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2008 Shareholder Letter

Warren Buffett's 2008 letter during the financial crisis, famously titled "The Leveraging of the American Dream"

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2008 Shareholder Letter

Date: February 2009 Author: Warren Buffett Company: Berkshire Hathaway Source: 2008 Letter (PDF)

Overview

This is one of the most important shareholder letters in history. Written during the height of the 2008 financial crisis, Buffett famously titled it "The Leveraging of the American Dream" and used it to explain what went wrong, why he was buying heavily during the panic, and how to think about risk.

Key Points

What Caused the Crisis

Buffett explained the systemic risks that built up in the financial system:

"The derivatives genie, which we and others long warned about, is now out of the bottle in a way that will terrify you."

Why He Was Buying

During the panic, Buffett made major investments (Goldman Sachs, GE, etc.). He explained his rationale:

"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

Lessons for Investors

  1. Leverage is dangerous — It amplifies both gains and losses
  2. Mr. Market is manic-depressive — Use his extremes to your advantage
  3. Margin-of-Safety still matters — Even great businesses can be dangerous at wrong prices
  4. Time horizon — The crisis was temporary; those who held quality recovered

Famous Quotes

"Be fearful when others are greedy, and greedy when others are fearful."

"It is not necessarily the case that a sound investment policy will produce satisfactory results in the short term. But it is necessarily the case that an unsound investment policy will eventually produce unsatisfactory results."

Why This Letter Matters

The 2008 letter is required reading because it demonstrates:

  1. How to think during a crisis — Not what to feel, but what to do
  2. The importance of capital preservation — Berkshire had cash to deploy
  3. Contrarian investing in action — Buying when everyone else was selling
  4. Understanding systemic risk — The letter presciently warned about derivatives

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