Analysis Of Words Buffett Used In Investor Letter Reveals Changes

Warren Buffett Gems from Warren Buffett - Wit and Wisdom from 34 Years of Letters to ShareholdersGems from Warren Buffett - Wit and Wisdom from 34 Years of Letters to Shareholders

Just as “The Oracle of Omaha” Warren Buffett is known to spend a significant amount of time in a California mansion, the most popular words in his newsletter are mostly predictable yet sometimes yield surprising results.

As you might expect, among the most popular words the value investor uses in his annual investor letter over the years have been “earnings,” his second most popular word used 1,605 times since 1977.  Earnings are an investing derivative of the word “value,” used 1,216 times since 1977, according to a recent report.

Letter shorter than previous two editions, includes “float,” “insurance,” and “billion” but little mention of “derivative”

For the third straight year, this year’s Berkshire letter, at 12,768 words, is slightly shorter than the previous year but still near the 20 year average, according to the report.  The 30 minute read had some interesting differences in popular word usage between 2013 and his all time average.  Buffett used the words “insurance,” “float” and “billion” significantly more in 2013 than in the past, although these words were not typically associated with the value investor’s known derivatives exposure, which wasn’t much mentioned.

“Derivative” was not on the list of most popular words, although “soybean” made a rare appearance in 2013 along with “farm.”  Buffett has used 16,001 different words since 1977, according to the study, but only 129 of them have shown up in all 37.

Buffett year over year word usage

The most popular three word phrases were “Charlie and I,” used 425 times, “less than zero,” used 120 times and in nod to the future being more important than the past, Buffet used the three word phrase “in the future” 108 times, more than the forth most used three word phrase on the list, “in the past,” which was used just 93 times. 

Buffett’s letter in larger context

Perhaps the most significant three word term relevant to the future of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), Systemically Important Institution, didn’t make the list.  It was recently revealed that Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is being considered to receive a US government bailoutassistance guarantee. Warren Buffett has been famously known for labeling derivatives as “weapons of mass destruction,” yet a recently amassed OTC derivatives exposure could be putting the fund at systematic risk, an issue not discussed in the newsletter.



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com