Watching out of FOG


FOG … ‘Fact Obfuscating Generalisations’ … or as Ray Dalio (founder of Bridgewater – one of the world’s most successful hedge funds) would call it … ‘mouth farting’.

FOG is a term I discovered in the book … Investing between the lines by LJ Rittenhouse. Investing between the lines caught my attention whilst skimming the shelves of ‘The Bookworm’ – the local Omaha bookstore at the Berkshire Hathaway annual meeting. Rittenhouse makes the point that a CEO's letter is a far more powerful research tool than many investors appreciate – a conclusion we strongly support. As Mark Twain would say … ‘the difference between the right word and the almost right word is like the difference between lightning and the lightning bug’.

We believe the annual letter is the only opportunity that CEOs can address all businesses ’ key stakeholders at once. The annual letter is a document that can be read by shareholders, customers, potential customers, employees, potential employees, suppliers, and in some cases, regulators – hence we find it amazing that most CEOs are willing to outsource a document that could potentially impact both the quality of employees and customers the business could attract.

How do we know so many CEOs outsource the writing of their annual letter? Because they are full of what Rittenhouse calls ‘weasel words, cliches and jargon’. Words such as ‘solid, momentum, enhancing, eco-system’ or cliches such as ‘we are a customer-first company’. These words left on their own or lacking context indicate that a CEO potentially doesn’t have a strong grasp on what is happening at the ‘coalface’ of the business.


Rittenhouse provides many examples throughout the book, the most notable being that of notorious corporate failure - Enron. Rittenhouse noted the following passage in CEO Jeff Skilling annual letter from the year 2000:


‘Our talented people, global presence, financial strength, and massive market opportunity have created our sustainable and unique businesses. EnronOnline will accelerate their growth. We plan to leverage all of these competitive advantages to create significant value for our shareholders.’

In one short paragraph, Enron introduced six popular clichés:

  1. Talented people

  2. Global presence

  3. Market knowledge

  4. Financial strength

  5. Leverage competitive advantages

  6. Significant value for our shareholder

We look for CEOs who can simply explain, through vivid examples the link between employee and customer satisfaction … with shareholder value. As Rittenhouse explains - without a commitment to transparency from the top, lawyers, professional directors, and communication consultants will do their best to dilute the CEO’s message and keep readers confused. Investors who find CEO letters riddled with generalizations need to ask: does the CEO not understand the business or does he or she not want the owners to understand it?!?!

A long-term holding in the Quality Compounders portfolio – Mainfreight – is one of the best examples of a management team that more than understands the importance of using their annual report to communicate to their various stakeholders – the 2021 annual report (attached) is indicative of their typical annual report:

  • Chair, founder, and Mainfreight’s largest shareholder, Bruce Plested mentions ‘customers’ three times and ‘employees’ four times

  • CEO and Mainfreight’s fifth-largest shareholder, Don Braid mentions ‘customers’ 14 times and ‘employees’ nine times

  • Every employee’s name is listed in the annual report … under the heading ‘Thank you to this extraordinary team …. You are our heart and soul’

  • Key operating statistics - which include things such as Transport loading errors; Number of training courses completed by their staff; Inventory Record Accuracy … these statistics are provided with year-on-year comparisons … just think how powerful this is when pitching a new account!

  • ‘Five-year road map’ – where management provides details on their key growth initiatives along with targets for these key initiatives

  • Explicit statements about their culture and values ‘staying our 100-year course’, ‘culture continues to forge our future’, ‘there is no place for mediocrity’, ‘look after our people and look after our customers’


Well-considered annual letters and reports are few and far between thus we believe it can offer one of the simplest and most effective ways to assess the quality of a manager. A list of the best CEO letters we’ve studied include:

  • Warren Buffett, Berkshire Hathaway

  • Jeff Bezos, Amazon

  • Mark Leonard, Constellation Software

  • Tom Gainer, Markel Corporation

  • Jeff Lawson, Twillo

If you know of any exceptional CEO letters – please let us know.

Thanks for reading,

Lachlan Morgan, CFA Adviser, 318999