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Warren Buffett Just Wrote His Best Annual Letter
- pokoleo 12y agoI had a chance to read the letter - I went from knowing nothing about Buffet's businesses to knowing a lot, very quickly. On a related note, I wonder if Gates writing this praise was spurred by something, maybe some news about Buffet. He's relatively senior (84), and has been running Berkshire for a while now. Maybe he's getting ready to give up the reins. In fact, he builds up the reputation his menagerie of "very experienced people" to run individual businesses - I wonder how they will run things when Warren isn't around. While you're at it, take some time to check out the Berkshire Hathaway site. It directly services what they're trying to do: provide investor information. http://www.berkshirehathaway.com/ http://www.berkshirehathaway.com/
- elmin 12y agoThere has been a lot of talk recently of him naming Charlie Munger as his successor. I think this letter may have been a handoff of sorts. He may make a specific announcement at the meeting.
- tim333 12y agoHe sometimes jokes about it but Charlie is 91.
- vskarine 12y agoIt's funny to see Geico ad at the bottom of the http://www.berkshirehathaway.com/ http://www.berkshirehathaway.com/ great marketing
- breck 12y agoCould be. From the end of the letter: "Both the board and I believe we now have the right person to succeed me as CEO – a successor ready to assume the job the day after I die or step down."
- jebus989 12y agoHe talks about this in lots of annual letters. Reality is that Berkshire Hathaway undoubtedly has (a perception of) the lowest bus factor of any holdings group and Buffett has been priming for years to prevent shares tanking when he inevitably passes or steps down. Aside: to those who enjoyed reading this annual letter I recommend "The Essays of Warren Buffett" — an arranged collection of edited previous letters by theme (though they are all also freely available online).
- kibibu 12y agoLove it - one of the world's richest people, and his site is built using Word
- sebastianavina 12y agoas far as we know, it could be written in emacs org mode.
- icebraining 12y ago<meta name="GENERATOR" content="MSHTML 8.00.6001.18828">
- akx 12y agoWell, then they've gone to some lengths to make it look like it's not. > <meta name="GENERATOR" content="MSHTML 8.00.6001.18828">
- onion2k 12y agoA website is a marketing operation. BerkshireHathaway don't really need to do marketing because they're more a legal entity for the purpose of organising things efficiently rather than a business with customers.
- mohawk 12y agoThe marketing of that website is that they don't waste money.
- cameldrv 12y agoIt's all part of the image. Buffett gets a lot of miles out of the (authentic or not) aww-shucks folksy homespun image. He can do questionable deals and still not have his integrity questioned, and it's disarming in negotiations, in which, Buffett is as tough as they come.
- Spooky23 12y agoThe image is a funny mix of contrasts. In the 90s, he was living in a $100-200k home that he had lived in for 30 years and drove a pickup truck or crown Vic. But he travelled in a Gulfstream!
- sumedh 12y ago> I wonder how they will run things when Warren isn't around. Most probably Ajit Jain would take over as CEO. A significant part of the investment portfolio is already handled by two other managers.
- ldec 12y ago"I wonder if Gates writing this praise was spurred by something" - it was likely spurred by criticism in the economist: http://www.economist.com/news/business/21645746-warren-buffetts-50th-annual-missive-his-companys-shareholders-obfuscates-rather?zid=295&ah=0bca374e65f2354d553956ea65f756e0 http://www.economist.com/news/business/21645746-warren-buffe...
- webehere 12y agoCriticism was valid. Why not name a successor? Otherwise, the Economists's review read more like a critique of Yellow Submarine - I mean, "Worst Beatles Album" is hardly a critique, and more of a "worst of a great bunch" type of commentary.
- swehner 12y agoBoring.
- davidw 12y agoThe Economist was a bit less convinced: http://www.economist.com/news/business/21645746-warren-buffetts-50th-annual-missive-his-companys-shareholders-obfuscates-rather http://www.economist.com/news/business/21645746-warren-buffe...
- nhstanley 12y ago> Yet Mr Buffett’s 50th letter to shareholders is an exception, serving to muddy rather than clarify, for two reasons. First, because it does not tackle the questions that hang over Berkshire’s conglomerate model and its durability. Second, because of the uncharacteristic coyness with which Mr Buffett and his partner Charlie Munger —respectively aged 84 and 91—discuss how or when they will give up their jobs. Did this guy not read the letter? Because Buffet spends a lot of time discussing why he thinks his version of the conglomerate model works and will continue to work. You can disagree with his reasoning, but he certainly discusses it at length. Second, there have been rumors that Buffet is planning to give up control soon, perhaps at this shareholder meeting. Even if he doesn't, it's not clear that it matters. The final word on asset allocation may come from him, but he is surrounded by people essentially making those decisions for him (as he basically implies in the letter). Nowhere in this do I get the impression this guy actually read the FULL letter, beyond the first part (meaning beyond page 21).
- learnstats2 12y agoI read this letter. > The fact is that I gave Berkshire stock to the sellers of Dexter rather than cash, and the shares I used for the purchase are now worth about $5.7 billion. As a financial disaster, this one deserves a spot in the Guinness Book of World Records. Two comments about this: I don't think Buffet has a good concept of financial disaster. Having or not having an extra $5b today makes little difference to the scale of Buffet's and Berkshire Hathaway's wealth. This does not materially change their financial position and cannot have precipitated a crisis situation. Does Buffet really begrudge the fact that somebody else got rich from a fair deal? Perhaps I am misreading this section, but I feel very disappointed by this.
- Spearchucker 12y agoHe amassed that fortune by paying that kind of attention to detail. He keeps his fortune by paying that kind of attention to detail. All great artists are great because of attention at the macro- and micro-level. To you it's disappointment. To him it's a missed opportunity because of a bad decision. An opportunity missed, whether great or little, is something the man clearly dislikes.
- learnstats2 12y agoBased on the detail given, I'm not even convinced that this was a bad decision for Buffet. Somebody else has $5b, but this is not a zero-sum game. Every decision, including this one, contributed towards Buffet's and Berkshire's position today. Presumably Buffet took that decision to rather invest the cash in something else - which has apparently done just fine.
- slaxman 12y agoI do not think that's the point. For Buffet, allocating capital perfectly is extremely important. I used to read his letters regularly until a couple of years ago. In all his letters, he always seemed to blame himself for investing in bad companies. But at the same time, gave all the credit for profits to his CEOs. IMHO, there is a lot of humility in that.
- sumedh 12y ago
- pjc50 12y agoHe references "Where Are the Customer's Yachts?"! That's a great fun little book, written in 1940 looking back on the madness leading up to 1929.
- slaxman 12y agoI love Warren Buffet's quote on hiring: “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.” Often we tend to focus too much on intelligence and too little on integrity. http://www.goodreads.com/quotes/76790-somebody-once-said-that-in-looking-for-people-to-hire http://www.goodreads.com/quotes/76790-somebody-once-said-tha...
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- darkmighty 12y agoCorrect me if I'm wrong, but I believe this is specially prevalent on the financial industry. It seems it's specially easy to make a lot of money in the short term if you're exceptionally intelligent and don't have integrity in the way -- but then you better hit home run quickly, because this potential doesn't last long. That's a hallmark of Buffet's success: he's in it for the long run.
- tootie 12y ago“I divide my officers into four classes as follows: The clever, the industrious, the lazy, and the stupid. Each officer always possesses two of these qualities. Those who are clever and industrious I appoint to the General Staff. Use can under certain circumstances be made of those who are stupid and lazy. The man who is clever and lazy qualifies for the highest leadership posts. He has the requisite nerves and the mental clarity for difficult decisions. But whoever is stupid and industrious must be got rid of, for he is too dangerous.” Helmuth von Mioltke the Elder
- lotsofmangos 12y agoFunny, I had read this quote attributed to Kurt von Hammerstein-Equord by Hans Magnus Enzensberger.
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- leroy_masochist 12y ago> Your venue for shopping will be the 194,300-square-foot hall that adjoins the meeting and in which products from dozens of Berkshire subsidiaries will be for sale. If you don’t get your shopping done on Friday, slip out while Charlie’s talking on Saturday and binge on our bargains. I love how Warren and Charlie, at 84 and 91 respectively, still bust each other's chops like they're college roommates.
- kriro 12y agoSounds like the successor will be a woman from the wording in the letter. First Mr. Buffett uses "he" and mentions that it's used to avoid strange sentences. When describing the ideal candidate it switches to "he or she" and and when talking about the fact that they have a successor it switches to "person". That pattern is pretty typical when talking about women but not wanting to give it away from my experience of playing online warewolf (so yeah huge grain of salt needed there) Edit: Seems like Mr. Munger mentions Mr. Jain and Mr. Abel, both male. I think I'll stick with my initial impression though :P
- def_illiterate 12y agoIf it's the 30 year old secretary coordinating the shareholder meeting I'm quitting school and pulling a Chris McCandless. Otherwise, going to be a very interesting thing to watch. Mr. Buffet's love of economic moats will likely help ensure that his successor will not be in a Ballmer-type position.
- athenot 12y agoI find the letter interesting as it contrasts so much with our Tech industry: mature vs. unproven, simple vs. complicated, sound past vs. promising future. It looks like the complete opposite of VC-influenced business. Even so, I believe there are takeaways. If we're building startups which have yet to prove themselves, it's still good to have a long term view. I'm reminded of Jack Ma's vision to build a company that lasts 99 years. Ma and Buffet's risks are—I believe—not pure chance but well calculated. Something I'm trying to improve personally but have a ways to go…
- MrBuddyCasino 12y agoYes, that was indeed remarkable. The inflated valuations, the self-interest of those that get paid in those transactions - I'd love to read something as insightful as Mr. Buffet has written, only for the tech sector.
- AndrewKemendo 12y agoI don't think they are really comparable to be honest. If you look at the type of businesses that BH is involved in, it's things that have "book value," in other words tangible assets that can be inventoried, depreciate and are generally considered durable goods. In "Tech" the vast majority of assets are human capital and it is too "fickle" and companies are very easily supplanted for the really long game that BH plays. Notice that the "tech" they do own is in things like IBM Coke for example is a big asset of BH that falls slightly outside of this because the bulk of what makes Coke - Coke, is it's brand. But even still, it has a massive industrial capacity.
- hawkice 12y agoCouldn't disagree more. His story about building BH into a powerhouse centered on valuing things at more than just book value (notably, See's Candy, which was one of their first amazing investments, which he was worried about purchasing for 3x net tangible assets, but notes that it was only because he wasn't yet skilled at Munger's investment style yet). One of the durable advantages he looks for is having a strong brand (as he says in the letter) -- Coke is not that atypical an investment for them. His reason for being largely extremely-low-tech is that he loves to understand the businesses he invests in really, really well (probably his big competitive advantage), and by his own admission, he doesn't really understand tech.
- dodyg 12y agoWait, haven't we all agreed that everybody above 50 are useless dinosaurs that cannot keep up with the time?
- iolothebard 12y agoI remember everyone saying how his "old thinking" was failing in the late 90s. Having grown up and studied the market as a kid in the 80s, I was on Warren's side (plus he was someone I admired). Sure enough, that "internet economy" blew up. I eagerly await this next implosion too. Billions for companies that make nothing. Well rich people need to park their money somewhere. Just don't be the last one holding cards.
- AndrewKemendo 12y agoOur definition of coverage is pre-tax earnings/interest, not EBITDA/interest, a commonly used measure we view as seriously flawed. I would love to see a founder tell one of their investors this and watch their head explode.
- def_illiterate 12y agoGenuinely curious, wouldn't EBIT be a more conservative number than EBITDA? Not that it matters in tech, as I assume Depreciation and Amortization are almost nil.
- neovive 12y agoThe Acquisition Criteria on page 23 are quite interesting; definitely a stark contrast from most tech acquisitions. I especially like #5: "Simple businesses (if there’s lots of technology, we won’t understand it)" and #2 "..future projections are of no interest to us.."
- bernardom 12y agoBest quote ever: "With the acquisition of Van Tuyl, Berkshire now owns 9.5 companies that would be listed on the Fortune 500 were they independent (Heinz is the 0.5). That leaves 490.5 fish in the sea. Our lines are out."
- sreyaNotfilc 12y agoI know this is about Warren, but I have a question... Is it me, or is Bill Gates the coolest person ever after relinquishing his duties at Microsoft? He seems so at peace with everything (except for his charities and philanthropic efforts of course).
- malchow 12y agoMoney buys freedom, and freedom buys happiness.
- thro1237 12y agoBuffett owns 6% of IBM