The Annual Buffet Letter
Warren Buffet dishes up his once-a-year homespun advice in his annual letter to shareholders here:
As you can see from the two tables, the comparative growth rates of Berkshire’s two elements of value have changed in the last decade, a result reflecting our ever-increasing emphasis on business acquisitions. Nevertheless, Charlie Munger, Berkshire’s Vice Chairman and my partner, and I want to increase the figures in both tables. In this ambition, we hope – metaphorically – to avoid the fate of the elderly couple who had been romantically challenged for some time. As they finished dinner on their 50th anniversary, however, the wife – stimulated by soft music, wine and candlelight – felt a long-absent tickle and demurely suggested to her husband that they go upstairs and make love. He agonized for a moment and then replied, “I can do one or the other, but not both.”
The old fox has still got it!
UPDATE:
Other gems:
Long ago, Mark Twain said: “A man who tries to carry a cat home by its tail will learn a lesson that can be learned in no other way.” If Twain were around now, he might try winding up a derivatives business. After a few days, he would opt for cats...So I failed in my attempt to exit painlessly, and in the meantime more trades were put on the
books. Fault me for dithering. (Charlie calls it thumb-sucking.) When a problem exists, whether in
personnel or in business operations, the time to act is now...It’s hard to overemphasize the importance of who is CEO of a company. Before Jim Kilts arrived
at Gillette in 2001, the company was struggling, having particularly suffered from capital-allocation
blunders. In the major example, Gillette’s acquisition of Duracell cost Gillette shareholders billions of
dollars, a loss never made visible by conventional accounting. Quite simply, what Gillette received in
business value in this acquisition was not equivalent to what it gave up. (Amazingly, this most
fundamental of yardsticks is almost always ignored by both managements and their investment bankers
when acquisitions are under discussion.)Upon taking office at Gillette, Jim quickly instilled fiscal discipline, tightened operations and
energized marketing, moves that dramatically increased the intrinsic value of the company. Gillette’s
merger with P&G then expanded the potential of both companies. For his accomplishments, Jim was paid
very well – but he earned every penny. (This is no academic evaluation: As a 9.7% owner of Gillette,
Berkshire in effect paid that proportion of his compensation.) Indeed, it’s difficult to overpay the truly
extraordinary CEO of a giant enterprise. But this specie is rare.Too often, executive compensation in the U.S. is ridiculously out of line with performance. That
won’t change, moreover, because the deck is stacked against investors when it comes to the CEO’s pay.
The upshot is that a mediocre-or-worse CEO – aided by his handpicked VP of human relations and a
consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo – all too often receives gobs
of money from an ill-designed compensation arrangement...Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir
Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can
calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this
loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole,
returns decrease as motion increases...Our meeting this year will be on Saturday, May 6. As always, the doors will open at the Qwest
Center at 7 a.m., and the latest Berkshire movie will be shown at 8:30. At 9:30 we will go directly to the
question-and-answer period, which (with a break for lunch at the Qwest’s stands) will last until 3:00. Then,
after a short recess, Charlie and I will convene the annual meeting at 3:15. This schedule worked well last
year, because it let those who wanted to attend the formal session to do so, while freeing others to shop.You certainly did your share in this respect last year. The 194,300 square foot hall adjoining the
meeting area was filled with the products of Berkshire subsidiaries, and the 21,000 people who came to the
meeting allowed every location to rack up sales records. Kelly Broz (neé Muchemore), the Flo Ziegfeld of
Berkshire, orchestrates both this magnificent shopping extravaganza and the meeting itself. The exhibitors
love her, and so do I. Kelly got married in October, and I gave her away. She asked me how I wanted to
be listed in the wedding program. I replied “envious of the groom,” and that’s the way it went to press...Charlie and I are extraordinarily lucky. We were born in America; had terrific parents who saw
that we got good educations; have enjoyed wonderful families and great health; and came equipped with a
“business” gene that allows us to prosper in a manner hugely disproportionate to other people who
contribute as much or more to our society’s well-being. Moreover, we have long had jobs that we love, in
which we are helped every day in countless ways by talented and cheerful associates. No wonder we tapdance
to work. But nothing is more fun for us than getting together with our shareholder-partners at
Berkshire’s annual meeting. So join us on May 6th at the Qwest for our annual Woodstock for Capitalists.
We’ll see you there.
