A data scientist performed a sentiment analysis of Warren Buffett's Berkshire Hathaway shareholder letters and highlights how Buffett remains optimistic.
Self-made billionaire and Berkshire Hathaway CEO Warren Buffett's steadfast optimism has grown his following over the years — and he even uses specific words to achieve his success, according to recent analysis.
Thanks to his leadership, the legendary investor has inspired upwards of 160 other billionaires to promise to give away at least half of their wealth to philanthropic causes. In February, Bill and Melinda Gates turned their annual letter into a valentine dedicated to Buffett , suggesting his unceasing optimism is the secret to the 86-year-old's success .
Now, that claim is backed by data. In March, data scientist Michael Toth performed a sentiment analysis on Buffett's annual Berkshire Hathaway shareholder letters from 1977 to 2016. Using the R programming language, Toth, 28, identified Buffett's most commonly used positive and negative words over the past 40 years.
The top six unique words are, in this order: loss, gain, worth, significant, debt and outstanding. Although two of those words have negative associations — loss and debt — Toth found a surprising explanation as to why those landed on Buffett's list of most utilized words.
Toth tells CNBC that Buffett limits his use of negative words to describe Berkshire Hathaway's hardship. Instead, he focuses on the positive.
"He uses words like 'outstanding,' 'excellent,' and 'extraordinary.' To me this communicates that he has strong confidence in his optimism, and that he is comfortable committing to and expressing that optimism," Toth says. "The negative words he uses, particularly cases like 'unusual', and 'difficult' seem to refer to challenges and unique circumstances."
For example, in the 2017 letter published, Buffett uses the word "debt" to discuss how Berkshire Hathaway Energy's "many sources of profit" allow it to "significantly lower [its] cost of debt." He tells his readers, "That economic fact benefits both us and our customers.""I think that it's important to be on top of what people are thinking, to think for yourself and make decisions beyond the numbers, " Toth says about the benefits of his sentiment analysis.
Another standout detail: How positive Buffett remained in his letters leading up to moments of economic downturn, especially in 2001 and 2008. Toth notes that Buffett's ability to balance both optimism and realism are reflected in whether a letter was positive or negative in any given year.
"What surprised me was how well these negative letters lined up with negative recession events," Toth tells CNBC. Those five events comprised of the market downturn in 1987 dubbed Black Monday, the recession of 1990, the September 11 attacks and collapse of the dot-com bubble in 2001 and 2002, as well as the Great Recession of 2008.
"Even when things are going badly, like in 2008 when everything was falling apart, he is still measured in his approach in speaking to his shareholders," Toth says."Things are not always going to be perfect and I think Buffett's ability to still communicate and inspire confidence during those bad time periods is important."
5 things the best bosses say to their teams every day
The best bosses make sure to do this one simple thing every day
6 highly successful execs share their best career advice for 20-somethings