Sunday, March 02, 2008

Buffett's shareholder letter

Warren Buffett's 2007 Berkshire Hathaway shareholder letter was published Friday. It can be accessed by all on the firm's website and is pretty much required reading for practitioners and students of investing. This year's version was covered in the press this weekend, with the focus on his comments on corporate accounting, sovereign wealth funds, and the falling dollar. What follows are a few excerpts:

---"Our country's weakening currency is not the fault of OPEC, China etc. Other developed countries rely on imported oil and compete against Chinese imports just as we do. In developing a sensible trade policy, the U.S. should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behavior that will reduce America's exports, true trade that benefits both our country and the rest of the world."

---Comment on Berkshire Hathway's four largest public equity investments---"In the strange world department, note that American Express and Wells Fargo were both organized by Henry Wells and William Fargo, Amex in 1850 and Wells in 1852. P&G and Coke began business in 1837 and 1886 respectively. Start-ups are not our game."

---On how he ended up being a huge player in the insurance business---"The best anecdote I've heard during the current presidential campaign came from Mitt Romney, who asked his wife Ann, "When we were young, did you ever in your wildest dreams think I might be president?" To which she replied, "Honey, you weren't in my wildest dreams."

---On a lucrative investment he made in Euro-denominated Amazon bonds---"Yes, Virginia, you can occasionally find markets that are ridiculously inefficient-or at least you can find them anywhere except at the finance departments of some of the leading business schools."

---On succession planning---"I've reluctantly discarded the notion of my continuing to manage the portfolio after my death-abandoning my hope to give new meaning to the term 'thinking outside the box'.

---On bad acquisitions---"A line from Bobby Bare's country song explains what too often happens with acquisitions: 'I've never gone to bed with an ugly woman, but I've sure woke up with a few'.

---"At Berkshire, we will attempt to further increase our stream of direct and indirect foreign earnings. Even if we are successful, however, our assets and earnings will always be concentrated in the U.S. Despite our country's many imperfections and unrelenting problems of one sort or another, America's rule of law, market-responsive economic system, and belief in meritocracy are almost certain to produce ever-growing prosperity for its citizens."

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