What a delight to read Warren Buffett's annual letter to his shareholders! It has to be the most interesting part of any company's annual report, and certainly one of the most entertaining letters of all companies is Berkshire Hathaway's. Second only to that of my
favorite company in the whole wide world, of course!
Go ahead, read Buffet's letter yourself. But here are some of my favorite excerpts from this year:
"No matter how serene today may be, tomorrow is always uncertain." p. 3
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"Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain
interest rates. All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks. (The two best investments were wedding rings.) For the $31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come. - p16
"But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often
protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put
families into the house of their dreams, but rather to put them into a house they can afford." -p 17
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"Unquestionably, some people have become very rich through the use of borrowed money. However,
that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.
"Leverage, of course, can be lethal to businesses as well. Companies with large debts often assume that
these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job.
"Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed.
When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees. In September 2008, in fact, its overnight disappearance in many sectors of the economy came dangerously close to bringing our entire country to its knees." - P 22
"On the facing page (see page 23) you can read a letter sent in 1939 by Ernest to his youngest son, my Uncle Fred. Similar letters went to his other four children. I still have the letter sent to my Aunt Alice, which I found – along with $1,000 of cash – when, as executor of her estate, I opened her safe deposit box in 1970." - P 22
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Taken from his letter to management:
"We can’t be perfect but we can try to be. As I’ve said in these memos for more than 25 years: “We can afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of reputation.” We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter." - P 104
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"P.S. Another minor request: Please turn down all proposals for me to speak, make contributions, intercede
with the Gates Foundation, etc. Sometimes these requests for you to act as intermediary will be
accompanied by “It can’t hurt to ask.” It will be easier for both of us if you just say “no.” As an added
favor, don’t suggest that they instead write or call me. Multiply 76 businesses by the periodic “I think he’ll
be interested in this one” and you can understand why it is better to say no firmly and immediately." - P 105
That last one may be my favorite. :)
