From the 2021 Brookfield Annual Report, Bruce Flatt’s Letter to Shareholders.
Please Remember That You Own a Piece of Our Business
Lastly, we encourage you to focus on our business, not the share price. If there was ever a year to emphasize this point, it was 2020. Consider that the Price of BAM in US$ on a split adjusted basis, started the year at $38.58 and ended the year at $41.27. With a dividend of 1.25%, you earned a respectable 8% on your investment based on the share price. Except, given the extremes in the market seen in 2020, and depending on when you looked at the Price, you might have concluded that you had gained 18% if you looked in February, or a month later that you were down 44% when our shares traded at $21.57 in March. This is the behavior of Price; but not Value.
In the short run, Price is a function of supply and demand at any point in time, which is often influenced by the news of the day, short-term results, and the investor view of macro events that often have nothing to do with the company. This has always been true, and is even more so today with the emergence of ETFs, indexing, social media, the 24-hour news cycle and all the information bombarding investors. Value, on the other hand, is the net present value of future cash flows based on assumptions for growth, discounted back to the present at an appropriate interest rate. The Price of a publicly traded security is very often not the Value of it; sometimes it is higher, and sometimes lower. From time to time they can converge—but not that often.
The Value of Brookfield based on our published plan value metrics was $57 at the start of 2020 and $66 at the end. After accounting for the dividend, your Value increased 17% over the year. This was very respectable, especially given the environment, and it included write-downs from some businesses that got hit in the short term with the shutdowns.
If we were a private company, we would simply report our Value calculation and the metrics behind it. You would likely have been thrilled with 2020. We actually were. On the other hand, the movement of Price often distracts investors from focusing on the Value of a business. We encourage you to focus on Value and try to not be distracted by Price.
