Why Buffett's approach towards investors is better than most

Many companies fail to treat all their owners equally and could do well to follow in Warren Buffett's footsteps.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Chairman and CEO of Berkshire Hathaway (NYSE: BRK.A) Warren Buffett sits down every year and pens a letter to his shareholders. His annual letter has reached cult status thanks to Buffett's fame and following, however at its core his annual letter, which regularly runs to over 20 pages, provides a deep body of information about the operations and performance of Berkshire Hathaway's multitude of businesses over the previous 12 months.

One reason Buffett takes the time to write a detailed letter to shareholders each year is that he doesn't provide one-on-one time for any investors — whether they be fund managers, analysts or small shareholders –- to ask him questions in private. He does this to maintain a level playing field for all interested parties.

The level of information and insight that Buffett provides each year to his fellow shareholders compared with the information many Australian companies provide in their annual reports is like comparing chalk and cheese. Berkshire's report is not glossy and full of pictures and catch phrases, rather it is full of details that actually matter and can help an investor reach an opinion about the company.

In a fabulous article for the Australian Financial Review, Matthew Drummond explores the issue of access to company information. Through an interview with Peter Morgan who was a renowned fund manager at Perpetual (ASX: PPT) and Greg Perry, who was a top gun fund manager at Colonial First State, now the funds management arm of Commonwealth Bank (ASX: CBA), Drummond sheds light on the access to information that fund managers and analysts enjoy.

Getting current fundies and analysts to admit to receiving beneficial information would of course be near impossible, however the retired Morgan and Perry talk freely. Morgan described exclusive meetings as "unethical" while Perry suggested that "there is info you've gleaned from those meetings that other people don't get."

Buffett's approach is far from perfect and few would describe it as the best approach — particularly given how easily information can be disseminated through the internet these days — but it is better than many, given that he firmly adheres to the rule of treating all owners (shareholders) and other interested parties equally.

NIB Holdings (ASX: NHF) is one company that deserves recognition for providing significant detail and access to shareholders. NIB's reports are regularly full of detailed information that helps an investor make an informed decision, and many of its presentations are webcast. That's not to say NIB's management doesn't also provide one-on-one time to select investors too.

Foolish takeaway

Buying businesses run by managers who think like owners and hence have owners' interests as their priority is critical to identifying long-term investments with the best chance of outperforming. Even owning a great business, if it is run by unethical management will struggle to create shareholder value in the long term.

One of the most obvious ways to identify a sound management team is in how they treat shareholders. If they provide privileges to just a handful of shareholders, fund managers and analysts, and also fail to communicate effectively with shareholders, there is a reasonable chance investors would be better off steering clear.

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool contributor Tim McArthur owns shares in Perpetual and NIB Holdings.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »