Letters to Shareholders
Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
In plain words
This piece argues that most CEO letters to shareholders have become useless—full of generic talk about the pandemic, war, and inflation, but no real details about the company. The author says a well-written letter can actually help good companies stand out and keep investors from buying high and selling low. For regular investors, the article offers 10 simple questions (like how the company makes money, where it spends cash, and who will lead next) to judge whether management is worth trusting. Worth reading because it shows how a public letter can reveal if a company is run well.
Oakmark's April 2023 letter to shareholders points out that CEO letters to shareholders are becoming formalized content, with most investors no longer reading annual reports and instead relying on financial website data. The core argument of the report is that excellent CEOs should use the annual re
Theme and Background
This chapter discusses the diminishing value of CEO letters to shareholders in investment research. The author notes that most investors no longer read annual reports, instead relying on financial website data, leading CEOs to treat shareholder letters as a formal legal obligation, resulting in hollow content lacking specific information.
Core Argument
The author argues that exceptional CEOs should use the annual report—a unique once-a-year opportunity—to engage in substantive communication with shareholders, providing educational content. The counterintuitive insight is: in an era of information fragmentation, a carefully crafted shareholder letter can become a differentiating tool that helps management stand out, fostering long-term shareholders and reducing fund investor losses caused by emotional trading.
Key Arguments and Data
- AI-generated sample letter: The author used Bard (Alphabet’s AI) to generate a "generic" shareholder letter, which vacuously mentioned macro factors like the pandemic, the Russia-Ukraine war, and inflation, without any company-specific details. This precisely reflects the common flaw in many real-world shareholder letters.
- "Guess the Company" game: During a lunch with analysts, the author played a game of "read the letter, guess the company." After replacing the company name, even after reading 300 words, participants could not identify the industry, highlighting the high degree of homogeneity in letter content.
- List of 10 key questions: The author believes a good shareholder letter should answer the following questions:
| Question Category | Specific Question |
|---|---|
| Performance Attribution | Reasons for deviations between last year’s results and expectations? |
| Company Changes | The most important changes over the past year? |
| Outlook | Challenges and opportunities in the coming year? |
| Competitive Advantage | What is the company’s competitive advantage? How is it being strengthened? |
| Long-term Opportunities | Competitive advantage opportunities to develop over the next five years? |
| Capital Needs | Does the company need capital or generate excess cash? |
| Capital Allocation | Philosophy for allocating excess cash? |
| Board Utilization | How is board experience leveraged to improve performance? |
| Management Depth | Is the management team being deepened? |
| Succession Planning | What is the succession plan? |
The table shows the percentage of total net assets held in five securities by Oakmark Fund and Oakmark Select as of March 31, 2023. Alphabet CL A has the highest weight in Oakmark Select at 10.2% and 3.7% in Oakmark Fund, while Microsoft has a 0% holding.
Companies/Assets Involved
- Bank of New York Mellon (BK): CEO Robin Vince’s shareholder letter was specifically praised by the author for its educational value. Oakmark Fund holds 1.5%, Oakmark Select Fund holds 0%.
- Charles Schwab (SCHW): CEO Walter Bettinger’s letter received positive reviews. Oakmark Fund holds 1.2%, Oakmark Select Fund holds 2.9%.
- Wells Fargo (WFC): CEO Charlie Scharf’s letter received positive reviews. Oakmark Fund holds 2.4%, Oakmark Select Fund holds 4.1%.
- Alphabet (GOOGL): As the largest holding (Oakmark Fund 3.7%, Oakmark Select Fund 10.2%), its AI tool Bard was used to generate an example, but the author criticized the hollowness of AI-generated content.
Investment Implications
- Focus on management communication quality: Investors should prioritize management teams that provide specific, educational content in shareholder letters, as this is often a signal that management values shareholder interests and possesses a long-term mindset.
- Avoid "template" companies: For companies whose shareholder letters are hollow and merely list macro factors, investors should be wary that management may lack deep thinking or be unwilling to communicate candidly with shareholders.
- Use shareholder letters as a screening tool: Apply the above 10 questions as a framework to assess management quality, with particular attention to capital allocation philosophy, paths to strengthen competitive advantages, and succession planning—key long-term issues.
- Long-term holding strategy: The author emphasizes that shareholders who understand the investment logic are more likely to avoid the mistake of "buying high and selling low." Therefore, high-quality communication helps reduce behavioral biases among fund investors and improve actual returns.