14 ms·

Berkshire Hathaway Shareholder Letters 2010 [pdf]

120 points by npalli 16y ago

chrisaycock 16y ago
I love Buffet's response to anyone concerned about America's future: > The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.
- HSO 16y ago
  >> "the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective" as feel-goody as that might sound to patriotic american ears, you also have to take into account that america pretty much had the playing field (much) to itself for a long time. there was competition of different systems and it turns out the market-based system is best. good. now that everybody has learnt that and is busy implementing that system (more or less gradually), there is no obvious reason why america should remain special. turns out human potential is great everywhere, and in the brief period after world war 2, i'd say germany, japan, korea, etc. have done a mighty good job catching up and even surpassing the us in many areas, measured by social as well as industrial metrics. now comes china et al. if i was american, i wouldn't take anything for granted. you guys were lucky to live in the winning system, other than that, there is nothing special about you.
  - gxs 16y ago
    >>Human potential is far from exhausted At no point did Buffett say American Human potential. And yes - the system that worked is the system Americans chose to implement, sure - it's ok to be proud of that. >> there is nothing special about you. Your post comes across as spiteful - almost resentful. I am sorry for whatever hardships you've had to deal with - if that motivates you, great. But the inferiority complex jumps out astonishingly in your writing.
aboyeji 16y ago
Wow. Thanks for posting this. There are some amazing quotes from that: "Money will always flow toward opportunity, and there is an abundance of that in America." "Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective." Is it any wonder I want to move to America ASAP? -Jaded kid languishing in a publicly funded Canadian chill out(University) forced to educate himself because the kids in his crew don't get it.
- dean 16y ago
  Hey, if you want to chill out instead of studying, that's your call. Don't blame it on the country.
  - rhizome 16y ago
    ...or "his crew."
  - SkyMarshal 16y ago
    ...forced to educate himself... He wasn't referring to himself with 'chill out'.
- cheez 16y ago
  Wait, you don't have to pay for university? What is this accounting magic? I had to pay!
vladd 16y ago
Some of this year's jewellery for those that need the motivation to begin reading it: >> Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective. << >> Coca-Cola paid us $88 million in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend. In 2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within ten years, I would expect that $376 million to double. By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful business. << >> The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that’s working out even better than I expected. [We] are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits. Over time, the movement of goods in the United States will increase, and BNSF should get its full share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our checks will clear. << >> The fundamental principle of auto racing is that to finish first, you must first finish. That dictum is equally applicable to business and guides our every action at Berkshire. Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. Companies with large debts often assume that these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job. Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees. [We, at Berkshire] have pledged that we will hold at least $10 billion of cash. We customarily keep at least $20 billion. By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008. <<
juiceandjuice 16y ago
On his frugality and practicality: >> Airlines have often jacked up prices – sometimes dramatically so – for the Berkshire weekend. If you are coming from far away, compare the cost of flying to Kansas City versus Omaha. The drive is about 21 ⁄2 hours and it may be that you can save significant money, particularly if you had planned to rent a car in Omaha
- diego 16y ago
  If someone else said that, he'd probably get panned. If you are a BH shareholder, odds are that the added five hours of driving cost you much more (time, effort, risk) than the difference in ticket prices, especially if you are flying in for a weekend.
  - kalvin 16y ago
    That's definitely not the case. This isn't your usual shareholder meeting. 40,000 shareholders (I'd call many of them "fans", really) showed up last year and many of them have more enthusiasm than wealth. You can get tickets just by holding a mutual fund that owns Berkshire and calling up the fund. (My mom and I among them. "At Berkshire, our time horizon is forever." And he pretty much means it.)
jakarta 16y ago
My favorite quote: "The Flat Earth Society probably views a ship’s circling of the globe as an annoying, but inconsequential, anomaly"
jorgem 16y ago
BOO: This is so NOT what I read HN for.
- chrisaycock 16y ago
  Warren Buffet does the exact same thing PG does: invests in great people. The Berkshire newsletters are very much on-topic for this very reason, especially for the grains of wisdom that have been quoted in the comments here.
  - jorgem 16y ago
    Warren Buffet invests in huge railroads and insurance companies. Not the same as tech startups.
- gatsby 16y ago
  Sorry to hear that. It should be obvious that 100% of the articles/sites/documents posted won't appeal to 100% of the HN community. That said, I encourage you to actually read this letter, or at least skim it. At the end of the day, Warren's letters aren't so much about investing and returns as they are about good customer relations and transparency - two things everyone from startup hackers to billionaire executives should find interesting and refreshing.
  - jorgem 16y ago
    I read it before I posted. It's interesting, but not technical or appropriate. Off I go to delete my HN account. I think that's it for me. EDIT: If I could figure out how to delete my account.
    - getsat 16y ago
      You can't.
- starpilot 16y ago
  Maybe you're not reading it with the right expectations? http://ycombinator.com/newswelcome.html http://ycombinator.com/newswelcome.html > Stories on HN don't have to be about hacking, because good hackers aren't only interested in hacking, but they do have to be deeply interesting. On a sidenote, Buffett's frugality is reminiscent of Zuckerberg's lifestyle.
SkyMarshal 16y ago
Also available from Berkshire's website: http://www.berkshirehathaway.com/letters/letters.html http://www.berkshirehathaway.com/letters/letters.html
patrickgzill 16y ago
He is a creature of fiat and baby boom population expansion. Since Charlie Munger's "suck it up" comment and WB's heavily profiting from TARP, I have developed a jaundiced view of what the real business is that BH engages in... he is less free market than he would have you believe.
CCs 16y ago
"We can afford to lose money - even a lot of money. But we can’t afford to lose reputation - even a shred of reputation."
getpost 16y ago
I appreciate the positive outlook expressed in these letters, and it's helpful to reflect on progress our society has made in so many areas. Coca-Cola's performance is striking. In 2011 you can still make a fortune, as Steve Jobs put it, 'selling sugar water to children.'[1] Does Mr Buffett care about, or even consider, the public health and social costs of the success of Coke and its products?[2] Philip Morris has traditionally had strong financial performance as well. It's safe to say drug dealers can be financially successful. Should we be celebrating that fact? I admire Mr Buffet's modest, down-to-earth style. He seems proud that his investment in BNSF will promote the greater good. I wish he had that goal for all his investments. [1] Jobs was referring to Sculley's work at Pepsi, of course. http://www.pbs.org/nerds/part3.html http://www.pbs.org/nerds/part3.html [2] Lustig, Sugar, The Bitter Truth http://www.youtube.com/watch?v=dBnniua6-oM http://www.youtube.com/watch?v=dBnniua6-oM
- firebones 16y ago
  Your comment got me thinking. Buffett has pledged 99% of his net worth to charity when he's gone, and has enlisted other wealthy entrepreneurs to follow suit by donating at least 50%. Will that allocation of capital produce greater good than would a lesser amount garnered through investments based not on seeking the best ROI but instead based on furthering the greater good? Honest questions, and ones that I don't have the answers to: has his contribution to Coca-Cola and Philip Morris as an investor harmed the greater good more than the $44 billion or so of his net worth that will flow to charities? Could entrepreneurs and capitalists create more good with that $44 billion than the Gates Foundation?
- robryan 16y ago
  I don't think the tech companies get off free here though, Apple have reportedly turned a blind eye in the past to conditions in factories producing their products. Coca-Cola does sell a lot more than their flagship drink though, when it comes to ethics of what you can legally invest in they could do a lot worse.
- xiaoma 16y ago
  Coca Cola's performance is about the brand and the distribution, not the product. They also own and successfully operate much healthier product lines. At this time, they aren't what the market wants for the most part. Most place a higher value on the extremely low cost and good taste of sugary fizzy water. When that changes, whether for cultural, regulatory or other reasons, the Coca-Cola company will still be in an excellent position and possibly make even more money from its healthier products. Also, as a private consumer, I don't really appreciate attempts to protect me from myself.
netcan 16y ago
A good little snippet: Charlie and I hope that the per-share earnings of our non-insurance businesses continue to increase at a decent rate. But the job gets tougher as the numbers get larger. We will need both good performance from our current businesses and more major acquisitions. We’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy
bufordtwain 16y ago
A couple more gems copied from Buffett's Memo to Berkshire Hathaway Managers at the end of the letter: "If you see anything whose propriety or legality causes you to hesitate, be sure to give me a call.However, it’s very likely that if a given course of action evokes such hesitation, it’s too close to the line and should be abandoned. There’s plenty of money to be made in the center of the court. If it’s questionable whether some action is close to the line, just assume it is outside and forget it. As a corollary, let me know promptly if there’s any significant bad news. I can handle bad news but I don’t like to deal with it after it has festered for awhile. A reluctance to face up immediately to bad news is what turned a problem at Salomon from one that could have easily been disposed of into one that almost caused the demise of a firm with 8,000 employees."

120 points by npalli 16y ago

I love Buffet's response to anyone concerned about America's future: > The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

HSO 16y ago
>> "the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective" as feel-goody as that might sound to patriotic american ears, you also have to take into account that america pretty much had the playing field (much) to itself for a long time. there was competition of different systems and it turns out the market-based system is best. good. now that everybody has learnt that and is busy implementing that system (more or less gradually), there is no obvious reason why america should remain special. turns out human potential is great everywhere, and in the brief period after world war 2, i'd say germany, japan, korea, etc. have done a mighty good job catching up and even surpassing the us in many areas, measured by social as well as industrial metrics. now comes china et al. if i was american, i wouldn't take anything for granted. you guys were lucky to live in the winning system, other than that, there is nothing special about you.
- gxs 16y ago
  >>Human potential is far from exhausted At no point did Buffett say American Human potential. And yes - the system that worked is the system Americans chose to implement, sure - it's ok to be proud of that. >> there is nothing special about you. Your post comes across as spiteful - almost resentful. I am sorry for whatever hardships you've had to deal with - if that motivates you, great. But the inferiority complex jumps out astonishingly in your writing.

aboyeji 16y ago

Wow. Thanks for posting this. There are some amazing quotes from that: "Money will always flow toward opportunity, and there is an abundance of that in America." "Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective." Is it any wonder I want to move to America ASAP? -Jaded kid languishing in a publicly funded Canadian chill out(University) forced to educate himself because the kids in his crew don't get it.

dean 16y ago
Hey, if you want to chill out instead of studying, that's your call. Don't blame it on the country.
- rhizome 16y ago
  ...or "his crew."
- SkyMarshal 16y ago
  ...forced to educate himself... He wasn't referring to himself with 'chill out'.
cheez 16y ago
Wait, you don't have to pay for university? What is this accounting magic? I had to pay!

vladd 16y ago

Some of this year's jewellery for those that need the motivation to begin reading it: >> Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective. << >> Coca-Cola paid us $88 million in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend. In 2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within ten years, I would expect that $376 million to double. By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful business. << >> The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that’s working out even better than I expected. [We] are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits. Over time, the movement of goods in the United States will increase, and BNSF should get its full share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our checks will clear. << >> The fundamental principle of auto racing is that to finish first, you must first finish. That dictum is equally applicable to business and guides our every action at Berkshire. Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. Companies with large debts often assume that these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job. Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees. [We, at Berkshire] have pledged that we will hold at least $10 billion of cash. We customarily keep at least $20 billion. By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008. <<

juiceandjuice 16y ago

On his frugality and practicality: >> Airlines have often jacked up prices – sometimes dramatically so – for the Berkshire weekend. If you are coming from far away, compare the cost of flying to Kansas City versus Omaha. The drive is about 21 ⁄2 hours and it may be that you can save significant money, particularly if you had planned to rent a car in Omaha

diego 16y ago
If someone else said that, he'd probably get panned. If you are a BH shareholder, odds are that the added five hours of driving cost you much more (time, effort, risk) than the difference in ticket prices, especially if you are flying in for a weekend.
- kalvin 16y ago
  That's definitely not the case. This isn't your usual shareholder meeting. 40,000 shareholders (I'd call many of them "fans", really) showed up last year and many of them have more enthusiasm than wealth. You can get tickets just by holding a mutual fund that owns Berkshire and calling up the fund. (My mom and I among them. "At Berkshire, our time horizon is forever." And he pretty much means it.)

jakarta 16y ago

My favorite quote: "The Flat Earth Society probably views a ship’s circling of the globe as an annoying, but inconsequential, anomaly"

jorgem 16y ago

BOO: This is so NOT what I read HN for.

chrisaycock 16y ago
Warren Buffet does the exact same thing PG does: invests in great people. The Berkshire newsletters are very much on-topic for this very reason, especially for the grains of wisdom that have been quoted in the comments here.
- jorgem 16y ago
  Warren Buffet invests in huge railroads and insurance companies. Not the same as tech startups.
gatsby 16y ago
Sorry to hear that. It should be obvious that 100% of the articles/sites/documents posted won't appeal to 100% of the HN community. That said, I encourage you to actually read this letter, or at least skim it. At the end of the day, Warren's letters aren't so much about investing and returns as they are about good customer relations and transparency - two things everyone from startup hackers to billionaire executives should find interesting and refreshing.
- jorgem 16y ago
  I read it before I posted. It's interesting, but not technical or appropriate. Off I go to delete my HN account. I think that's it for me. EDIT: If I could figure out how to delete my account.
  - getsat 16y ago
    You can't.
starpilot 16y ago
Maybe you're not reading it with the right expectations? http://ycombinator.com/newswelcome.html http://ycombinator.com/newswelcome.html > Stories on HN don't have to be about hacking, because good hackers aren't only interested in hacking, but they do have to be deeply interesting. On a sidenote, Buffett's frugality is reminiscent of Zuckerberg's lifestyle.

SkyMarshal 16y ago

Also available from Berkshire's website: http://www.berkshirehathaway.com/letters/letters.html http://www.berkshirehathaway.com/letters/letters.html

patrickgzill 16y ago

He is a creature of fiat and baby boom population expansion. Since Charlie Munger's "suck it up" comment and WB's heavily profiting from TARP, I have developed a jaundiced view of what the real business is that BH engages in... he is less free market than he would have you believe.

CCs 16y ago

"We can afford to lose money - even a lot of money. But we can’t afford to lose reputation - even a shred of reputation."

getpost 16y ago

I appreciate the positive outlook expressed in these letters, and it's helpful to reflect on progress our society has made in so many areas. Coca-Cola's performance is striking. In 2011 you can still make a fortune, as Steve Jobs put it, 'selling sugar water to children.'[1] Does Mr Buffett care about, or even consider, the public health and social costs of the success of Coke and its products?[2] Philip Morris has traditionally had strong financial performance as well. It's safe to say drug dealers can be financially successful. Should we be celebrating that fact? I admire Mr Buffet's modest, down-to-earth style. He seems proud that his investment in BNSF will promote the greater good. I wish he had that goal for all his investments. [1] Jobs was referring to Sculley's work at Pepsi, of course. http://www.pbs.org/nerds/part3.html http://www.pbs.org/nerds/part3.html [2] Lustig, Sugar, The Bitter Truth http://www.youtube.com/watch?v=dBnniua6-oM http://www.youtube.com/watch?v=dBnniua6-oM

firebones 16y ago
Your comment got me thinking. Buffett has pledged 99% of his net worth to charity when he's gone, and has enlisted other wealthy entrepreneurs to follow suit by donating at least 50%. Will that allocation of capital produce greater good than would a lesser amount garnered through investments based not on seeking the best ROI but instead based on furthering the greater good? Honest questions, and ones that I don't have the answers to: has his contribution to Coca-Cola and Philip Morris as an investor harmed the greater good more than the $44 billion or so of his net worth that will flow to charities? Could entrepreneurs and capitalists create more good with that $44 billion than the Gates Foundation?
robryan 16y ago
I don't think the tech companies get off free here though, Apple have reportedly turned a blind eye in the past to conditions in factories producing their products. Coca-Cola does sell a lot more than their flagship drink though, when it comes to ethics of what you can legally invest in they could do a lot worse.
xiaoma 16y ago
Coca Cola's performance is about the brand and the distribution, not the product. They also own and successfully operate much healthier product lines. At this time, they aren't what the market wants for the most part. Most place a higher value on the extremely low cost and good taste of sugary fizzy water. When that changes, whether for cultural, regulatory or other reasons, the Coca-Cola company will still be in an excellent position and possibly make even more money from its healthier products. Also, as a private consumer, I don't really appreciate attempts to protect me from myself.

netcan 16y ago

A good little snippet: Charlie and I hope that the per-share earnings of our non-insurance businesses continue to increase at a decent rate. But the job gets tougher as the numbers get larger. We will need both good performance from our current businesses and more major acquisitions. We’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy

bufordtwain 16y ago

A couple more gems copied from Buffett's Memo to Berkshire Hathaway Managers at the end of the letter: "If you see anything whose propriety or legality causes you to hesitate, be sure to give me a call.However, it’s very likely that if a given course of action evokes such hesitation, it’s too close to the line and should be abandoned. There’s plenty of money to be made in the center of the court. If it’s questionable whether some action is close to the line, just assume it is outside and forget it. As a corollary, let me know promptly if there’s any significant bad news. I can handle bad news but I don’t like to deal with it after it has festered for awhile. A reluctance to face up immediately to bad news is what turned a problem at Salomon from one that could have easily been disposed of into one that almost caused the demise of a firm with 8,000 employees."