Go ahead, download a copy of Warren Buffett’s letter to shareholders & BRK annual report and read it. I will never advise my readers of what stocks to buy or at what prices, I believe it is the readers’ job. If people want to invest their money and receive the associated gain/lose as a result, it is only fair that they are responsible for their investment actions.
But to me, reading Warren Buffett’s letter is a FREE exercise of the brain one should engage our minds once a year if we can. And I am fully aware that great investor of Warren’s success and one who is so willing to share his insights (in a way with minimum agenda) will likely not come by for a long time (or in my lifetime). So I treasure the pleasure in reading Warren’s letter every year.
The following are my notes and “insights” on Warren Buffett’s 2009 letter to shareholders & BRK annual report. This article will be updated frequently today and the next few days as I get a chance to read more. Come back often to check.
*** Page ref are based on the printed page numbers. Emphasis added. ***
Note: I am reading in a “random” manner” so you will see my comments appearing out of sequence. I will try to read both the letter (pg 1-22) and the MD&A section (pg 61-94).
*** pg 15 – When it’s raining gold ***
“We told you last year that very unusual conditions then existed in the corporate and municipal bond markets and that these securities were ridiculously cheap […] Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.” [Kempton: Of course, the challenge and the wisdom is in recognizing “big_and_solid” opportunities and not just “big_and_wishful_thinking” opportunities. (smile)] [HT Alex]
*** pg 16 – Risk Control ***
“Charlie and I believe that a CEO must not delegate risk control. It’s simply too important. […] If Berkshire ever gets in trouble, it will be my fault. It will not be because of misjudgments made by a Risk Committee or Chief Risk Officer.”
“[…] CEO bear full responsibility for risk control. If he’s incapable of handling that job, he should look for other employment.“
“CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.” [Kempton: I LOVE to see this happen but I also know this is going to be very tough or impossible to implement. But heck, it is a worthy goal and objective and we should give some serious thoughts into this.]
*** pg 16 – “An Inconvenient Truth (Boardroom Overheating)” ***
“Imagine, if you will, Company A and Company B, of equal size and both with businesses intrinsically worth $100 per share. Both of their stocks, however, sell for $80 per share. The CEO of A, long on confidence and short on smarts, offers 11⁄4 shares of A for each share of B, correctly telling his directors that B is worth $100 per share. […]” [Kempton: A simple and easy to understand lesson. Read and learn.]
*** pg 17 – “Don’t ask the barber whether you need a haircut.” ***
“When stock is the currency being contemplated in an acquisition and when directors are hearing from an advisor, it appears to me that there is only one way to get a rational and balanced discussion. Directors should hire a second advisor to make the case against the proposed acquisition, with its fee contingent on the deal not going through. Absent this drastic remedy, our recommendation in respect to the use of advisors remains: “Don’t ask the barber whether you need a haircut.”” [Kempton: I remember reading in Lee Iacocca‘s autobiography, he would find some of the best minds in Chrysler to argue against the action the company planned to take to get a proper analysis of the situation.]
*** pg 17-18 – “teenage boys who had just discovered girls” ***
“Naturally, our fellows caved in and agreed to this value-destroying deal. “We need to show that we are in the hunt. Besides, it’s only a small deal,” they said, as if only major harm to shareholders would have been a legitimate reason for holding back. Charlie’s reaction at the time: “Are we supposed to applaud because the dog that fouls our lawn is a Chihuahua rather than a Saint Bernard?”
The seller of the smaller bank – no fool – then delivered one final demand in his negotiations. “After the merger,” he in effect said, perhaps using words that were phrased more diplomatically than these, “I’m going to be a large shareholder of your bank, and it will represent a huge portion of my net worth. You have to promise me, therefore, that you’ll never again do a deal this dumb.”
Yes, the merger went through. The owner of the small bank became richer, we became poorer, and the managers of the big bank – newly bigger – lived happily ever after.” [Kempton: Too many CEOs have “lived happily ever after”.]
*** pg 18-20 – The Annual meeting ***
Read Warren, the man who LOVES to sell, in action in these pages. I had fun reading his words. I wonder what is the additional sales made at the annual meeting? How profitable to BRK is the annual meeting? And I finally realize why there will likely NEVER be a live webcast of the annual meeting! I won’t rob people of their fun in shopping BRK!
I LOVE the opportunity to send in questions to journalists. Last year my question was picked (thanks Carol). I will see if I have something I want to ask this year.
***
Disclosure: I own some BRK.
Filed under: Business, GreatMindsOfOurTime, investment, people, united states, Warren Buffett, World 
