Friday, March 30, 2007

2007 letter to Berkshire Hathaway shareholders from Warren Buffet

Warren Buffet publishes an annual letter to his shareholders. The letters have a general pattern -
-- Overall performance of Berkshire over the past year
-- Analysis of the Berkshire performance by sector. Special focus on the good and bad sectors and why these sectors did well (or not)
-- Acquisitions in the previous year and why the acquisitions were made
-- Major future issues that affect Berkshire as a firm
-- Tirade against derivatives
-- Tirade against hedge funds
-- Warning about US trade deficit
-- Some interesting tidbits of info
All of these sprinkled with amusing quotes...

I am no finance wizard. So I leave it to the readers to contemplate the deeper content in the letter. You can download the letter here.

But lemme decorate this post with some of those amusing quotes...

In fairness, we’ve seen plenty of successes as well, some truly outstanding. There are many giant company managers whom I greatly admire; Ken Chenault of American Express, Jeff Immelt of G.E. and Dick Kovacevich of Wells Fargo come quickly to mind. But I don’t think I could do the management job they do. And I know I wouldn’t enjoy many of the duties that come with their positions – meetings,speeches, foreign travel, the charity circuit and governmental relations. For me, Ronald Reagan had it right: “It’s probably true that hard work never killed anyone – but why take the chance?”

We continue, however, to need “elephants” in order for us to use Berkshire’s flood of incoming cash. Charlie and I must therefore ignore the pursuit of mice and focus our acquisition efforts on much bigger game. Our exemplar is the older man who crashed his grocery cart into that of a much younger fellow while both were shopping. The elderly man explained apologetically that he had lost track of his wife and was preoccupied searching for her. His new acquaintance said that by coincidence his wife had also wandered off and suggested that it might be more efficient if they jointly looked for the two women. Agreeing, the older man asked his new companion what his wife looked like. “She’s a gorgeous blonde,” the fellow answered, “with a body that would cause a bishop to go through a stained glass window, and she’s wearing tight white shorts. How about yours?” The senior citizen wasted no words: “Forget her, we’ll look for yours.”
What we are looking for is described on page 25. If you have an acquisition candidate that fits, call me – day or night. And then watch me shatter a stained glass window.

When Charlie and I were young, the newspaper business was as easy a way to make huge returns as existed in America. As one not-too-bright publisher famously said, “I owe my fortune to two great American institutions: monopoly and nepotism.” No paper in a one-paper city, however bad the product or however inept the management, could avoid gushing profits.

We show below our common stock investments. With two exceptions, those that had a market
value of more than $700 million at the end of 2006 are itemized. We don’t itemize the two securities referred to, which have a market value of $1.9 billion, because we continue to buy them. I could, of course, tell you their names. But then I would have to kill you.

The good news: At 76, I feel terrific and, according to all measurable indicators, am in excellent
health. It’s amazing what Cherry Coke and hamburgers will do for a fellow.

The inexorable math of this grotesque arrangement is certain to make the Gotrocks family poorer over time than it would have been had it never heard of these “hyper-helpers.” Even so, the 2-and-20 action spreads. Its effects bring to mind the old adage: When someone with experience proposes a deal to someone with money, too often the fellow with money ends up with the experience, and the fellow with experience ends up with the money.

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