Save and Invest

Warren Buffett writes his annual letter as if he's talking to his sisters—here's why

Warren Buffett, Chairman and CEO of Berkshire Hathaway.
David A. Grogan | CNBC
Warren Buffett, Chairman and CEO of Berkshire Hathaway.

Warren Buffett's annual letter to Berkshire Hathaway shareholders is considered a must-read for investors.

Buffett aims to make the letter accessible as well as informative, and he's careful not to include too much jargon. To keep it readable, he writes the letter as if he's talking to his two sisters.

"It's 'Dear Doris and Bertie' at the start and then I take that off at the end," Buffett told CNBC's Becky Quick in an exclusive interview on "Squawk Box" on Monday.

That's because, for Doris and Bertie, "Berkshire is pretty much their whole investment." And although they're smart, Buffett says, his sisters are "not active in business, so they're not reading about it every day. I pretend that they've been away for a year and I'm reporting to them on their investment."

"I pretend that they've been away for a year and I'm reporting to them on their investment." -Warren Buffett, chairman and CEO of Berkshire Hathaway

This year, he imagined that his sisters were planning to sell their shares, and he broke down exactly what he would do if he were in their position. The letter focuses on "what I'd want them to know before they made a decision," he said.

Buffett's writing strategy helps make the advice included throughout his archive of letters applicable to investors at every level. He shares wisdom that nearly anyone can understand, on topics ranging from why it's smart to invest for the long haul to why you shouldn't panic when the market tanks.

In 2018, for example, Buffett simplified his strategy for dealing with market downturns by suggesting that investors read the Rudyard Kipling poem "If—." The poem illustrates his point that shifts and drops are inevitable so, rather than watch the market too closely and let your emotions get the best of you, it helps to keep a level head.

And, in 2019, Buffett warned against going into debt to buy stocks, a lesson that works for both corporations and individuals. "Rational people don't risk what they have and need for what they don't have and don't need," he wrote.

Like this story? Subscribe to CNBC Make It on YouTube!

Don't miss: Here's exactly what an index fund is—and why it's Warren Buffett's favorite way to invest