Warren Buffett’s annual Letter to Shareholders is always worth reading even if you are not a shareholder in Berkshire Hathaway (BRK.A, BRK.B). The letters provide valuable insight into the major industries that BRK is operating in — insurance, regulated utilities, retail and services — all delivered in Mr. Buffett’s trademark folksy and witty language. Also Mr. Buffett throws his insight into the investment themes of the day. The 2009 letter to shareholders, released over the weekend and available on the Berkshire Hathaway website, did not disappoint. Here are some of the highlights:
- Berkshire Hathaway acquired Burlington Northern Sante Fe (BNSF), a railroad operator, in 2009. As part of the acquisition was paid in BRK stock, Berkshire now has tens of thousands of new shareholders. Mr. Buffett explains why he measures Berkshire’s business results through changes in per-share book value. He also clarifies what new investors can expect him not to do. (Pages 3-5).
- The next few pages cover Berkshire’s business results for 2009. Mr. Buffett thinks the residential housing problems should be largely over within a year or so because housing starts in the US are running at a rate far below household formation.
- Berkshire’s investment holdings are discussed in pages 14-15. It includes this quote: “When it’s raining gold, reach for a bucket, not a thimble”.
- Mr. Buffett calls attention to “an inconvenient truth”: management paying a premium to acquire another company while paying for it with its own undervalued stock. Clearly, he is explaining why the BNSF acquisition was partially paid for in BRK stock, while at the same time, he publicly criticized the price that Kraft paid in acquiring Cadbury (part of which was paid in KFT stock). Pages 16-18.
Warren Buffett’s letters to Berkshire Hathaway shareholders going back to 1977 are available here. You can read Michael James’ take here. It is not often that you read columns that are critical of Buffett but there were two recently: David Olive of The Star says Buffett doesn’t practice what he preaches and Ian McGugan calls out what he says are Mr. Buffett’s “minor sins”.
