The most awaited letter of the year!!

As every year, Warren Buffet sends out a letter, inviting shareholders to his much-anticipated AGM. This letter is basically the MD&A as well as discussion on events that transpired in the past year.

Read all his SHAREHOLDER LETTERS

There are things to note in this Berkshire Hathway Annual report letter to investors:

His investments have consistently beaten the market on a relative basis – A sign of a “Black Swan”, a concept in the book with the similar name. He has comprehensively beaten S&P 500 (Broader index) in 38 of the past 44 years (86.4%). No other investor/Fund Manager boasts this figure.
Warren Buffet is not one to cover his mistakes. He says that he has made “Mistakes” in the past. Such words coming from the CEO of the most successful investment firm of all time, sure increases credibility.

“Both of these performances are unsatisfactory” (page 4) – another example of honesty and forthrightness.

Warren Buffet describes his investments on page 14. (It is interesting to see that out, of 14 investments having a year-end value above $500 mn, only 6 of them have any positive returns at all. This goes on to show that a good investment manager does not need to invest in high performing stocks only. Warren Buffet has demonstrated that by having more than 50% of his investments in Loss making companies, he still manages to beat the market by a factor of 2!!

“If we lose money on our derivatives, it will be my fault” (page 17). - No lack of initiative to take responsibility.

“Would you like to borrow money for 100 years at a 0.7% rate?” On page 19, Warren Buffet has lashed out at the much coveted “Black-Scholes” model for Option valuation, by offering a completely valid explanation for long term Option Contracts, considering inflation and reinvestment option parameters. However, he spares comments on the founders, by saying that the disciples misconstrued the model, by projecting it for ultra-long term contracts.

“As we view GEICO’s current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere.” – Does not lose his sense of humor in the gravest situations

Lastly – Don’t miss out on the sarcasm that Warren Buffet lashes out to Financial Institutions, Fed, the Fannie Mae and Freddy Mae’s of the world, the Credit Crisis issue as a whole, and Derivatives, which share a special place in Buffet’s heart. (Remember his famous quote – "Derivatives are the Financial equivalent of WMD"!!!)

Happy reading folks. Going by his observation and acumen, I was almost tempted to buy the stock until I saw its CMP ($73300.00)!

Read all his SHAREHOLDER LETTERS