Care to join us in a brief reading from one of our favorite writers? We think his work offers some great lessons. Here’s an excerpt.
On March 11th, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75 I had begun accumulating at age six. What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good.
Let’s now travel back through the two 77-year periods that preceded my purchase. That leaves us starting in 1788, a year prior to George Washington’s installation as our first president. Could anyone then have imagined what their new country would accomplish in only three 77-year lifetimes?
So, what are we reading here? A memoir? A history book? A diary entry?
Nope. This excerpt comes from an annual report of a Fortune 500 company.
The author: Warren Buffett. (Ever heard of him?)
Every year since 1965, Buffett has penned Berkshire Hathaway's annual letter to shareholders. The letters have become the stuff of legend, not just for their detailed information about the company’s explosive growth and performance but for Buffett’s gregarious yet persuasive writing style.
Buffett is a man who understands the power of writing. He reportedly spends 80 percent of his day reading and thinking. Naturally, he’s picked up some effective writing tricks along the way, and his annual letters demonstrate lessons for all business communicators.
Lesson 1: Stories Resonate
To demonstrate the causes and effects of investment trends, Buffett often turns to storytelling. He understands stories connect abstract ideas, actions, and policies with individual people and experiences. Doing so creates clarity and emotional appeal, giving his ideas more persuasive weight.
Lesson 2: Write to a Real Person
Buffett addresses each first draft of his annual letter to his sisters—Dear Doris and Bertie. “Berkshire is pretty much their whole investment.” And while they’re knowledgeable, he says, his sisters are “not active in business, so they’re not reading about it every day. I pretend that they’ve been away for a year and I’m reporting to them on their investment.”
In other words, his sisters represent a novice Berkshire investor. If they can understand what he has to say, so will the hedge fund manager with advanced industry knowledge.
Lesson 3: Plain Language for the Win!
Buffett writes with a conversational tone and plain language. He understands that overly formal, verbose, or dense language harms communication. He even advocates for plain language in the preface of the Securities and Exchange Commission's writing handbook.
Lesson 4: Comparisons Clarify
In addition to using plain language, Buffett uses metaphors to ground complex issues in familiar terms. Check out how he combines plain language and metaphor to explain how Berkshire maintains competitive advantages:
If you’ve got a wonderful castle, there are people out there who are going to try and attack it and take it away from you. And I want a castle that I can understand, but I want a castle with a moat around it.
Things are all the time changing that moat in one direction or another. Ten years from now you can see the difference. Our managers of the businesses we run, I’ve got one message to them, which is to widen the moat. And we want to throw crocodiles and sharks and everything else, gators, I guess, into the moat to keep away competitors. And that comes about through service, it comes about through quality of product, it comes about through cost, it comes about sometimes through patents, it comes about through real estate location.
Lesson 5: Place Data in Context
Of course, Buffett’s letters are not all metaphorical. He supports business claims with hard numbers. Note how his writing effectively mixes hard numbers with story.
Let’s put numbers to that claim: If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1. Meanwhile, a $1 million investment by a tax-free institution of that time—say, a pension fund or college endowment—would have grown to about $5.3 billion.
Lesson 6: Praise by Name, Criticize by Category
When introducing good news, Buffett is effusive in praise and regularly calls out contributors by name. When responding to competitors and troublesome industry trends, he's brutally honest but never demeans the competition by name, instead using broad terms to allude to the opposition.
These two practices, along with the others introduced in this eTip, create an optimistic, upbeat vibe in Berkshire's annual reports—a tone that Buffett hopes will stick in the mind of investors when they consider his company for continued and future business.