- First, because of Buffett's wealth and experience. He could probably gather an audience to read his grocery list.
- Second, because Berkshire has a well-earned reputation as one of the most successful companies on the planet.
- Third, and most important for our purposes, because this year's 7,200-word letter displays one of Buffett's underappreciated personal strengths: his extraordinarily high emotional intelligence.
I'm especially attuned to this because of my work recently on two free ebooks: Warren Buffett Predicts the Future, and 9 Smart Habits of People With Very High Emotional Intelligence. (You can download both books here, for free.)
It's striking to look through this year's letter, which is part of the 2020 Berkshire Hathaway Annual Report, and see so many examples of how Buffett leverages his emotional intelligence to make the letter accessible--and a model for any business leader. Here's why it works.
1. He uses the second person singular.
Emotionally intelligent people understand that in any conversation, people intuitively gravitate to the parts that are about them. So, while the letter and the annual report are about Berkshire, the individual shareholder wants to know: How does this affect me?
As a result, Buffett writes much of the letter to, "you." As an example, when Buffett talks about BNSF, the largest freight railroad company in North America, which Berkshire owns outright, he words much of it like this:
"Your railroad carries about 15% of all non-local ton-miles (a ton of freight moved one mile) of goods that move in the United States" ... and later: Your railroad is in good hands."
When he talks about Berkshire's decision to repurchase its own stock, he frames it like this:
"That action increased your ownership in all of Berkshire's businesses by 5.2% without requiring you to so much as touch your wallet."
When he discusses a couple of strategic moves that led to Berkshire owning even more of Apple, he says:
"[Y]ou now indirectly own a full 10% more of Apple's assets and future earnings than you did in July 2018."
For that matter, when he talks up the talents and accomplishments of the leaders of some of Berkshire's companies, he writes:
"When you next fly over Knoxville or Omaha, tip your hat to the Claytons, Haslams and Blumkins ..."
The letters and the annual report are about Berkshire Hathaway's past and future, sure.
But by writing these sections the way Buffett does, he implies that it's really about his audience. That's pure emotional intelligence.
2. He displays self-conscious humility.
Buffett does not merely admit errors. He trumpets them sometimes--with humility or humor.
I've written separately about how this year's letter is arguably a narrative description of the long-term ramifications of a single error Buffett made in the 1960s (and that he admits he didn't finally rectify until about 1985).
But there's something even more analytical and stark--frankly, the lead of most of the other coverage about it. That's the big mistake Buffett acknowledges he made.
It has to do with an "ugly $11 billion write-down" that Berkshire was forced to accept. Buffett pulls no punches on himself for this one, calling it:
"almost entirely the quantification of a mistake I made in 2016. That year, Berkshire purchased Precision Castparts ("PCC"), and I paid too much for the company. No one misled me in any way - I was simply too optimistic."
Of course, Berkshire is a publicly traded company, so you'd never want to paint an artificially rosy picture, or get caught explaining away problems unconvincingly. Better to take it on the chin and move on.
Yet, my sense is that Buffett also understands that at his stage in life, and with the "Oracle of Omaha" moniker, the paradox of humbly rushing to accept blame is that it improves his reputation.
It takes an acute sense of emotional intelligence to realize that. Yet, it's what this is all about: understanding how you'll be perceived by the audience, versus how you'd like to perceive yourself.
3. He praises everybody.
Go through the letter, and I don't think there is a single person whom Buffett mentions by name who does not receive lavish praise in some format.
Literally every name is adorned with complimentary adjectives, with the possible exceptions of the humility and self-deprecating humor with which Buffett talks about himself or Charlie Munger.
- For example, Jack Ringwalt isn't just described as the founder of National Indemnity in 1940; Buffett describes him as "honest, shrewd, likeable and a bit quirky."
- Within the company, Ajit Jain and Greg Abel aren't just vice-chairmen, they're "invaluable vice-chairmen."
- Debbie Bosanek isn't just Buffett's assistant, she's his "incredible assistant who joined Berkshire 47 years ago at age 17."
- Even when he discusses overpaying for PCC -- the $11 billion mistake -- he describes the company's CEO, Mark Donegan as: "a passionate manager who consistently pours the same energy into the business that he did before we purchased it," and says Berkshire is, "lucky to have him running things."
There's no reason to mention anyone by name in a letter like this unless he or she is worthy of praise. But, it's worth noting the cumulative, positive effect on the reader of seeing the praise he lavishes on everyone else.
This habit is easy to copy. When you're addressing a group, your default position should be to praise the people you mention.
You're not Hemingway (who famously disdained adjectives). You're a business leader--and emotionally intelligent leaders know how and why this works.
There are other examples of Buffett's emotional intelligence within the letter, but overall, it's about the tone and accessibility, and how the whole thing stitches together. So, let's conclude this by sharing some of the best advice Buffett says he ever got -- something that's squarely in the same realm.
It comes from Thomas Murphy, who was chairman and CEO of Capital Cities/ABC and who still serves on Berkshire's board. As Buffett recounts:
"He said, 'Warren, you can always tell someone to go to hell tomorrow.' It was such an easy way of putting it. You haven't missed the opportunity. Just forget about it for a day. If you feel the same way tomorrow, tell them -- but don't spout off in a moment of anger."
An easy way to put it, and a colorful way to articulate one of the key tenets of emotional intelligence. Think before you act, and try not to let emotional reactions overcome your decision-making.
I suppose it shouldn't be surprising to realize that Buffett manifests it in other ways people probably never notice. He's a savvy investor and business leader, of course, but these annual letters demonstrate how his personal emotional intelligence is yet another powerful asset in his portfolio. They're worth studying and imitating in your business.