Every year I look forward to a letter from Warren Buffett. I don’t hold any Berkshire Hathaway stock, and so the letter is not to me, but I feel as though it is. His annual letter to shareholders gets national business media attention every year, and I always learn something from his unique viewpoint.
Unfortunately, his letters get attention because they are different than most business writing; they are clear, understandable and written with humor, honesty, humility and gratitude. In spite of being 23 pages long, this year’s letter is to the point and full of good advice. Here are a few points I thought were particularly good takeaways for the wholesale distribution industry this year:
Buffett talks about making the biggest “bet” in the firm’s history in late 2009 – the purchase of BNSF in the depths of the Great Recession. He notes that he and his business partner have always considered a “bet” on ever-rising U.S. prosperity to be very close to a sure thing. “Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.”
I believe that, too. I sometimes think many people who work in wholesale distribution don’t fully recognize how critical this industry, accounting for nearly a third of annual U.S. GDP, is in the way it fuels the dynamism Buffett describes as the fabric of the American economy. Combined, all of the highly fragmented and specialized vertical distribution channels in our country create the most frictionless and adaptive supply chain in the world. It’s important to stop and consider that contribution and the power of that last sentence. Buffett knows it, too. His firm has some substantial holdings in distribution companies.
Later in the letter, he talks about four disciplines insurance companies have to adhere to. The last is to “be willing to walk away if the appropriate premium can’t be obtained.” Many insurers flunk that one: “They simply can’t turn their back on business that is being eagerly written by their competitors.”
As an industry, wholesale distribution also has a long hill to climb when it comes to understanding cost-to-serve and the long-term damage to profitability created in the short-term race to the bottom for winning a sale at any cost.
Even if you’re not a Berkshire Hathaway stockholder, Buffett’s annual letter has some great insights. Definitely worth reading.