from their annual shareholder letters. And there are some good ones out there other than the Oracle of Omaha’s:
- Loews (NYSE:L)
- JPMorgan Chase (NYSE:JPM)
- Fairfax Financial (OTCMKTS:FRFHF)
- BlackRock (NYSE:BLK)
- Amazon (NASDAQ:AMZN)
- O’Reilly Automotive (NASDAQ:ORLY)
- Target (NYSE:TGT)
After reading these seven CEOs’ words of wisdom, you’ll probably want to buy their stocks. I know I do.
Top Shareholder Letters From CEOs: Loews (L)
The Tisch family has been a part of Loews since 1946, when Laurence Tisch bought a hotel with his parents in Lakewood, New Jersey. The actual Loews name came in 1959 when Laurence and his brother Robert acquired a controlling interest in Loews Theatres.
Since then, Loews has been associated with excellent capital allocation, buying assets whose values are down and building those assets into little gems. While the holding company has had a few hiccups over the years, it appears ready to deliver annual returns shareholders have become accustomed to over the years.
The annual letter to shareholders is not so much a single person’s view as CEO, but rather the Tisch collective. So, CEO James Tisch’s name is on the 2020 letter along with brothers Jonathan and Andrew, who are both co-chairmen and part of the trio that make up the Office of the President.
“We have often noted that Loews predominantly allocates capital in three ways: through share repurchases, by investing in existing subsidiaries and by acquiring new subsidiary businesses,” stated the trio.
“As our stock continued to trade considerably below our view of its intrinsic value over the past year, share repurchases were our most attractive capital allocation option. In 2020, we purchased 22 million shares of Loews common stock at an average price of $41.76 per share for an aggregate cost of $917 million.”
Loews shares opened on June 14 at four cents above $56, a return of 25% year to date. It’s hard to teach good capital allocation. But the Tisch family has it in their blood.
JPMorgan Chase (JPM)
If you’re looking for a good read before bed, you probably shouldn’t pick up Jamie Dimon’s CEO letter to shareholders. The 2020 version is 66 pages.
I haven’t always agreed with Dimon’s positions on certain subjects — his take on Bitcoin (CCC:BTC-USD) is one I ranted about in December 2017. But there is no question he is a brilliant leader, a top business mind, and an all-around big thinker.
As a result, if you bought shares in the JPM at the end of 2005 when Dimon became CEO, you’d be looking at a 303% return over those 15 years. Over the same period, the S&P 500 gained 234%.
On page 13 of Dimon’s letter, the CEO discusses shareholder value:
“When most CEOs and board members wake up each morning, they worry about all of the things that they need to do right to build a successful company. A company is like a team. We must do many things well to succeed, and, ultimately, that leads to creating shareholder value.”
Reading that, I get the sense that Dimon is a demanding but fair person to work for. If you do everything necessary to do your job well, you will be rewarded with more responsibility and compensation.
A meritocracy in action.
Top Shareholder Letters From CEOs: Fairfax Financial (FRFHF)
The only Canadian CEO on my list, Prem Watsa, is often considered the Warren Buffett of Canada. He’s used his insurance holdings to build out his non-insurance holdings.
Maybe not to the level of success Buffett’s had, but his legacy is still in the middle innings. Plenty is happening at Fairfax that could change opinions.
Watsa’s 2020 letter to shareholders, by Dimon’s standards, is manageable at around half the length. On the first page, he reminds shareholders that since the company began in 1985, its book value has compounded at 18.7% (including dividends) annually while its share price has increased by 16.2% annually.
The company’s insurance businesses delivered a combined ratio in 2020 of 98%. Anything under 100% means that its expenses and claims paid out were less than the premiums brought in during the year. Excluding Covid-19 related expenses, its combined ratio was 93%.
In Canada, Watsa is known for making a large bet on BlackBerry (NYSE:BB), the Waterloo, Ontario, tech company that’s been transforming itself into a software company. At the end of 2020, Fairfax owned 8% of the company or 44.9 million shares.
Thanks to the Reddit crowd, Watsa’s sitting on a 110% unrealized gain on those shares. That’s down from 101.9 million held in September 2020.
On page 27 of the 2020 letter, Watsa said the following:
“In 2016 we invested $50 million into Davos Brands (a spirit company) for a 36% interest alongside David Sokol. In September 2020 the company was sold to Diageo: our cash proceeds were $59 million and we are eligible to receive additional consideration of up to $36 million, contingent on the brand performance over the next ten years.”
If David Sokol’s name is familiar, he ran several of Berkshire Hathaway’s businesses until having to step down in 2011 over governance concerns during its acquisition of Lubrizol.
BlackRock CEO Larry Fink writes two letters each year. One is the often controversial letter he writes to CEOs. The other is entitled “Larry Fink’s Chairman’s Letter,” and it’s a lot more focused on the year that’s just passed, but it too thinks bigger picture than most letters from CEOs.
“Investing in our business isn’t only about developing products and solutions or enhancing our operations. Just as important is putting time, money and effort into our culture and our people,” Fink states in his latest installment of the Chairman’s Letter.
Many people forget that BlackRock wasn’t always associated with iShares, the ETF business that today dominates the investment world. Fink was CEO in December 2009 when it paid $13.5 billion to buy the ETF unit from Barclays (NYSE:BCS).
It was a transformational deal that doubled its assets under management overnight from $1.44 trillion to $3.29 trillion. It finished the first quarter of this year with $9 trillion in assets under management.
Most people thought the mixing of active and passive managers would make for an “oil and water” scenario at the time of the deal, but Fink’s had the last laugh. Over more than a decade, the iShares investment has paid for itself and then some.
“The timing couldn’t have been better as it was the (at) the beginning of a decadelong surge of inflows into passive investments that saw (global) ETF assets balloon from just over $1 trillion to nearly $5.5 trillion,” Sondheim Partners CEO Daniel Sondheim told Pensions & Investments in June 2019.
Fink is one of the finest CEOs in the financial services industry, in my opinion, because he’s not afraid to think and act outside the conventional finance box. That’s a quality many CEOs don’t possess.
Top Shareholder Letters From CEOs: Amazon (AMZN)
It will be interesting to see what Amazon does for the rest of 2021. As most investors are aware, founder and CEO Jeff Bezos is stepping out of his role as chief executive and into his new position of executive chairman. This transition takes place in the third quarter.
So, by the time April rolls around, will they do two letters with one from Bezos and another from incoming CEO Andy Jassy, who currently runs the company’s cloud business? I guess we will find out next year.
In his last letter to shareholders, Bezos had many interesting things to say, including telling a story about a couple who wrote to him explaining how a simple investment in Amazon stock when it went public in 1997 had changed the trajectory of the entire family’s fortunes.
Bezos noted that Amazon had created $1.6 trillion in wealth over the years, with 88% of the benefit going to people other than himself. He calculated that in 2020, between shareholders, employees, customers, and third-party sellers, Amazon created $301 billion in value for its various stakeholders.
He goes into a little detail about the work conditions at the company and how they have to improve.
“Does your Chair take comfort in the outcome of the recent union vote in Bessemer? No, he doesn’t. I think we need to do a better job for our employees,” Bezos stated.
“While the voting results were lopsided and our direct relationship with employees is strong, it’s clear to me that we need a better vision for how we create value for employees — a vision for their success.”
He goes on to say the company has always cared deeply about the hourly employees who work there. Bezos now wants Amazon to be not only the Earth’s Most Customer-Centric Company, but he also wants it to be the Earth’s Best Employer and the Earth’s Safest Place to Work.
If Amazon accomplishes all three, you can be sure a $10,000 stock price is more than possible.
O’Reilly Automotive (ORLY)
Despite Covid-19, this specialty retailer of automotive aftermarket parts managed to open 156 net new stores in 2020. In 2021, it plans to open as many as 175 net new stores, bringing the total to 5,769 in 47 states and 22 in Mexico.
Like the Loews letter to shareholders, O’Reilly’s is a group effort with CEO Greg Johnson and four others from his management team included in the letter’s first page.
O’Reilly’s letter emphasizes the company’s focus and dedication to customer service is very similar to Amazon’s commitment.
“2021 will mark 64 years of dedication to excellent customer service, and we consider it an honor to continue to build on our strong legacy. We are thankful for the trust and confidence our shareholders place in the O’Reilly Team,” states the 2020 letter.
In 2020, not only did O’Reilly’s invest $466 million in its business, but it also returned $2.1 billion in capital to shareholders in the form of share repurchases. It pays no dividend and hasn’t since becoming a public company in 1993.
Everything about its business has improved over the past five years. Between 2016 and 2020, sales have grown from $8.6 billion to $11.6 billion, while return on invested capital has increased by 1,430 basis points to 48.6%.
Is it any wonder, then, that the company’s five-year annualized total return is 15.1%? Even better, over the past three-year period, its annualized total return is 23.1%, considerably higher than the entire U.S. market.
Reading the shareholder’s letter, you get the sense the company’s going to do whatever it takes to keep the good times rolling.
Top Shareholder Letters From CEOs: Target (TGT)
The last of the shareholder letters on my list isn’t personality-driven like those from Bezos or Fink, but it made the cut just the same because Brian Cornell does such an awesome job moving Target forward.
And, if you’re a shareholder, that’s all you really want from the CEOs of companies you invest in.
Since Cornell took the reins on July 31, 2014, he’s made several major decisions, including closing the retailer’s Canadian operations. That resulted in a $4.8 billion pre-tax impairment charge.
I don’t know about you, but I wouldn’t want to start a job by telling the board it has to eat a multi-billion dollar loss. But Cornell did, and Target thrived. So Cornell is definitely at the top of the list if there’s a CEO who deserves billions in compensation.
The letter to shareholders reminds them that while 2020 was a record performance for the company, it’s not taking its pedal off the gas here in 2021.
“That’s what drove us in recent years to turn Target into America’s easiest place to shop. And it quickly became clear in the pandemic that our investments and innovations translated seamlessly to guest safety,” Cornell wrote.
“After years of focus and capability-building, our team has created a retail platform that stands out in the American marketplace, with an unmatched integration of physical and digital shopping, technology and team spirit.”
Tricia McKinnon, the founder of Toronto-based Indigo9Digital, wrote an excellent piece in early March about Target and how it built 10 billion-dollar private label brands. If you’re a retail investor, I recommend you read it.
McKinnon points out that Target’s private label strategy has contributed greatly to the growth of its apparel category. But, of course, this doesn’t happen without Cornell’s blessing.
“In a world where everything is increasingly commoditized, each…[private brand] helps differentiate Target and build preference for our overall brand,” McKinnon quoted Cornell.
Since Cornell was announced as CEO, TGT stock increased by 288%. Over the same period, the S&P 500 gained 114%.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.