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Berkshire Hathaway 2014 Annual Report [pdf]

138 points by dluan 12y ago

dluan 12y ago
Gets good at page 26, the chairman discusses how Berkshire Hathaway got started, though really the whole thing is fascinating. I wonder at what point YC will begin to compete with Berkshire Hathaway.
- tptacek 12y ago
  I don't see how they're on comparable trajectories. Berkshire wins by using a formula that relies on them owning whole businesses with sustainable, predictable returns, ensuring that they're extremely well managed, and backstopping them with a gigantic pile of cash that they can use to roll up other smaller bolt-on companies with. YC works almost exclusively with unproven, highly speculative new firms, with unproven management teams (many of whom will, after joining YC, hire their first employee ever), owns so little equity in each firm that they don't even get a board vote, and by design avoids further capitalizing companies they bet on. That doesn't make YC bad; the model seems to work extremely well. It just seems like a very different model. edit: HN->YC. Embarrassing.
  - dluan 12y ago
    Of course, I don't think it's a direct analogy. But it seems that partly what makes YC successful is also what makes BH successful. BH also has an extra 50 years on YC, so of course the models don't match up. And I'm not Sam, so I can't speak to whether not YC's ownership or investment models will change over the next 50 years (and yes, I think there's a good chance YC will be around in 50 years). YC is focused on testing and validating its thesis across other industries, but the thesis started in one area. Very much the same with BH. In other words, if BH's only value is that they can successfully help grow a candy company, an insurance company, and a train shipping company, and YC is able to help grow a fusion company, a hotel industry company, and a home cleaning company, then they are both doing something right. It seems they are both heavily driven by focused principles. Another great point is that YC and BH don't have traditional competition. See pg 31 starting "Berkshire has one further advantage that has become increasingly important over the years: We are now the home of choice for the owners and managers of many outstanding businesses."
    - tptacek 12y ago
      I guess I just don't see how YC's trajectory takes them to the place where BH is. An investment fund for startups seems sort of like the opposite of a conglomerate of predictably-returning big companies.
    - maxlybbert 12y ago
      > Of course, I don't think it's a direct analogy. But it seems that partly what makes YC successful is also what makes BH successful. In what way? Yes, they both invest in companies, and the investments represent people trying to figure out how to make money and beat their competitors. But there are a lot of differences in the details (Buffet has a source of stable income that people trust him to reinvest; Y Combinator makes money sporadically when other investors decide to buy their companies). They're about as similar -- to me -- as football and bowling. Sure, both sports have balls, but there are a few relevant differences.
      - dluan 12y ago
        It takes good hand-eye coordination to throw a touchdown and bowl a strike.
      - maxlybbert 12y ago
        I feel like I should add http://www.econ.yale.edu/~af227/pdf/Buffett%27s%20Alpha%20-%20Frazzini,%20Kabiller%20and%20Pedersen.pdf http://www.econ.yale.edu/~af227/pdf/Buffett%27s%20Alpha%20-%... (alpha is supposed to measure how much better a manager does compared to the market, http://en.wikipedia.org/wiki/Alpha_%28investment%29 http://en.wikipedia.org/wiki/Alpha_%28investment%29 ). Compared to ordinary investors, Buffet's alpha is consistently high. He looks like a genius. But if you change the definition of alpha based on his strategy, his alpha ends up being much lower. Personally, I don't think that diminished Buffet in any way: he came up with the strategy, after all; but it does show that his investments work because he's doing something different than the competition. And, again, Y Combinator is also doing something different than the competition (or at least, different from what the competition was doing when YC launched), but it's also doing something wildly different from Berkshire Hathaway. BH invests in a small number of mature companies, YC invests in many small and risky companies. I would be interested to see what kind of personalized alpha YC manages to get (and, even, what kind of generic alpha they have). I don't know if they publish their investment numbers, so I don't know if it would be possible to calculate.
  - huu 12y ago
    I think you mean YC, not HN.
  - nostrademons 12y ago
    YC's investment thesis is that there will be many more startups in the future than there are now; at some point in a generation or so, the economy may be all startups, and every company we know of today with "sustainable, predictable returns" will have been eaten by a disrupter. IMHO, there is reason to believe this is plausible. Injecting my own interpretations - the proportion of startups to established businesses in an economy is dependent upon a.) the pace of change and b.) the degree of interconnectedness in the economy [because when firms are tightly connected, there is a high chance that future technological developments will invalidate fundamental assumptions that existing firms' existence is based upon, while when firms are generally siloed and vertically integrated, they are unlikely to be affected by the entry of new firms into the market]. Both of these variables are increasing rapidly today. That's going to put increasing evolutionary pressure on existing old-line industries, such that we may see a mass-extinction event in the near future where a number of prominent industries all go down en-masse. What Berkshire and YC have in common is a full appreciation for the effect of compound interest and a willingness to employ that capital by putting their fingers in an increasing number of pies.
- shawnhermans 12y ago
  As others have pointed out, I don’t think Berkshire Hathaway and YC really compete in the same markets. Warren Buffett and Charlie Munger have some great words of wisdom on their approach to investing, but I am reminded of two of quotes in particular: “Our favorite holding period is forever” and “Never invest in a business you can’t understand”. Berkshire looks for long term returns by making safe, reliable investments. This is the exact opposite of YC and other startup incubators. Their approach is to invest in newer companies with great potential, but also great risk of failure. The business models of these companies are not always clear. From a personal level (I live in Omaha), I find it interesting to contrast Berkshire Hathaway and YC from a cultural perspective. YC is located in Silicon Valley, while Berkshire has its headquarters in Omaha, Nebraska. When asked about why he stays in Omaha, Buffett said "It's very easy to think clearly here. You're undisturbed by irrelevant factors and the noise generally of business investments." Silicon Valley’s culture is the opposite of Omaha in many respects. Companies are concerned about chasing the latest and greatest trends even if many founders don’t complete understand those trends. Startups aren’t thinking about the next 10 or 20 years, they are more concerned about their next round of funding. The success of Berkshire Hathaway demonstrates a valuable point: Silicon Valley isn’t the center of the world. Plenty of successful companies thrive in backwoods locations like Omaha. This isn’t meant to say Omaha’s culture is superior to Silicon Valley’s, they are just different. Diversity is a good thing.
- karmacondon 12y ago
  Not to pile on with the other replies, but I just wanted to point out yet another difference in the investment models. The BH approach, as I understand it, can be summarized as "Find a good thing and get a lot of it". They find what they consider to be sure things and make really big bets. YC is just about the opposite. "Find extremely risky things that have huge upside, and invest a very small amount". Both models are great and have proven to be quite profitable. Though to me, YC seems to be much more altruistic. At least currently, they appear to be much more interested in helping people to start successful companies than they are making themselves rich(er). I don't know exactly what pg's motivations for starting yc were, but it looks like it was something along the lines of "Starting a company was a risky decision when I did it , and I want to help others to have an easier time than I did" as opposed to "Gimme gimme gimme money". As a result YCombinator and Berkshire Hathaway probably won't be in direct competition for quite some time, as they are optimizing for different results.
  - kasey_junk 12y ago
    What about the BH model makes you think they aren't interested in helping people? They pretty routinely buy companies that have very little other alternatives and make them MUCH more successful. If anything their model seems less exploitative to me...
  - joe_bleau 12y ago
    Altruistic? I can take ~$147 and purchase a share of BRKB, putting BH to work for me and sharing in the company's profit. How can I get a piece of that sweet YC action?
  - dripton 12y ago
    A $200B company needs to make big bets to move the needle. The limiting resource at Berkshire is Warren Buffett's time. For most people, spending a few hours on a million-dollar deal is the move of a lifetime. For Buffett, it's a few wasted hours.
tptacek 12y ago
Interesting: Shortly after we purchased Gen Re, it was beset by problems that caused some commentators --- and me as well, briefly --- to believe I'd made a huge mistake. That day is now long gone. General Re is now a gem. And, regarding Clayton Homes (their mobile-home manufacturer which also offers mortages both to Clayton homeowners and owners of other manufactured homes): Many of our buyers how low incomes and mediocre FICO scores.. our blue-collar borrowers have often proved to be much better credit risks than their higher-income brethren. This is interesting as it is apparently true, by the numbers, and also a slap at investment bankers. I also love that the person who manages the annual shareholder meetings, "Woodstock for Capitalists", is a 30 year old that was hired 6 years ago. Also, does anyone have color on went wrong with Tesco? Buffett writes that he lost faith in the management team, which seems like an unusually direct condemnation given all the other way he had to explain their exit from that position.
- SandB0x 12y ago
  Tesco had a major accounting scandal: http://www.theguardian.com/business/2014/oct/29/serious-fraud-office-investigate-tesco http://www.theguardian.com/business/2014/oct/29/serious-frau...
  - tptacek 12y ago
    Is that it? Gen Re did too, didn't they?
    - mathattack 12y ago
      Yes, and a nasty derivatives position [0] if memory serves. Buffett also had to get involved after Solomon Brothers [1] had some regulatory improprieties. [0] http://www.forbes.com/2003/05/09/cx_aw_0509derivatives.html http://www.forbes.com/2003/05/09/cx_aw_0509derivatives.html [1] http://dealbook.nytimes.com/2008/09/24/warren-buffett-and-the-salomon-saga/?_r=0 http://dealbook.nytimes.com/2008/09/24/warren-buffett-and-th...
    - Osmium 12y ago
      It's difficult to convey how big a deal Tesco's issues have been in the UK–it's had very extensive media coverage, a parliamentary inquiry looks likely, and there are investigations ongoing by the Serious Fraud Office and several regulatory bodies. This has created a distinct lack of goodwill in the general public. Regardless of the accounting issues, they've had other issues too. There's the perception they're losing their customer base: they're ceding the low end of the market to certain supermarkets (Aldi, Lidl, Asda) and the higher end to others (Waitrose, Sainsbury's, M&S), leaving nothing in the middle. So that's a problem for them, and one they'd need effective management to handle. All of this is potentially salvageable, but it is very uncertain, so I'm not surprised people might not want to invest.
kbenson 12y ago
Need a definition for ambition? With the acquisition of Van Tuyl, Berkshire now owns 9 1⁄2 companies that would be listed on the Fortune 500 were they independent (Heinz is the 1⁄2). That leaves 490 1⁄2 fish in the sea. Our lines are out. There you go.
- maxerickson 12y ago
  That's more learned charm than it is ambition.
- aristus 12y ago
  It has all of the trappings of a successful slogan: definitional, pithy, & ambitious-sounding enough to make everyone ignore the bad math. Berkshire itself is on that list, so surely there are only 489.5 to go. :)
  - mikeash 12y ago
    A company that contains all companies that do not contain themselves?
than 12y ago
A measly 1,826,163% since 1964. SELL.
- AustinG08 12y ago
  Lol, shoulda locked those profits when you could!
- maxlybbert 12y ago
  If I'm doing the math right, that's only about 16% annualized ( http://en.wikipedia.org/wiki/Rate_of_return#Geometric_average_rate_of_return http://en.wikipedia.org/wiki/Rate_of_return#Geometric_averag... ). Which, for the record, is much better than I've ever done. But Buffet is being a little sneaky there: it's really a good example of compound interest over long time periods.
  - bobbles 12y ago
    Sneaky? The first thing in the report is returns broken down by year
  - ewanmcteagle 12y ago
    It's not sneaky. This is the way returns are calculated in the industry. 1.09 * 1.09 * 1.09 would be 3 years of 9% returns compounded. In the same way if the total return over 3 years is 50% you take the cube root of 1.5 to figure out what return each year would give you the same. In this 50% over 3 years example it would be around 14.5% a year.
    - maxlybbert 12y ago
      I've certainly seen journalists give out such a simplistic number, usually phrased as "$1 invested when the company went public would be worth $XXX today." And when the numbers are presented in a chart, it shows basically the same thing (often labeled the "growth of $1" or "growth of $100"). But when the numbers show up in a table, they are annualized. That allows you to compare the different cells in the table ( http://blog.greaterthanzero.com/post/57991351347/measuring-investment-performance http://blog.greaterthanzero.com/post/57991351347/measuring-i... ).
pdevr 12y ago
I used to read Berkshire's annual reports - good to see HN discussing them. If you liked the annual report, take a look at the "Owner's Manual" as well - it is worth a read: http://berkshirehathaway.com/ownman.pdf http://berkshirehathaway.com/ownman.pdf
deleted 12y ago
[deleted]
ankurpatel 12y ago
Their site reminds me of the nineties http://www.berkshirehathaway.com/ http://www.berkshirehathaway.com/ What is with the Geico ad at the bottom?
- tea-flow 12y ago
  Their site is great, does exactly what it needs to do. Geico is a wholly owned subsidiary of BH
  - ankurpatel 12y ago
    They probably have other companies too. Why just Geico and why not list other companies. It seems bit out of place and gives an impression that Geico is doing bad enough that they need to be advertised.
    - graeme 12y ago
      I can think of two good reasons: 1. A Geico sale is worth a lot more than a fruit of the loom sale. 2. Geico is something that almost anyone visiting the site might use. Most Berkeshire Hatheway visitors own cars and need insurance. One of the main links is a message from Buffet recommending Geico and Borsheims Jewelry. Jewelry fits the same bill: expensive, and widely purchased. http://www.berkshirehathaway.com/message.html http://www.berkshirehathaway.com/message.html
      - titanomachy 12y ago
        Notably, Borsheim's also operates the type of business where you could conceivably pick up the phone and order immediately upon reading Buffett's recommendation.
    - tptacek 12y ago
      (a) No reasonable investor believes GEICO is doing badly. (b) GEICO is unique among BH companies in that consumers can purchase its offering immediately upon reading about it. The nearest Dairy Queen is a 30 minute drive away from me, for instance. Look at the list of BH subsidiaries and try to imagine what they'd sell on a 24/7 1-800 number.
xmpir 12y ago
1,826,163% growth in stock price is quite a performance...
3am 12y ago
I thought it was notable that Buffet referred people to Airbnb for lodgings in the Omaha area for the shareholder meeting. Not a guy particularly noted for being on top of trends (note: I am a huge WEB fan in numerous ways, though). edit: see page 22
- drited 12y ago
  Haha yes his love of a good bargain overcame his self-professed technophobia in that case! I'd guess he's just being modest with his frequent professions of technophobia though. I'd guess he knows a lot about technology businesses, but just figures that it's impossible to see their futures clearly enough for them to meet his standards. He did forewarn disappointment with the 1999 tech boom, so he can at least spot extreme misvaluation in trendy businesses: http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm http://archive.fortune.com/magazines/fortune/fortune_archive... (if anyone wants to ctrl+f to the start of the relevant section, it begins with 'I thought it would be instructive')
Animats 12y ago
Classic Warren Buffett: The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries, for example – whose values have been tied to American currency. That was also true in the preceding half-century, a period including the Great Depression and two world wars. Investors should heed this history. To one degree or another it is almost certain to be repeated during the next century. Buffett buys boring, but practical businesses. Also, because Berkshire Hathaway owns insurance companies, their "float" can be invested. It has to be invested in low-risk investments, which is just fine with Buffett. Berkshire Hathaway has such a delightfully boring portfolio.
- tptacek 12y ago
  Is "boring" the right word? BH owns a huge chunk of DIRECTV, the whole BNSF railroad (can you imagine how complex that business is to run?), and NetJets. I think there's a difference between "businesses Warren and Charlie feel like they can get their heads around" and "boring businesses". Also: I don't understand why they bought DIRECTV.
  - crimsonalucard 12y ago
    I don't think Warren purchased DTV. It's likely purchased by one of his prodigies.
    - pg314 12y ago
      DIRECTV was indeed a purchase by Ted Weschler and Todd Combs, as Buffett wrote in the 2012 Annual Report (p. 15). They operate pretty much autonomously.
  - hawkice 12y ago
    After I recently went through an in-depth review of the unit economics of connecting physical lines to houses in rural Washington (which it turns out is prohibitively expensive to do), I actually have started to appreciate the value of a brand known for giving service to people (without loss of generality) Comcast won't bother with. Quite a lot of America is rural, and quite a few people's joy is less than full with the customer service of their competitors.
lpolovets 12y ago
Here's a good post that highlights some of the takeaways from the annual report: http://25iq.com/2015/02/28/a-dozen-things-taught-by-warren-buffett-in-his-50th-anniversary-letter-that-will-benefit-ordinary-investors/ http://25iq.com/2015/02/28/a-dozen-things-taught-by-warren-b...
drited 12y ago
I thought it was interesting that Berkshire intentionally hasn't harmonized its systems across subsidiaries. It reminded me of one of Taleb's ideas on robustness from his book Antifragile, where he argues that a system of individually managed municipalities would be more robust than an economy with a single central government because system failure would tend to only affect isolated parts of the overall population at any single point in time.
- tptacek 12y ago
  That goes hand-in-hand with how simple Berkshire's home-office system is, right? It seems like, by design, BH itself does as little as possible. It runs out of a small office suite with something like 30 people. That system can't be harmonized across companies like Geico and Gen Re, even before you realize that those companies run alongside a furniture store and a jeweler.
takahisah 12y ago
Of the 15 largest stock investments, IBM is the only one that has lost value (page 15). Simultaneously, it looks like the largest cost based investment (next to BAC, which is unlisted in the table). Yet, he does not seem to address that position in any of his writing. I wonder what he thinks of the company.
- crimsonalucard 12y ago
  He thinks it's good. http://www.gurufocus.com/StockBuy.php?GuruName=Warren+Buffett http://www.gurufocus.com/StockBuy.php?GuruName=Warren+Buffet... You can see he's added more to his position as of Dec 31st. the big IBM drop happened in October.
- pg314 12y ago
  On page 7 in the 2011 annual report, Buffett wrote that, as a long-term shareholder, he wished for the IBM stock to languish throughout the following 5 years. The reason was that IBM was planning large share repurchases, and the lower the stock price the higher the percentage of shares retired, and the larger Berkshire's stake would be in the long run.
rglover 12y ago
Over the last 50 years (that is, since present management took over), per-share book value has grown from $19 to $146,186, a rate of 19.4% compounded annually. Insanity.
Nicholas_C 12y ago
>BNSF is, by far, Berkshire’s most important non-insurance subsidiary and, to improve its performance, we will spend $6 billion on plant and equipment in 2015. That's an incredible amount of capex.

138 points by dluan 12y ago

dluan 12y ago

Gets good at page 26, the chairman discusses how Berkshire Hathaway got started, though really the whole thing is fascinating. I wonder at what point YC will begin to compete with Berkshire Hathaway.

tptacek 12y ago
I don't see how they're on comparable trajectories. Berkshire wins by using a formula that relies on them owning whole businesses with sustainable, predictable returns, ensuring that they're extremely well managed, and backstopping them with a gigantic pile of cash that they can use to roll up other smaller bolt-on companies with. YC works almost exclusively with unproven, highly speculative new firms, with unproven management teams (many of whom will, after joining YC, hire their first employee ever), owns so little equity in each firm that they don't even get a board vote, and by design avoids further capitalizing companies they bet on. That doesn't make YC bad; the model seems to work extremely well. It just seems like a very different model. edit: HN->YC. Embarrassing.
- dluan 12y ago
  Of course, I don't think it's a direct analogy. But it seems that partly what makes YC successful is also what makes BH successful. BH also has an extra 50 years on YC, so of course the models don't match up. And I'm not Sam, so I can't speak to whether not YC's ownership or investment models will change over the next 50 years (and yes, I think there's a good chance YC will be around in 50 years). YC is focused on testing and validating its thesis across other industries, but the thesis started in one area. Very much the same with BH. In other words, if BH's only value is that they can successfully help grow a candy company, an insurance company, and a train shipping company, and YC is able to help grow a fusion company, a hotel industry company, and a home cleaning company, then they are both doing something right. It seems they are both heavily driven by focused principles. Another great point is that YC and BH don't have traditional competition. See pg 31 starting "Berkshire has one further advantage that has become increasingly important over the years: We are now the home of choice for the owners and managers of many outstanding businesses."
  - tptacek 12y ago
    I guess I just don't see how YC's trajectory takes them to the place where BH is. An investment fund for startups seems sort of like the opposite of a conglomerate of predictably-returning big companies.
  - maxlybbert 12y ago
    > Of course, I don't think it's a direct analogy. But it seems that partly what makes YC successful is also what makes BH successful. In what way? Yes, they both invest in companies, and the investments represent people trying to figure out how to make money and beat their competitors. But there are a lot of differences in the details (Buffet has a source of stable income that people trust him to reinvest; Y Combinator makes money sporadically when other investors decide to buy their companies). They're about as similar -- to me -- as football and bowling. Sure, both sports have balls, but there are a few relevant differences.
    - dluan 12y ago
      It takes good hand-eye coordination to throw a touchdown and bowl a strike.
    - maxlybbert 12y ago
      I feel like I should add http://www.econ.yale.edu/~af227/pdf/Buffett%27s%20Alpha%20-%20Frazzini,%20Kabiller%20and%20Pedersen.pdf http://www.econ.yale.edu/~af227/pdf/Buffett%27s%20Alpha%20-%... (alpha is supposed to measure how much better a manager does compared to the market, http://en.wikipedia.org/wiki/Alpha_%28investment%29 http://en.wikipedia.org/wiki/Alpha_%28investment%29 ). Compared to ordinary investors, Buffet's alpha is consistently high. He looks like a genius. But if you change the definition of alpha based on his strategy, his alpha ends up being much lower. Personally, I don't think that diminished Buffet in any way: he came up with the strategy, after all; but it does show that his investments work because he's doing something different than the competition. And, again, Y Combinator is also doing something different than the competition (or at least, different from what the competition was doing when YC launched), but it's also doing something wildly different from Berkshire Hathaway. BH invests in a small number of mature companies, YC invests in many small and risky companies. I would be interested to see what kind of personalized alpha YC manages to get (and, even, what kind of generic alpha they have). I don't know if they publish their investment numbers, so I don't know if it would be possible to calculate.
- huu 12y ago
  I think you mean YC, not HN.
- nostrademons 12y ago
  YC's investment thesis is that there will be many more startups in the future than there are now; at some point in a generation or so, the economy may be all startups, and every company we know of today with "sustainable, predictable returns" will have been eaten by a disrupter. IMHO, there is reason to believe this is plausible. Injecting my own interpretations - the proportion of startups to established businesses in an economy is dependent upon a.) the pace of change and b.) the degree of interconnectedness in the economy [because when firms are tightly connected, there is a high chance that future technological developments will invalidate fundamental assumptions that existing firms' existence is based upon, while when firms are generally siloed and vertically integrated, they are unlikely to be affected by the entry of new firms into the market]. Both of these variables are increasing rapidly today. That's going to put increasing evolutionary pressure on existing old-line industries, such that we may see a mass-extinction event in the near future where a number of prominent industries all go down en-masse. What Berkshire and YC have in common is a full appreciation for the effect of compound interest and a willingness to employ that capital by putting their fingers in an increasing number of pies.
shawnhermans 12y ago
As others have pointed out, I don’t think Berkshire Hathaway and YC really compete in the same markets. Warren Buffett and Charlie Munger have some great words of wisdom on their approach to investing, but I am reminded of two of quotes in particular: “Our favorite holding period is forever” and “Never invest in a business you can’t understand”. Berkshire looks for long term returns by making safe, reliable investments. This is the exact opposite of YC and other startup incubators. Their approach is to invest in newer companies with great potential, but also great risk of failure. The business models of these companies are not always clear. From a personal level (I live in Omaha), I find it interesting to contrast Berkshire Hathaway and YC from a cultural perspective. YC is located in Silicon Valley, while Berkshire has its headquarters in Omaha, Nebraska. When asked about why he stays in Omaha, Buffett said "It's very easy to think clearly here. You're undisturbed by irrelevant factors and the noise generally of business investments." Silicon Valley’s culture is the opposite of Omaha in many respects. Companies are concerned about chasing the latest and greatest trends even if many founders don’t complete understand those trends. Startups aren’t thinking about the next 10 or 20 years, they are more concerned about their next round of funding. The success of Berkshire Hathaway demonstrates a valuable point: Silicon Valley isn’t the center of the world. Plenty of successful companies thrive in backwoods locations like Omaha. This isn’t meant to say Omaha’s culture is superior to Silicon Valley’s, they are just different. Diversity is a good thing.
karmacondon 12y ago
Not to pile on with the other replies, but I just wanted to point out yet another difference in the investment models. The BH approach, as I understand it, can be summarized as "Find a good thing and get a lot of it". They find what they consider to be sure things and make really big bets. YC is just about the opposite. "Find extremely risky things that have huge upside, and invest a very small amount". Both models are great and have proven to be quite profitable. Though to me, YC seems to be much more altruistic. At least currently, they appear to be much more interested in helping people to start successful companies than they are making themselves rich(er). I don't know exactly what pg's motivations for starting yc were, but it looks like it was something along the lines of "Starting a company was a risky decision when I did it , and I want to help others to have an easier time than I did" as opposed to "Gimme gimme gimme money". As a result YCombinator and Berkshire Hathaway probably won't be in direct competition for quite some time, as they are optimizing for different results.
- kasey_junk 12y ago
  What about the BH model makes you think they aren't interested in helping people? They pretty routinely buy companies that have very little other alternatives and make them MUCH more successful. If anything their model seems less exploitative to me...
- joe_bleau 12y ago
  Altruistic? I can take ~$147 and purchase a share of BRKB, putting BH to work for me and sharing in the company's profit. How can I get a piece of that sweet YC action?
- dripton 12y ago
  A $200B company needs to make big bets to move the needle. The limiting resource at Berkshire is Warren Buffett's time. For most people, spending a few hours on a million-dollar deal is the move of a lifetime. For Buffett, it's a few wasted hours.

tptacek 12y ago

Interesting: Shortly after we purchased Gen Re, it was beset by problems that caused some commentators --- and me as well, briefly --- to believe I'd made a huge mistake. That day is now long gone. General Re is now a gem. And, regarding Clayton Homes (their mobile-home manufacturer which also offers mortages both to Clayton homeowners and owners of other manufactured homes): Many of our buyers how low incomes and mediocre FICO scores.. our blue-collar borrowers have often proved to be much better credit risks than their higher-income brethren. This is interesting as it is apparently true, by the numbers, and also a slap at investment bankers. I also love that the person who manages the annual shareholder meetings, "Woodstock for Capitalists", is a 30 year old that was hired 6 years ago. Also, does anyone have color on went wrong with Tesco? Buffett writes that he lost faith in the management team, which seems like an unusually direct condemnation given all the other way he had to explain their exit from that position.

SandB0x 12y ago
Tesco had a major accounting scandal: http://www.theguardian.com/business/2014/oct/29/serious-fraud-office-investigate-tesco http://www.theguardian.com/business/2014/oct/29/serious-frau...
- tptacek 12y ago
  Is that it? Gen Re did too, didn't they?
  - mathattack 12y ago
    Yes, and a nasty derivatives position [0] if memory serves. Buffett also had to get involved after Solomon Brothers [1] had some regulatory improprieties. [0] http://www.forbes.com/2003/05/09/cx_aw_0509derivatives.html http://www.forbes.com/2003/05/09/cx_aw_0509derivatives.html [1] http://dealbook.nytimes.com/2008/09/24/warren-buffett-and-the-salomon-saga/?_r=0 http://dealbook.nytimes.com/2008/09/24/warren-buffett-and-th...
  - Osmium 12y ago
    It's difficult to convey how big a deal Tesco's issues have been in the UK–it's had very extensive media coverage, a parliamentary inquiry looks likely, and there are investigations ongoing by the Serious Fraud Office and several regulatory bodies. This has created a distinct lack of goodwill in the general public. Regardless of the accounting issues, they've had other issues too. There's the perception they're losing their customer base: they're ceding the low end of the market to certain supermarkets (Aldi, Lidl, Asda) and the higher end to others (Waitrose, Sainsbury's, M&S), leaving nothing in the middle. So that's a problem for them, and one they'd need effective management to handle. All of this is potentially salvageable, but it is very uncertain, so I'm not surprised people might not want to invest.

kbenson 12y ago

Need a definition for ambition? With the acquisition of Van Tuyl, Berkshire now owns 9 1⁄2 companies that would be listed on the Fortune 500 were they independent (Heinz is the 1⁄2). That leaves 490 1⁄2 fish in the sea. Our lines are out. There you go.

maxerickson 12y ago
That's more learned charm than it is ambition.
aristus 12y ago
It has all of the trappings of a successful slogan: definitional, pithy, & ambitious-sounding enough to make everyone ignore the bad math. Berkshire itself is on that list, so surely there are only 489.5 to go. :)
- mikeash 12y ago
  A company that contains all companies that do not contain themselves?

than 12y ago

A measly 1,826,163% since 1964. SELL.

AustinG08 12y ago
Lol, shoulda locked those profits when you could!
maxlybbert 12y ago
If I'm doing the math right, that's only about 16% annualized ( http://en.wikipedia.org/wiki/Rate_of_return#Geometric_average_rate_of_return http://en.wikipedia.org/wiki/Rate_of_return#Geometric_averag... ). Which, for the record, is much better than I've ever done. But Buffet is being a little sneaky there: it's really a good example of compound interest over long time periods.
- bobbles 12y ago
  Sneaky? The first thing in the report is returns broken down by year
- ewanmcteagle 12y ago
  It's not sneaky. This is the way returns are calculated in the industry. 1.09 * 1.09 * 1.09 would be 3 years of 9% returns compounded. In the same way if the total return over 3 years is 50% you take the cube root of 1.5 to figure out what return each year would give you the same. In this 50% over 3 years example it would be around 14.5% a year.
  - maxlybbert 12y ago
    I've certainly seen journalists give out such a simplistic number, usually phrased as "$1 invested when the company went public would be worth $XXX today." And when the numbers are presented in a chart, it shows basically the same thing (often labeled the "growth of $1" or "growth of $100"). But when the numbers show up in a table, they are annualized. That allows you to compare the different cells in the table ( http://blog.greaterthanzero.com/post/57991351347/measuring-investment-performance http://blog.greaterthanzero.com/post/57991351347/measuring-i... ).

pdevr 12y ago

I used to read Berkshire's annual reports - good to see HN discussing them. If you liked the annual report, take a look at the "Owner's Manual" as well - it is worth a read: http://berkshirehathaway.com/ownman.pdf http://berkshirehathaway.com/ownman.pdf

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ankurpatel 12y ago

Their site reminds me of the nineties http://www.berkshirehathaway.com/ http://www.berkshirehathaway.com/ What is with the Geico ad at the bottom?

tea-flow 12y ago
Their site is great, does exactly what it needs to do. Geico is a wholly owned subsidiary of BH
- ankurpatel 12y ago
  They probably have other companies too. Why just Geico and why not list other companies. It seems bit out of place and gives an impression that Geico is doing bad enough that they need to be advertised.
  - graeme 12y ago
    I can think of two good reasons: 1. A Geico sale is worth a lot more than a fruit of the loom sale. 2. Geico is something that almost anyone visiting the site might use. Most Berkeshire Hatheway visitors own cars and need insurance. One of the main links is a message from Buffet recommending Geico and Borsheims Jewelry. Jewelry fits the same bill: expensive, and widely purchased. http://www.berkshirehathaway.com/message.html http://www.berkshirehathaway.com/message.html
    - titanomachy 12y ago
      Notably, Borsheim's also operates the type of business where you could conceivably pick up the phone and order immediately upon reading Buffett's recommendation.
  - tptacek 12y ago
    (a) No reasonable investor believes GEICO is doing badly. (b) GEICO is unique among BH companies in that consumers can purchase its offering immediately upon reading about it. The nearest Dairy Queen is a 30 minute drive away from me, for instance. Look at the list of BH subsidiaries and try to imagine what they'd sell on a 24/7 1-800 number.

xmpir 12y ago

1,826,163% growth in stock price is quite a performance...

3am 12y ago

I thought it was notable that Buffet referred people to Airbnb for lodgings in the Omaha area for the shareholder meeting. Not a guy particularly noted for being on top of trends (note: I am a huge WEB fan in numerous ways, though). edit: see page 22

drited 12y ago
Haha yes his love of a good bargain overcame his self-professed technophobia in that case! I'd guess he's just being modest with his frequent professions of technophobia though. I'd guess he knows a lot about technology businesses, but just figures that it's impossible to see their futures clearly enough for them to meet his standards. He did forewarn disappointment with the 1999 tech boom, so he can at least spot extreme misvaluation in trendy businesses: http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm http://archive.fortune.com/magazines/fortune/fortune_archive... (if anyone wants to ctrl+f to the start of the relevant section, it begins with 'I thought it would be instructive')

Animats 12y ago

Classic Warren Buffett: The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries, for example – whose values have been tied to American currency. That was also true in the preceding half-century, a period including the Great Depression and two world wars. Investors should heed this history. To one degree or another it is almost certain to be repeated during the next century. Buffett buys boring, but practical businesses. Also, because Berkshire Hathaway owns insurance companies, their "float" can be invested. It has to be invested in low-risk investments, which is just fine with Buffett. Berkshire Hathaway has such a delightfully boring portfolio.

tptacek 12y ago
Is "boring" the right word? BH owns a huge chunk of DIRECTV, the whole BNSF railroad (can you imagine how complex that business is to run?), and NetJets. I think there's a difference between "businesses Warren and Charlie feel like they can get their heads around" and "boring businesses". Also: I don't understand why they bought DIRECTV.
- crimsonalucard 12y ago
  I don't think Warren purchased DTV. It's likely purchased by one of his prodigies.
  - pg314 12y ago
    DIRECTV was indeed a purchase by Ted Weschler and Todd Combs, as Buffett wrote in the 2012 Annual Report (p. 15). They operate pretty much autonomously.
- hawkice 12y ago
  After I recently went through an in-depth review of the unit economics of connecting physical lines to houses in rural Washington (which it turns out is prohibitively expensive to do), I actually have started to appreciate the value of a brand known for giving service to people (without loss of generality) Comcast won't bother with. Quite a lot of America is rural, and quite a few people's joy is less than full with the customer service of their competitors.

lpolovets 12y ago

Here's a good post that highlights some of the takeaways from the annual report: http://25iq.com/2015/02/28/a-dozen-things-taught-by-warren-buffett-in-his-50th-anniversary-letter-that-will-benefit-ordinary-investors/ http://25iq.com/2015/02/28/a-dozen-things-taught-by-warren-b...

drited 12y ago

I thought it was interesting that Berkshire intentionally hasn't harmonized its systems across subsidiaries. It reminded me of one of Taleb's ideas on robustness from his book Antifragile, where he argues that a system of individually managed municipalities would be more robust than an economy with a single central government because system failure would tend to only affect isolated parts of the overall population at any single point in time.

tptacek 12y ago
That goes hand-in-hand with how simple Berkshire's home-office system is, right? It seems like, by design, BH itself does as little as possible. It runs out of a small office suite with something like 30 people. That system can't be harmonized across companies like Geico and Gen Re, even before you realize that those companies run alongside a furniture store and a jeweler.

takahisah 12y ago

Of the 15 largest stock investments, IBM is the only one that has lost value (page 15). Simultaneously, it looks like the largest cost based investment (next to BAC, which is unlisted in the table). Yet, he does not seem to address that position in any of his writing. I wonder what he thinks of the company.

crimsonalucard 12y ago
He thinks it's good. http://www.gurufocus.com/StockBuy.php?GuruName=Warren+Buffett http://www.gurufocus.com/StockBuy.php?GuruName=Warren+Buffet... You can see he's added more to his position as of Dec 31st. the big IBM drop happened in October.
pg314 12y ago
On page 7 in the 2011 annual report, Buffett wrote that, as a long-term shareholder, he wished for the IBM stock to languish throughout the following 5 years. The reason was that IBM was planning large share repurchases, and the lower the stock price the higher the percentage of shares retired, and the larger Berkshire's stake would be in the long run.

rglover 12y ago

Over the last 50 years (that is, since present management took over), per-share book value has grown from $19 to $146,186, a rate of 19.4% compounded annually. Insanity.

Nicholas_C 12y ago

>BNSF is, by far, Berkshire’s most important non-insurance subsidiary and, to improve its performance, we will spend $6 billion on plant and equipment in 2015. That's an incredible amount of capex.