Warren Buffett's letter to Berkshire Hathaway shareholders; Does Elon Musk believe his own lies?

Today, I'd like to discuss Berkshire Hathaway's (BRK-B) Warren Buffett and Tesla's (TSLA) Elon Musk.

In many ways, they're polar opposites. Yet they're also two of the most fascinating, successful businessmen of the past century...

1) Buffett's remarkable 55-year run as Berkshire's CEO will come to a close at the end of this year. But he'll continue communicating with shareholders through his annual Thanksgiving letter, which he released yesterday.

(Contrary to some reports, yesterday's letter wasn't his last one, though he'll no longer write the annual shareholder letter or be on stage at the annual meeting.)

This year's Thanksgiving letter reinforced why I consider Buffett to be a hero and mentor – and why I made the trek to Omaha, Nebraska for 26 years to hear him speak at the annual Berkshire meeting.

Buffett started writing these letters to discuss his philanthropy, but he usually digresses into many other topics...

Yesterday, he disclosed that he was converting 1,800 A-shares into 2.7 million B-shares, worth around $1.3 billion, and donating them to four family foundations.

He has been making these kinds of philanthropic gestures for years and is confident his children will follow in his footsteps:

All three children now have the maturity, brains, energy and instincts to disburse a large fortune...

If my children simply do a decent job, they can be certain that their mother and I would be pleased. Their instincts are good and they each have had years of practice with very small sums initially that have been irregularly increased to more than $500 million annually.

All three like working long hours to help others, each in their own way.

He reassured shareholders about his health and commitment to his job:

To my surprise, I generally feel good. Though I move slowly and read with increasing difficulty, I am at the office five days a week where I work with wonderful people. Occasionally, I get a useful idea or am approached with an offer we might not otherwise have received. Because of Berkshire's size and because of market levels, ideas are few – but not zero.

He also expressed confidence in his successor:

Greg Abel will become the boss at yearend. He is a great manager, a tireless worker and an honest communicator. Wish him an extended tenure...

Greg Abel has more than met the high expectations I had for him when I first thought he should be Berkshire's next CEO. He understands many of our businesses and personnel far better than I now do, and he is a very fast learner about matters many CEOs don't even consider. I can't think of a CEO, a management consultant, an academic, a member of government – you name it – that I would select over Greg to handle your savings and mine.

Regarding his shares, he added:

I would like to keep a significant amount of "A" shares until Berkshire shareholders develop the comfort with Greg that Charlie and I long enjoyed. That level of confidence shouldn't take long. My children are already 100% behind Greg as are the Berkshire directors.

(A-shares effectively control Berkshire because not only do they have 1,500 times the economic value of B-shares, but they also have 10,000 times the voting power.)

Buffett is also optimistic about the company's future, though, as usual, he tried to dampen expectations:

In aggregate, Berkshire's businesses have moderately better-than-average prospects, led by a few non-correlated and sizable gems. However, a decade or two from now, there will be many companies that have done better than Berkshire; our size takes its toll.

Berkshire has less chance of a devastating disaster than any business I know. And, Berkshire has a more shareholder-conscious management and board than almost any company with which I am familiar (and I've seen a lot). Finally, Berkshire will always be managed in a manner that will make its existence an asset to the United States and eschew activities that would lead it to become a supplicant. Over time, our managers should grow quite wealthy – they have important responsibilities – but do not have the desire for dynastic or look-at-me wealth.

Our stock price will move capriciously, occasionally falling 50% or so as has happened three times in 60 years under present management. Don't despair; America will come back and so will Berkshire shares.

My favorite part of the letter is the ending, where he dispensed his best "worldly wisdom," as Charlie Munger called it:

• "Don't beat yourself up over past mistakes – learn at least a little from them and move on. It is never too late to improve. Get the right heroes and copy them."

• "Decide what you would like your obituary to say and live the life to deserve it."

• "Greatness does not come about through accumulating great amounts of money, great amounts of publicity or great power in government. When you help someone in any of thousands of ways, you help the world. Kindness is costless but also priceless. Whether you are religious or not, it's hard to beat The Golden Rule as a guide to behavior."

• "Keep in mind that the cleaning lady is as much a human being as the Chairman."

• "It's never too late to change."

• "Remember to thank America for maximizing your opportunities."

• "Choose your heroes very carefully and then emulate them. You will never be perfect, but you can always be better."

Thank you Mr. Buffett, for being such a wonderful role model. Other than my parents and wife, you've made the biggest difference in my life!

2) A friend and I were discussing Elon Musk's potentially trillion-dollar stock compensation package that Tesla shareholders recently approved...

As I told him, I think it's a reasonably fair deal. But I don't think Musk will end up getting any of that massive compensation – though he'll no doubt try by cranking up the puffery.

For example, get a load of this silliness, as reported by Quartz: Elon Musk was more over-the-top than usual after getting his $1 trillion pay package. Excerpt:

Flying cars

After teasing the idea of a flying car on the Joe Rogan show earlier this month, Musk was asked about it at Thursday's event. While he had talked about a demo this month or next with Rogan, Musk now said it will take place on April 1, 2026. (That date, of course, automatically raises some skepticism, given Musk's love of pranks.) Musk added production of the car would begin roughly within one year of its unveiling...

Plans for his robot army

Saying Tesla would be "ramping up Optimus production faster than anything's ever been ramped up before in human history," Musk has broad ambitions for the humanoid robots. The company will start with the production line creating one million of the devices, then 10 million, but ultimately, he sees Tesla producing as many as one billion a year. Those Optimus robots, he said, could do away with jails ultimately, following criminals around to stop them from committing future crimes.

In response to those comments, my friend asked:

Do you think he's delusional and believes his own lies? Or is it just part of keeping the valuation sky-high for as long as possible? Obviously he created his own comp package, so just wondering what your thinking is...

As I replied, I think if you hooked Musk up to a lie detector, he'd mostly pass...

He has achieved unprecedented, genuine success. I believe he's one of the greatest engineers and entrepreneurs of all time, and humanity owes him a debt of gratitude for both Tesla and SpaceX.

He has made these achievements by setting big, audacious goals and pushing himself and those around him to extremes. That, combined with a great deal of good luck, has resulted in a "lollapalooza" outcome.

But three things have caused him to go overboard, in my opinion:

First, he has been lucky enough to enjoy repeated success, so he thinks that success is 100% skill. In reality, it's maybe 75% skill and 25% luck. For example, both Tesla and SpaceX teetered on the edge of bankruptcy in their early days.

(To see how confusing skill and luck can lead to bad thinking, read Buffett's one-in-a-million coin-flipper analogy in his classic 1984 essay, "The Superinvestors of Graham-and-Doddsville.")

Second, Musk naturally feels the need to sustain Tesla's wildly inflated valuation after pumping it up so much so for long.

Lastly, having become one of the richest, most powerful people in the world, there's nobody who will tell him when he's screwing up and saying, promising, and doing insane things. (And if there was, he wouldn't listen.)

My observation of many people who've achieved outsized success, wealth, and/or power is that it doesn't change their fundamental nature: Kind, generous people are still kind and generous, and scumbags are still scumbags.

But their success, wealth, and/or power often acts as an accelerant...

Someone who's highly confident, a trait that helped them become successful, comes to think they're infallible – which can lead to ruin. Someone with a big ego turns into a total narcissist. Someone who's short on empathy becomes harsh and brutal toward others. Someone who's thin-skinned uses their influence to attack critics.

I have, of course, just described Musk's trajectory over the past five or so years.

Best regards,

Whitney

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