NEW YORK Feb 25 Highlights from billionaire
Warren Buffett's annual letter to Berkshire Hathaway Inc
shareholders on Saturday:
"One word sums up our country's achievements: miraculous. From a
standing start 240 years ago - a span of time less than triple
my days on earth - Americans have combined human ingenuity, a
market system, a tide of talented and ambitious immigrants, and
the rule of law to deliver abundance beyond any dreams of our
forefathers. You need not be an economist to understand how well
our system has worked. Just look around you. See the 75 million
owner-occupied homes, the bountiful farmland, the 260 million
vehicles, the hyper-productive factories, the great medical
centers, the talent-filled universities, you name it - they all
represent a net gain for Americans from the barren lands,
primitive structures and meager output of 1776. Starting from
scratch, America has amassed wealth totaling $90 trillion."
U.S. MARKET SYSTEM TO CONTINUE FAR INTO FUTURE
"It's our market system - an economic traffic cop ably directing
capital, brains and labor - that has created America’s
abundance. Early Americans, we should emphasize, were neither
smarter nor more hard working than those people who toiled
century after century before them. But those venturesome
pioneers crafted a system that unleashed human potential, and
their successors built upon it. This economic creation will
deliver increasing wealth to our progeny far into the future.
Yes, the build-up of wealth will be interrupted for short
periods from time to time. It will not, however, be stopped.
I’ll repeat what I’ve both said in the past and expect to say in
future years: Babies born in America today are the luckiest crop
ON SHARE BUYBACKS
"As the subject of repurchases has come to a boil, some people
have come close to calling them un-American - characterizing
them as corporate misdeeds that divert funds needed for
productive endeavors. That simply isn’t the case: Both American
corporations and private investors are today awash in funds
looking to be sensibly deployed. I’m not aware of any enticing
project that in recent years has died for lack of capital. (Call
us if you have a candidate.)"
ON ACCOUNTING SHENANIGANS
"Charlie (Munger) and I want managements, in their commentary,
to describe unusual items – good or bad – that affect the GAAP
numbers. After all, the reason we look at these numbers of the
past is to make estimates of the future. But a management that
regularly attempts to wave away very real costs by highlighting
"adjusted per-share earnings" makes us nervous. That’s because
bad behavior is contagious: CEOs who overtly look for ways to
report high numbers tend to foster a culture in which
subordinates strive to be "helpful" as well. Goals like that can
lead, for example, to insurers underestimating their loss
reserves, a practice that has destroyed many industry
"Charlie and I cringe when we hear analysts talk admiringly
about managements who always 'make the numbers.' In truth,
business is too unpredictable for the numbers always to be met.
Inevitably, surprises occur. When they do, a CEO whose focus is
centered on Wall Street will be tempted to make up the numbers."
ON OUTPERFORMING THE S&P 500 OVER LONG PERIODS
"There are, of course, some skilled individuals who are highly
likely to out-perform the S&P over long stretches. In my
lifetime, though, I’ve identified – early on – only 10 or so
professionals that I expected would accomplish this feat."
ON JACK BOGLE
"If a statue is ever erected to honor the person who has done
the most for American investors, the hands-down choice should be
Jack Bogle. For decades, Jack has urged investors to invest in
ultra-low-cost index funds. In his crusade, he amassed only a
tiny percentage of the wealth that has typically flowed to
managers who have promised their investors large rewards while
delivering them nothing – or, as in our bet, less than nothing –
of added value.
"In his early years, Jack was frequently mocked by the
investment-management industry. Today, however, he has the
satisfaction of knowing that he helped millions of investors
realize far better returns on their savings than they otherwise
would have earned. He is a hero to them and to me.
"Can you imagine an investment consultant telling clients, year
after year, to keep adding to an index fund replicating the S&P
500? That would be career suicide. Large fees flow to these
hyper-helpers, however, if they recommend small managerial
shifts every year or so. That advice is often delivered in
esoteric gibberish that explains why fashionable investment
"styles" or current economic trends make the shift appropriate."
(Compiled by Jennifer Ablan and Trevor Hunnicutt)