Posted: February 27, 2010 at 8:30 am
Download the 2009 Warren Buffett Letter & 2009 Annual Report to Berkshire Hathaway Shareholders
Warren Buffett’s new annual letter to shareholders is out. This is a far different read than a year ago. Berkshire Hathaway Inc. (NYSE: BRK-B, BRK-A) said its annual shareholder value rose by 19.8%, a figure which would be great most years but was short of the return of the S&P 500 Index. Book value per share rose to $84,487.00… yet the stock ended at $99,200.00 on December 31, 2009. The large premium was in part due to the pending mega-merger of Burlington Northern Santa Fe.
The good news here is that Warren Buffett is less cautious than in the past and is far less pessimistic and depressed compared to how he sounded a year ago. Buffett claims to have added at least 650,000 shareholders to the 500,000 or so already on Berkshire’s books. What is going to be different here is that Buffett is appealing to the new shareholders to understand what the company is and what it is not by directing holders to its principles…. Buffett notes, “Berkshire has adhered to these principles for decades and will continue to do so long after I’m gone.”
And there are many more zingers and explanations throughout, along with constant references to Charlie Munger.
As far as performance, size does matter. Buffett noted something very specific here which new Berkshire Hathaway holders and potential holders need to consider very closely….. “The big minus is that our performance advantage has shrunk dramatically as our size has grown, an unpleasant trend that is certain to continue.” Buffett highlighted that certainty himself.
The acquisition and future operations of the company will remain in simple businesses…. “Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be… At Berkshire we will stick with businesses whose profit picture for decades to come seems reasonably predictable. Even then, we will make plenty of mistakes.”
Buffett even talks about investing and lending during the crisis…. “We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire.” Also noted…. “When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. At the very peak of the crisis, we poured $15.5 billion into a business world that could otherwise look only to the federal government for help.”
Buffett does not bash the ratings agencies for downgrading Berkshire Hathaway, but he did note… “We pay a steep price to maintain our premier financial strength. The $20 billion-plus of cash equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.”
As far as whether or not Berkshire will make more mergers? Yes it seems, with a caveat…. “With our acquisition of BNSF, we now have about 257,000 employees and literally hundreds of different operating units. We hope to have many more of each. But we will never allow Berkshire to become some monolith that is overrun with committees, budget presentations and multiple layers of management.”
And to hell with trend and populism here from Warren…. “We make no attempt to woo Wall Street. Investors who buy and sell based upon media or analyst commentary are not for us. Instead we want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it’s one that follows policies with which they concur.”
Buffett even backpedals here on the negativity of last year’s (interpreted) message… “Among the 12,830 words in the annual letter was this sentence: “We are certain, for example, that the economy will be in shambles throughout 2009 – and probably well beyond – but that conclusion does not tell us whether the market will rise or fall.” Many news organizations reported – indeed, blared – the first part of the sentence while making no mention whatsoever of its ending.” He even calls it terrible journalism and goes on to say how he and Charlie Munger were not predicting the stock market at all.
GEICO’s growth may slow in 2010…. Buffett also noted that the company sold the small credit card business of a $98 million portfolio of troubled receivables for $0.55 on the dollar.
Buffett explains praise at National Indemnity for Ajit Jain… “If Charlie, I and Ajit are ever in a sinking boat – and you can only save one of us – swim to Ajit.”
The MidAmerican operations, the regulated utility section, gave $1.071 billion to Berkshire, down from $1.704 billion in 2008. The HomeServices of America unit, the second largest real estate firm in America, is under the MidAmerican unit. “The BNSF operation has certain important economic characteristics that resemble those of our electric utilities. It is inconceivable that our country will realize anything close to its full economic potential without its possessing first-class electricity and railroad systems. We will do our part to see that they exist. In the future, BNSF results will be included in this “regulated utility” section.”
The other 90 or so pages hold interesting tidbits and one-liners, of which you can see here.
JON C. OGG
Share Investor Blog – Stockmarket & Business commentary
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Download the 2009 Warren Buffett Letter & 2009 Annual Report to Berkshire Hathaway Shareholders
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