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:

  1. 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).
  2. 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.
  3. 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”.
  4. 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”.

This article has 9 comments

  1. Thanks for the mention. I was eager to read the two critical articles. I tend to like Buffett and Berkshire, and I think it’s important to pay attention to the other side of arguments. The McGugan article was interesting, particularly the complaints about lack of transparency. However, the Olive article didn’t impress me. Almost all of Olive’s points are issues that Buffett himself has brought up and offered explanations for. If Olive doesn’t like Buffett’s explanations, he should explain why.

  2. Canadian Capitalist

    @Michael: I agree that David Olive’s criticism of Buffett is unimpressive. I thought McGugan was off-base as well. BRK’s letters are a model of clarity compared to the usual “rah-rah” you find in letters to shareholders. If McGugan needs more information as a shareholder, all he has to do is check out the 10-K filed with the SEC.

    http://www.sec.gov/cgi-bin/viewer?action=view&cik=1067983&accession_number=0001193125-10-043450

    I’ve owned shares in banks and insurance companies and can’t recall anything even resembling the clarity Buffett provides in his shareholders. You can never please some people!

  3. The David Olive article is ridiculous. Buffet has clearly explained every departure from his own rules, and his explanations are logical and legitimate. Olive doesn’t provide a single counter-argument.

    The McGugan article made some valid points, but I don’t think Buffet is as opaque as he insinuates. The fact that BH will grow more slowly over the next 35 years as compared to the last 35 is certain: huge size has a cost.

    This is the best line: “Should investors be worried about these late-in-life changes of heart? It comes down to whether you’re counting on Buffett to make you rich or keep you rich.”

    disclaimer: I’m a shareholder.

  4. Nice post; I’m sure Buffet’s letters will continue to be popular for decades to come.

  5. I largely agree with McGugan’s points, he didn’t really say anything too controversial. I’ll agree with Michael the lack of transparency portion was interesting, especially what Schroeder said. I find it great that she is willing to criticize Berkshire even though she worked closely with Buffett to write her insightful Buffett book “Snowball”. I think that shows she has integrity.

    My disclosure: I hold 50 times more B shares than I did last year. However, I haven’t bought or sold a single share. 😉

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  7. Buffett’s letters to shareholders contain valuable information in a clear, straight-to-the-point format. I love reading them and every time i do, I seem to pick up something that previously escaped me. Now when it comes to “departing from your rules” as an investor, I don’t see it as a big deal. It’s ok to have an investing style and stick to it, but you also have to have some level of flexibility. All that matters is that you DO realize that you’re doing something different, and also make sure that you’re doing it based on solid information. It doesn’t have to mean that you’re turning away from your investment style.

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