Warren included several gems in this year's annual letter. Below, a small preview:<p>- discussion about December's tax change (>> The $65 billion gain is nonetheless real – rest assured of that. But only $36 billion came from Berkshire’s operations. The remaining $29 billion was delivered to us in December when Congress rewrote the U.S. Tax Code <<)<p>- the new GAAP accounting standard that will produce huge quarterly swings in Berkshire reporting in the quarters to come.<p>- 2017's frenzy in high purchase prices for American enterprises, and the side-effects of using debt to finance them. (>> If Wall Street
analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening
teenager to be sure to have a normal sex life. <<)<p>- payments made by Berkshire for hurricane insurance.<p>- strong discouragement to borrow in order to buy stocks (>> the strongest argument I can muster against ever using borrowed money to own stocks.
There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your
positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines
and breathless commentary. And an unsettled mind will not make good decisions. <<)<p>- details about Warren's bet against hedge funds when compared to S&P indexing.<p>- risks in owning bonds versus stocks.<p>Overall, I found the letter to be a useful reading for those passionate about investing or financial self-sustainability.
I like that BRK beat the market last year by 10bps. Much of my savings is in BRK. The way I look at it, you're actually investing in dozens of well-run cash-generating companies.<p>What really sold me on BRK was how Buffet started a massive capital improvements project into their railroad business. If my memory serves me right, the investment was around $8bn, maybe 3 years ago or so. This was an investment in infrastructure on a scale not seen - and certainly beat railroad competitors in terms of capex by 2x or 3x.<p>My revelation was: had the railroad business gone to the market to raise those funds how would it have gone down? Bankers would have had a field day with fees. Traders would rush in. Speculators would dump the stock or bonds at a moment's notice.<p>BRK creates near zero friction within its businesses. You have cash in one place, you can just move it easily to another place where its needed, simple.<p>EDIT:
It was $5bn injection in BNSF in 2014: <a href="https://www.fool.com/investing/general/2014/02/05/berkshire-hathaways-bnsf-railroad-oks-5-billion-sp.aspx" rel="nofollow">https://www.fool.com/investing/general/2014/02/05/berkshire-...</a>
One of my growing curiosities is...what are the primarily-digital businesses which have “Buffett-Style Wonderfulness”?<p>Companies like American Express or BNSF have provided value for decades, and will continue to provide. Buffett used his extraordinary understanding to make great investments on these and other companies.<p>But I am a web guy, not a railroad guy. I want to use what understanding of the web I have to make good long-term investments in great digital companies. Unfortunately it seems like so many of them are in flux, in part because the market grabs their valuation and attaches truly insane expectations.<p>So my question...what are the digital businesses for which you have the highest expectations? Extra points for not mentioning AmaGooBookSoft.<p>My few are Stripe, Square, and Zillow.
Kind of a weird letter this year. No discussions of the performance of their individual businesses. Some uncharacteristically clunky writing (misallocating debt might be a <i>mistake</i>, but it wouldn't be <i>fallacious</i>). The biggest public policy event to impact the world of finance in a decade --- the tax code change --- gets, like, 2 paragraphs. Major Berkshire events, like IBM, aren't remarked on at all.
> Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their “chart” patterns, the “target” prices of analysts or the opinions of media pundits. Instead, we simply believe that if the businesses of the investees are successful (as we believe most will be) our investments will be successful as well.<p>That's the problem I have with a lot of the culture in crypto investments. A lot of the newer investors are investing in crypto as a ticker symbol, just hoping its fiat price will increase. They couldn't care less about actually using crypto.
A very revealing statement that Buffet views the current market condition as overpriced:<p>>"In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, _a sensible purchase price_.<p>>"That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far
from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic
purchasers.<p>>"Why the purchasing frenzy? In part, it’s because the CEO job self-selects for “can-do” types. If Wall Street
analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening
teenager to be sure to have a normal sex life."
Honestly it is just a little bit disappointing that Buffett spent so much time discussing his bet with Protege Partners and no mention of his IBM exit and some of his other holdings such as Apple, the various Airlines and Kraft-Heinz. I did find the insurance discussion interesting, however.
I also agree with Mr. Buffett that the next 100 years for American businesses will be the best....makes me think China won't usurp America anytime soon.
I like how he starts by explaining how the accounting is misleading and things like the tax gain or stock fluctuations do not reflect the underlying business. I'm not sure there are any other US businesses that do that?
There's an interesting quote in there that goes against much of modern portfolio theory and the standard wisdom about bond allocations:<p>> It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.
I honestly don't get the point of this company. If I feel competent to judge that some decision they make like investing in American Express is good, why not do that directly, myself?