Friday (pre-letter, follow the links to the treasure):
Warren Buffett's Letter to the Shareholders of Berkshire Hathaway 2009 (BRK.A)
Linkfest: Early Reaction to Warren Buffet's Chairman's Letter to the Shareholders of Berkshire Hathaway 2009, Part I
I will be adding my own thoughts on Monday.
We have around a thousand blogs and news services in various feedreaders and terminals. Here are some of their comments on Mr. Buffett's 2-28-09 letter. First though, a visit to the Omaha World-Herald to see what they're focusing on:
Highlights of 2008 report
A look at some of Berkshire’s operating units. (With pages of the shareholders report where the summary appears):Well there you go. MidAmerican is a MAJOR international energy company. Their pipeline operation is one of the (if not the) largest in the country. Their wind assets are the largest utility-owned in the country. And the OW-H lists it first. Interesting. Right in our baliwick.
• MidAmerican Energy Holdings saw net earnings grow 55.6 percent to $1.85 billion, with much of the gain coming from its attempted purchase of Constellation Energy last year. The gain on the Constellation investment, plus a breakup fee after a French company outbid MidAmerican, totaled just over $1 billion. On the downside, real estate brokerage firm HomeServices of America went from a $42 million gain in 2007 to a $45 million loss as the housing market collapsed. (Page 6) Buffett said MidAmerican spent $1.8 billion on wind generation at its Iowa-based utility and PacifiCorp. (Page 7)...MORE
Another homegrown article (the paper also has the AP coverage but you can find that anywhere):
Buffett puts worst year in rearview mirror
His worst year behind him, Warren Buffett is looking unflinchingly at 2009 as another difficult year but one offering rare opportunities for profit.On to the blogs. Alea focuses on a topic that I will be commenting on tomorrow:
He also warned in his annual letter Saturday that some bond investments may become "bubbles" that could burst....
...Despite the year's difficulties, Buffett sprinkled his letter with some of his characteristic humor.
For example, in praising Geico auto insurance division and its chief executive, Tony Nicely, Buffett wrote: "As we view Geico's current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere."
Of the overall decline in prices, he said, "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
...Buffett also announced a procedural change in the annual meeting, scheduled for May 2. Rather than allowing questions on a first-come, first-served basis, shareholders will submit their questions for selection beforehand.
The previous "open microphone" approach created a "mad rush" when the doors opened at the Qwest Center Omaha, Buffett said.
The rush isn't safe, he wrote, "nor do we believe that sprinting ability should be the determinant of who gets to pose questions. (At age 78, I've concluded that speed afoot is a ridiculously overrated talent.)">>>MORE
Warren Buffett on the Black-Scholes Formula
In my [W.B.] opinion, the valuations that the Black- Scholes formula now place on our long-term put options overstate our liability, though the overstatement will diminish as the contracts approach maturity.
From a Motley Fool commenter:
The Black-Scholes formula has approached the status of holy writ in finance, and we use it when valuing our equity put options for financial statement purposes. Key inputs to the calculation include a contract’s maturity and strike price, as well as the analyst’s expectations for volatility, interest rates and dividends....
"What I learned from Warren Buffett’s Most Recent Letter to Shareholders"
Across the Curve seems to think Warren has become a nudist like the rest of Wall Street, we would disagree:
Swimming Naked in Omaha
Infectious Greed looks at the derivatives, his commenters are pretty sharp:
Economic Policy Journal takes am even harsher approach:
Warren Buffett has out his annual Berkshire letter, and you will find lots of close line-reading at all the usual places. My takeaway -- beyond the obvious that this was a horrible year for Buffet, the worst in his career -- come from the derivatives section toward the end of the letter.In short, Buffett continues to explain why, as an ardent critic of derivatives, he has a significant position in same....MORE
Buffett: An Onslaught of Inflation Likely
Billionaire oligarch Warren Buffett generally doesn't discuss economic trends. However, the current economic crisis and the government response to it has resulted in an unusual warning from him. In his current letter to shareholders of Berkshire Hatahaway stock, he writes:Calculated Risk focuses on housing:This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.Bizarrely and spoken like a true oligarch, Buffet understand the inflation that is coming, but endorses the government actions that are setting the seeds for the inflation:...MORE
There are several interesting sections, but for housing I think the section on Clayton Homes (Buffett's manufactured home division) is especially interesting. Here is a brief excerpt (starts on page 10). First Buffett describes the lending debacle in the manufactured home industry in the 1997 to 2000 period:...MOREJeff Matthews points out:
This Just In: Berkshire Equity Portfolio Back to its Cost Basis
For which I give a tip of the cap to Market Movers who has an extended post:
Buffett's Financial Bets
...With hindsight, of course, the main stock he should have sold, before it entered a truly torrid 2009, was Wells Fargo. And selling Wells -- or American Express, for that matter, which has also sunk like a stone of late -- would have made a lot of sense, given that he was loading up on financials in the form of Goldman and GE securities. But instead he chose to go massively overweight financials, and sold instead safe-and-reliable defensive stocks. Weird.
That said, Buffett still writes a great chairman's letter. The highlight this year is his discussion of moral hazard in municipal bond insurance, which is worth quoting at length:...
Finally, from Horticulture Week:
Every year around the world, men and women throughout the business, political, academic and other communities wait for this moment. Then, finally it comes - and for decades it never disappoints.
It's time for Warren Buffett's Annual Letter to the Shareholders of Berkshire Hathaway ! Yippee!!
For those of you who read me, you know that I'm one of the impossibly large number of Buffett groupies. These letters are a clear demonstration of why that is so easy. From the beginning, Buffett decided that the annual Letters would be as educational as they are informational. Not only do they read like a dream, they are the best executive guidance out there.
Granted, your business may not have the size and scope of Berkshire Hathaway (yet), but it is your direction of travel - because every business wants and needs to thrive and grow. Especially in an economic era like this.
From the good news to the bad, whether touching on your industry or sector or not, always giving kudos to whom they are due and taking it on the chin when he's made a mistake, there is no better person to help you navigate the business management, global and financial thinking required than Buffett.
I know, because that’s what he has always done for me.
Enjoy the read!