Focus on real things, not "accounting things"
Straight off the bat, WB draws the attention on perhaps the most important thing to emphasise, is that while the numbers are important, more importantly is what the numbers mean and represent. For example, some companies have been giving increasing dividends for the past decade to shareholders - is this good? is this bad? Whether it's good or bad depends on where the money comes from. And some companies (famously Berkshire Hathaway) have never given dividends in their entire existence. Is this good or bad? Again, it depends on what they're doing with the money:
Prices will fluctuate, only buy at sensible prices
Again, WB focuses on the fact that stock prices fluctuate wildly, and it's difficult to predict where they will land. It will pay well for most investors to focus on the above point and focus on the companies as real businesses with real cashflow rather than pay any attention to the stock price: you only pay attention when the price is irrationally high or low.
Durable Competitive Advantage
Down the letter, WB elaborates on the importance of durable economic advantages that your business should have, what we call here at BTS as Moats. Just like how a moat protects a castle, a business moat will allow the business to charge higher prices without reducing demand. Again, some products and services are just easier to differentiate than others: you have to understand whether the product is a commoditized product with little differentiation.
The past, the present and the future
In this letter, WB also talks about how important it is for the business to retain competitive advantage, and while the past can tell you something about the business, you have to continually check that the current situation has not changed, and that the MOATS that were there continued to work (castles with moats no longer as useful when flying machines were invented.).
A dollar for 50 cents?
In a reverse view of the situation, WB highlights the fact that alot of M&A activity in business are "bad deals": literally paying a dollar for 50 cents in value.
And he highlights this with a numerical example:
If (1) your family owns a 120-acre farm and (2) you invite a neighbor with 60 acres of comparable land to merge his farm into an equal partnership - with you to be managing partner, then (3) your managerial domain will have grown to 180 acres but you will have permanently shrunk by 25% your family’s ownership interest in both acreage and crops. Managers who want to expand their domain at the expense of owners might better consider a career in government.