REUTERS/Rebecca Cook Warren Buffett
Warren Buffett's 2013 annual letter to Berkshire Hathaway shareholders was published on Saturday.
In case you missed it, here are the points that had us talking:
- Buffett Warns Of A Public Pension Crisis: "Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans... During the next decade, you will read a lot of news – bad news – about public pension plans. I hope my memo is helpful to you in understanding the necessity for prompt remedial action where problems exist."
- Buffett Says The 'Mother Lode' Of Investing Opportunities Is In America: "Our subsidiaries spent a record $11 billion on plant and equipment during 2013, roughly twice our depreciation charge. About 89% of that money was spent in the United States. Though we invest abroad as well, the mother lode of opportunity resides in America."
- Berkshire's Todd Combs And Ted Weschler Are Really Good Stock Pickers: "In a year in which most equity managers found it impossible to outperform the S&P 500, both Todd Combs and Ted Weschler handily did so. Each now runs a portfolio exceeding $7 billion. They’ve earned it... I must again confess that their investments outperformed mine. (Charlie says I should add “by a lot.”) If such humiliating comparisons continue, I’ll have no choice but to cease talking about them."
- Buffett Once Bought A Company From An Uneducated Russian Immigrant: "I think back to August 30, 1983 – my birthday – when I went to see Mrs. B (Rose Blumkin), carrying a 11⁄4-page purchase proposal for NFM that I had drafted. (It’s reproduced on pages 114 - 115.) Mrs. B accepted my offer without changing a word, and we completed the deal without the involvement of investment bankers or lawyers (an experience that can only be described as heavenly). Though the company’s financial statements were unaudited, I had no worries. Mrs. B simply told me what was what, and her word was good enough for me."
- Berkshire Hathaway's Book Value Underperformed The S&P 500 In 2013: "Charlie Munger, Berkshire’s vice chairman and my partner, and I believe both Berkshire’s book value and intrinsic value will outperform the S&P in years when the market is down or moderately up. We expect to fall short, though, in years when the market is strong – as we did in 2013. We have underperformed in ten of our 49 years, with all but one of our shortfalls occurring when the S&P gain exceeded 15%."
- Next Year's Shareholder Letter Is Gonna Be Ridonculous: "Next year’s letter will review our 50 years at Berkshire and speculate a bit about the next 50."
- Buffett Identifies 6 "Fundamentals Of Investing": "You don’t need to be an expert in order to achieve satisfactory investment returns... Focus on the future productivity of the asset you are considering.. If you instead focus on the prospective price change of a contemplated purchase, you are speculating.. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard... Forming macro opinions or listening to the macro or market predictions of others is a waste of time... What the economy, interest rates, or the stock market might do in the years immediately following.. was of no importance..."
- Buffett Isn't Perfect: "A few, however, have very poor returns, a result of some serious mistakes I made in my job of capital allocation. I was not misled: I simply was wrong in my evaluation of the economic dynamics of the company or the industry in which it operated. Fortunately, my blunders usually involved relatively small acquisitions. Our large buys have generally worked out well and, in a few cases, more than well. I have not, however, made my last mistake in purchasing either businesses or stocks. Not everything works out as planned..."
- ...Like That Time He Lost $873 Million: "Most of you have never heard of Energy Future Holdings. Consider yourselves lucky; I certainly wish I hadn’t. The company was formed in 2007 to effect a giant leveraged buyout of electric utility assets in Texas. The equity owners put up $8 billion and borrowed a massive amount in addition. About $2 billion of the debt was purchased by Berkshire, pursuant to a decision I made without consulting with Charlie. That was a big mistake. Unless natural gas prices soar, EFH will almost certainly file for bankruptcy in 2014. Last year, we sold our holdings for $259 million. While owning the bonds, we received $837 million in cash interest. Overall, therefore, we suffered a pre-tax loss of $873 million. Next time I’ll call Charlie."
- BONUS: Berkshire Hathaway's Staff Looks Like A Nice Group Of People: "In closing, I think it’s become appropriate to ignore our “no pictures” policy and let you view our remarkable home-office crew. Below is a photo from our Christmas lunch. Two people couldn’t make it; otherwise you are looking at all of those who staff Berkshire’s headquarters. They are truly miracle-workers."
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