Berkshire Annual Letter Out Saturday

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Berkshire Annual Letter Out Saturday

Post by Tortoise Banker » Thu Feb 23, 2012 2:14 pm

Do any bogleheads look forward to Warren's annual letter to shareholders? I really enjoyed reading the compilation of his essays titled "Lesson's for Corporate America" and many of his annual letters were featured in this book.

They are always good for a common-sensical overview of current conditions. I look forward to reading this next week. :)
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Re: Berkshire Annual Letter Out Saturday

Post by Don Christy » Thu Feb 23, 2012 2:20 pm

I always read it and it often comes out a few days before an annual party I go to. At the party is a Ph D Economist friend who also reads Buffett's shareholder letter. Conversation fodder, but I never change anything based on reading it.

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Re: Berkshire Annual Letter Out Saturday

Post by nisiprius » Thu Feb 23, 2012 2:57 pm

I do not feel that Warren Buffett is intellectually honest in his public statements; I put him in the "spinmeister" category. So, no, I do not make a point of trying to absorb what he says. A good example would be his recent pronouncement about "bonds" being "among the most dangerous of assets" due to inflation risk. The point here is his complete failure to mention the existence of TIPS. Not even in passing, even to dismiss them.

Since I am sure that he knows that TIPS exists, there can only be one reason for talking about inflation risk and bonds and not mentioning TIPS at all, and that is that while it would be intellectually honest to mention them, it would make a simplistic story complicated. Buffett wants, for whatever reason, to present a simplistic story.

SImilarly, his presentation of the "safety" of stocks is not fairly presented. It, too, is a simplistic story. The "safety" of stocks was the whole premise behind the book Dow 36000, which said that :"A sensible target date for Dow 36000 is early 2005 but it could be reached much earlier." They said that for a specific reason. The reason was that Jeremy Siegel's work demonstrated that stocks were as safe as bonds, and now that the information was diffusing through the investment world, stocks would be bid up to the point where the risk premium was eliminated and were all but mathematically certain to reach Dow 36000 within that time frame. The fact that it did not happen shows that stocks are not as safe as bonds.

I believe Buffett's motive for presenting as he does is not to inform, but to exhort; not to present the clearest and most accurate picture of the truth as he knows it, but to convince the general public to invest in stocks--in the interest, perhaps, of a greater good. Virtuous propaganda, perhaps, but propaganda.
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Re: Berkshire Annual Letter Out Saturday

Post by craigr » Thu Feb 23, 2012 5:30 pm

.....
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Re: Berkshire Annual Letter Out Saturday

Post by ddb » Thu Feb 23, 2012 5:45 pm

Nisi, I think you raise excellent points, and I feel that a lot of revered "financial guys/gals" fall into the same trap. I've been critical of similar examples by John Bogle (which led to being suspended from the forum). I suppose, giving them the benefit of the doubt, that they are simply aware they are writing to a limited-knowledge audiece, and don't think they can sufficiently cover all bases without sounding too complicated. Personally, I think if you have to resort to simplification rather than fully support a position, then you're better off not putting the information out there at all.

When I saw Mr. Buffett's recent writings on bonds, I decided that I am no longer interested in his writing or opinions on anything related to personal finance and investing.

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Re: Berkshire Annual Letter Out Saturday

Post by ddb » Thu Feb 23, 2012 5:51 pm

craigr wrote:
nisiprius wrote:I do not feel that Warren Buffett is intellectually honest in his public statements; I put him in the "spinmeister" category.
Couldn't agree more.

BTW. The past decade he was trounced by Vanguard's Wellington and Welleseley funds. He barely beat Vanguard's short-term Treasury bond fund over this time:

<chart snipped for brevity>
I assume your chart is comparing Berkshire share price with the mutual funds. Obviously, Berkshire's market price is beyond Buffett's control. Might be more useful to compare the fund returns to the book value of Berkshire. Changes in book value would be more relevent to the success of management.

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Re: Berkshire Annual Letter Out Saturday

Post by craigr » Thu Feb 23, 2012 5:57 pm

.....
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Re: Berkshire Annual Letter Out Saturday

Post by lethean46 » Thu Feb 23, 2012 10:27 pm

[quote="nisiprius"]I do not feel that Warren Buffett is intellectually honest in his public statements; I put him in the "spinmeister" category. So, no, I do not make a point of trying to absorb what he says. A good example would be his [url=http://finance.fortune.cnn.com/2012/02/ ... er-letter/]recent pronouncement[/url] about "bonds" being "among the most dangerous of assets" due to inflation risk. The point here is his complete failure to mention the existence of TIPS. Not even in passing, even to dismiss them.

Since I am sure that he knows that TIPS exists, there can only be one reason for talking about inflation risk and bonds and not mentioning TIPS [i]at all[/i], and that is that while it would be intellectually honest to mention them, it would make a simplistic story complicated. Buffett wants, for whatever reason, to present a simplistic story.

SImilarly, his presentation of the "safety" of stocks is [i]not fairly presented[/i]. It, too, is a simplistic story. The "safety" of stocks was the whole premise behind the book [i]Dow 36000[/i], which said that :"A sensible target date for Dow 36000 is early 2005 but it could be reached much earlier." They said that for a specific reason. The reason was that Jeremy Siegel's work demonstrated that stocks were as safe as bonds, and now that the information was diffusing through the investment world, stocks would be bid up to the point where the risk premium was eliminated and were all but mathematically certain to reach Dow 36000 within that time frame. The fact that it did not happen shows that stocks are [i]not[/i] as safe as bonds.

I believe Buffett's motive for presenting as he does is not to inform, but to exhort; [i]not[/i] to present the clearest and most accurate picture of the truth as he knows it, but to convince the general public to invest in stocks--in the interest, perhaps, of a greater good. Virtuous propaganda, perhaps, but propaganda.[/quote]

How about these two pieces?, linked below. They don't sound like someone touting stocks to me. And the material presented wasn't exactly simple either, IMO. Over the years, it seems to me that Buffett has gone public at major turning points. He penned a 1982 article saying stocks were cheap. (He felt like an over sexed guy in a wh.re house, or some such.) The article below written in 1999 warned that expectations for stocks were too high, influenced by the past 17 years bull market returns. Now, currently? He cautions about another turn re future Treasury rates and the implicit consequences of that for today's investor.

Buffett is trying to teach those who want to learn from him. You can take it or leave it. But I for one wouldn't ascribe a motive to Buffett other than an attempt to teach, to educate.

These 2 articles are a warning about public expectations re future stock returns.

This article was penned by Buffett and published by Fortune in 1999.

http://money.cnn.com/magazines/fortune/ ... 22/269071/

This Fortune piece was authored by Buffett and Carol Loomis in 2001.

http://money.cnn.com/magazines/fortune/ ... 10/314691/

It is now 13 years later, after the first of those 2 articles was published. Circumstances have changed. And now? he is attempting to educate the public, again. This time regarding the risks inherent in Treasuries at these historically low rates, what the increasing debt level will do to the currency, and his expectation for future inflation.

Buffett has said over and over that he ignores the "macro" picture when investing. However, he has gone public 2 times now at major turning points. This is a 3rd time, re Treasuries. (They are not riskless.) He doesn't claim to know WHEN the market will turn. And generally, he's a couple of years early.

I'm not knowledgeable enough to debate anyone on the merits or faults of Buffett. But I do believe that he is sincere. And I'll have to let it go at that.

ML

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Re: Berkshire Annual Letter Out Saturday

Post by Gauntlet » Thu Feb 23, 2012 11:14 pm

lethean46 wrote:

I'm not knowledgeable enough to debate anyone on the merits or faults of Buffett. But I do believe that he is sincere. And I'll have to let it go at that.

ML
I could not agree more. Honestly, I'm surprised by the comments. This is the same guy who has said that most investors would be better off putting their money in low cost index funds.
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Re: Berkshire Annual Letter Out Saturday

Post by avmax8 » Thu Feb 23, 2012 11:26 pm

Gauntlet wrote:
lethean46 wrote:

I'm not knowledgeable enough to debate anyone on the merits or faults of Buffett. But I do believe that he is sincere. And I'll have to let it go at that.

ML
I could not agree more. Honestly, I'm surprised by the comments. This is the same guy who has said that most investors would be better off putting there money in low cost index funds.
Strong second. I'll always enjoy his newsletter.

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Re: Berkshire Annual Letter Out Saturday

Post by PizzaOnTheMind » Fri Feb 24, 2012 3:37 am

nisiprius wrote:I do not feel that Warren Buffett is intellectually honest in his public statements; I put him in the "spinmeister" category. So, no, I do not make a point of trying to absorb what he says. A good example would be his recent pronouncement about "bonds" being "among the most dangerous of assets" due to inflation risk. The point here is his complete failure to mention the existence of TIPS. Not even in passing, even to dismiss them.

Since I am sure that he knows that TIPS exists, there can only be one reason for talking about inflation risk and bonds and not mentioning TIPS at all, and that is that while it would be intellectually honest to mention them, it would make a simplistic story complicated. Buffett wants, for whatever reason, to present a simplistic story.

SImilarly, his presentation of the "safety" of stocks is not fairly presented. It, too, is a simplistic story. The "safety" of stocks was the whole premise behind the book Dow 36000, which said that :"A sensible target date for Dow 36000 is early 2005 but it could be reached much earlier." They said that for a specific reason. The reason was that Jeremy Siegel's work demonstrated that stocks were as safe as bonds, and now that the information was diffusing through the investment world, stocks would be bid up to the point where the risk premium was eliminated and were all but mathematically certain to reach Dow 36000 within that time frame. The fact that it did not happen shows that stocks are not as safe as bonds.

I believe Buffett's motive for presenting as he does is not to inform, but to exhort; not to present the clearest and most accurate picture of the truth as he knows it, but to convince the general public to invest in stocks--in the interest, perhaps, of a greater good. Virtuous propaganda, perhaps, but propaganda.
I think he makes a fair point about bonds given how he defines investing as "forgoing consumption now in order to have the ability to consume more at a later date [after taxes have been paid on nominal gains]."

I'm sure he is more than aware of TIPS since he wrote the forward to a book in which TIPS was explained. However, even if TIPS functioned in a more or less ideal environment in which inflation is indexed "correctly", it would still have trouble protecting purchasing power with our current interest rates. The federal tax we pay on TIPS means we will still lose purchasing power in the long run albeit at a slower pace.

He is also not as manipulative or simplistic as you seem to paint him. If you read Buffett's letters to shareholders, he has been tremendously forthright and transparent in the presentation of his assertions. He buys businesses. It does not benefit him to persuade more people to enter the equity market and compete with him. He has no incentive to lie about the advantages of equity.

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Re: Berkshire Annual Letter Out Saturday

Post by FafnerMorell » Fri Feb 24, 2012 9:40 am

While I find Buffet's letters entertaining, there's a lot of spin/propaganda in them - in fact, they're probably more useful as "How to spin your message using folksy wisdom and carefully limited transparency" than as any sort of accurate insight into the real state of his business or the economy. They're definitely a notch above any other letters to shareholders I've come across, but it's not like I can think of any that serve as beacons of truth & insight.

But hey, Steve Job's presentations were similar in that they serve better as an example of "Here's how you do a masterful presentation" than about the products themselves (not that I like iPhone & iPad & Nano any less). When you're a CEO, you need to communicate your companies message - and while it's better to be honest (or at least, not to lie so blatantly everyone notices), there's a lot of grey area (when Steve Jobs talked about magic, everyone knew he didn't really mean Harry Potter-type 'magic' - right?).

So while I'll read through the letter, I don't really expect much from it in the way of actionable information. Which is fine, it's not like I've got individual shares of BH to buy/sell.

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Re: Berkshire Annual Letter Out Saturday

Post by PizzaOnTheMind » Fri Feb 24, 2012 1:12 pm

I'd really like to hear about some concrete examples of why people still refer to his writings as propaganda. What exactly is his agenda? Let's please use specifics here, there's over 30 years of writings to pick through. Otherwise we are just name calling.

And he has given us tremendous amounts of truth and insight in his annual letters. He lays things out very clearly even when it may reflect poorly on him. Especially try reading his letters from the '70s and '80s to see his discussion on inflation and fixed income assets. You'll see he has been extraordinarily consistent in his message throughout the decade and he has followed it himself into becoming one of the world's richest man.

And I do not understand the comparison between Steve Jobs and Buffett. What does one have to do with the other?

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Re: Berkshire Annual Letter Out Saturday

Post by craigr » Fri Feb 24, 2012 1:22 pm

.....
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Re: Berkshire Annual Letter Out Saturday

Post by fareastwarriors » Fri Feb 24, 2012 1:26 pm

I think Buffett said many times an individual is much better off buying a low cost index fund.

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Re: Berkshire Annual Letter Out Saturday

Post by ddb » Fri Feb 24, 2012 1:47 pm

fareastwarriors wrote:I think Buffett said many times an individual is much better off buying a low cost index fund.
Jim Cramer has also said this..

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Re: Berkshire Annual Letter Out Saturday

Post by PreserveCapital » Fri Feb 24, 2012 2:01 pm

Buffett is arguably a spinmeister talking his own book, but let's also give him some credit for sincerity based on his presumptive perspective.

He's a long-term value investor, and he likes to try to purchase assets when he feels they're priced low and hold on for the long term or if he's selling, sell for a nice high price.

Also, he eschews paying too much for an asset, even if it's a very good asset, because value investors think if you pay too much you will not have a big enough margin of safety (another of Buffett's catch phrases).

The bond market has depressed yields and thus raised prices to an extreme amount, from this perspective. Be it due to fed action or for whatever reason.

On the other hand, the broad stock market, while it has fluctuated, has been more or less flat for a dozen years.

If we are looking forward with a ten, 15, or 20 years or longer perspective on our investments--AND from a position of overall longterm optimism on the health and strength of the American economy--and this appears to be where Buffett is speaking to--then it's certainly not unreasonable to believe that over the next ten to 20 years, equities will outperform fixed income.

But as was discussed in another thread, Buffett has what is actually a relatively huge cushion of fixed income including about $20 billion in U.S. short term treasuries which is 10% of Berkshire's market cap.

So Buffett is really talking about the long term growth portion of an investor's portfolio, NOT the "safety net" portion. His first rule of thumb is "Don't lose money." Second rule is "When in doubt refer to Rule 1." And he always demands a significant "margin of safety."

I have little doubt that if the bulk of an individual's assets consisted of a farm, he would not advocate mortgaging the farm and betting it on equities, under any circumstances.

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Re: Berkshire Annual Letter Out Saturday

Post by FafnerMorell » Fri Feb 24, 2012 2:03 pm

PizzaOnTheMind wrote: And I do not understand the comparison between Steve Jobs and Buffett. What does one have to do with the other?
Maybe my comparison was too complicated for you, but it seems like a pretty simple concept:
- Warren Buffet is good at writing shareholder letters
- Steve Jobs is good at giving presentations
However, the goodness of a letter or presentation does not necessarily depend on the goodness of what's being described/presented.

If this is still a bit confusing, how about this: It's not uncommon to have salespeople come to one's door to pitch a vacuum cleaner (yeah, I'm kind of surprised this still actually happens, but it's about a 2-3 times a year occurrence for me). Some of them give very good opening sales pitches, some don't. However, they're all selling the same vacuum cleaner, and the persuasiveness of the sales pitch doesn't change the quality of the product.

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Re: Berkshire Annual Letter Out Saturday

Post by FafnerMorell » Fri Feb 24, 2012 2:18 pm

As for examples of propoganda, there's some on every page. Heck, let's look at the very first page:
Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly
moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than
when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential
is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders
for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and
effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But
look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and
1941, America’s best days lie ahead.
Now, this is nice, upbeat propaganda - a form of communication that is aimed at influencing the attitude of a community toward some cause or position (definition stolen right from Wikipedia). But those exact words it could have been said by Reagan in the 1981, W. Bush right after 9/11, or Obama/Romney/whoever today - they're feel-good fluffery. And heck, maybe our best days are ahead (it's depressing to consider if they're not). And it's better advice than "Sell everything you own and buy guns and live in the woods and shoot at anyone who approaches".

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Re: Berkshire Annual Letter Out Saturday

Post by VennData » Fri Feb 24, 2012 8:42 pm

Read the letter every year. Warren Buffet is truly brilliant. You can learn alot about business for yourself even if you are a Bogleheads purist.

Nis,

Buffet doesn't like all stocks, nor does he not dislike all bonds. In a recent article he talks favorably about corporates and he is saying that bonds on average will be out returned by stocks... that is something we can settle in a decade or so and with TIPs having a negative yield right now, I would also bet on stocks over five, ten and thirty years...

http://finance.fortune.cnn.com/2012/02/ ... er-letter/

Also to say he has the same assumptions as the DOW 36,000 guys does not include the many different assumptions he has from them.

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Re: Berkshire Annual Letter Out Saturday

Post by abuss368 » Sat Feb 25, 2012 10:25 am

My two cents:

I always enjoy reading and listening to Mr. Buffett. I feel there are far more folks in the investing realm to be critical of than him.

There is a book on amazon.com with many of his shareholder letters all together.

I have received a copy of his book, the Snowball, and I am looking forward to reading it.

While I am surprised about his recent comment on bonds, I feel overall he is trying to educate most common folks with such comments as many would be better off in a low cost index fund.
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Re: Berkshire Annual Letter Out Saturday

Post by RRP » Sat Feb 25, 2012 10:28 am

Wiki

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Re: Berkshire Annual Letter Out Saturday

Post by Fallible » Sat Feb 25, 2012 10:58 am

FafnerMorell wrote:While I find Buffet's letters entertaining, there's a lot of spin/propaganda in them - in fact, they're probably more useful as "How to spin your message using folksy wisdom and carefully limited transparency" than as any sort of accurate insight into the real state of his business or the economy. They're definitely a notch above any other letters to shareholders I've come across, but it's not like I can think of any that serve as beacons of truth & insight.

But hey, Steve Job's presentations were similar in that they serve better as an example of "Here's how you do a masterful presentation" than about the products themselves (not that I like iPhone & iPad & Nano any less). When you're a CEO, you need to communicate your companies message - and while it's better to be honest (or at least, not to lie so blatantly everyone notices), there's a lot of grey area (when Steve Jobs talked about magic, everyone knew he didn't really mean Harry Potter-type 'magic' - right?)....
This is pretty much the way all company statements should be read - with a healthy dose of skepticism and the realization and acceptance that they are statements made mainly to be favorable to the company. Some, such as Buffett's, are done better than others (must be that "folksy wisdom") and that's why I like to read his - that and the fact that this IS, after all, the legendary Warren Buffett. As for Jobs, yes, it was the presentations and the presentations by the legendary Jobs himself that were fun to watch. To get the real info on his products, you'd want to read a good tech columnist.
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Re: Berkshire Annual Letter Out Saturday

Post by fishnskiguy » Sat Feb 25, 2012 11:30 am

I can't think of one single time in the past when I disagreed with Nisi, but today I do.

Another good example that no good deed goes unpunished.

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Re: Berkshire Annual Letter Out Saturday

Post by tsfdma » Sat Feb 25, 2012 12:13 pm

I think Buffett is overrated as an investor, and underrated as a businessman!

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Re: Berkshire Annual Letter Out Saturday

Post by grayfox » Sat Feb 25, 2012 12:39 pm

The stuff of general interest to investors is on page 17 under the heading The Basic Choices for Investors and the One We Strongly Prefer

Here Buffet explains their definition of risk:
The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability – the reasoned probability – of that investment causing its owner a loss of purchasing-power over his contemplated holding period.
So Buffet doesn't believe that volatility in prices is risk, but instead risk is the probability of losing purchasing power; in other words trailing inflation, i.e. the probability if realizing a negative real return.

First of all, I would note that Buffet's definition of risk is at odds with modern finance which is that risk is uncertain outcome that has consequence. There are threads on Bogleheads where this definition is discussed.

Also, modern finance separates risk from return. The basic principle is that low risk implies low return, and high return requires high risk.

But Buffet rolls risk and return all together into one. By Buffet's definition of risk, low expected return means high risk. So, for instance 5-year TIPS yielding -1.42% would be high risk because there is about 100% chance of losing purchasing power.

I would rather think of TIPS as low risk but (at this time) negative return, and yes, you are 100% guaranteed to lose purchasing power. But there is little or no uncertainty of the outcome, so I wouldn't call it risk.

It's like, if you load a 357 magnum, point it at your head and pull the trigger, the outcome is going be unfavorable. But there is not that much uncertainty, so it's not really risky, is it? It's just deadly.

So I think there is a logical flaw in Buffet's definition of risk.

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Re: Berkshire Annual Letter Out Saturday

Post by PreserveCapital » Sat Feb 25, 2012 1:01 pm

Buffet is explicit in his optimism over the long term of the growth, in real terms, of the American economy. He views equity ownership as owning pieces of the underlying businesses.

I think all of us pretty much agree with this general proposition or else there would be no point in investing in risky assets such as equities, at all. We would all have Zvi Bodie all-TIPS portfolios, wouldn't we?

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Re: Berkshire Annual Letter Out Saturday

Post by abuss368 » Sat Feb 25, 2012 2:06 pm

Has anyone read his book, The Snowball?
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Re: Berkshire Annual Letter Out Saturday

Post by ilmartello » Sat Feb 25, 2012 3:12 pm

FafnerMorell wrote:As for examples of propoganda, there's some on every page. Heck, let's look at the very first page:
Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly
moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than
when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential
is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders
for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and
effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But
look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and
1941, America’s best days lie ahead.
Now, this is nice, upbeat propaganda - a form of communication that is aimed at influencing the attitude of a community toward some cause or position (definition stolen right from Wikipedia). But those exact words it could have been said by Reagan in the 1981, W. Bush right after 9/11, or Obama/Romney/whoever today - they're feel-good fluffery. And heck, maybe our best days are ahead (it's depressing to consider if they're not). And it's better advice than "Sell everything you own and buy guns and live in the woods and shoot at anyone who approaches".
this was not in the annual letter

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Re: Berkshire Annual Letter Out Saturday

Post by yobria » Sat Feb 25, 2012 3:43 pm

PreserveCapital wrote:Buffet is explicit in his optimism over the long term of the growth, in real terms, of the American economy. He views equity ownership as owning pieces of the underlying businesses.

I think all of us pretty much agree with this general proposition or else there would be no point in investing in risky assets such as equities, at all. We would all have Zvi Bodie all-TIPS portfolios, wouldn't we?
Yes, ownership of equities is a bet that, over your time horizon, the "world risk" (individual stock risk, sector risk, and country risk can be diversified away) won't show up. When you're working, you can hedge this risk by investing new money on a regular basis. As your human capital dwindles, you'd hedge with fixed income, of course.

Beagler
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Re: Berkshire Annual Letter Out Saturday

Post by Beagler » Sat Feb 25, 2012 3:53 pm

craigr wrote:
nisiprius wrote:I do not feel that Warren Buffett is intellectually honest in his public statements; I put him in the "spinmeister" category.
Couldn't agree more.

BTW. The past decade he was trounced by Vanguard's Wellington and Welleseley funds. He barely beat Vanguard's short-term Treasury bond fund over this time:

Image
Over a longer period of time...

Image
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

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jjustice
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Re: Berkshire Annual Letter Out Saturday

Post by jjustice » Sat Feb 25, 2012 3:56 pm

On page 18 Buffett says: "Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a
warning label. Under today’s conditions, therefore, I do not like currency-based investments."

Some have wondered why he didn't mention TIPS. He wants real return (purchasing power). TIPS guarantee real loss for maturities up to 10 years and more. Only nominal bond holders risk real loss.

John

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Re: Berkshire Annual Letter Out Saturday

Post by PreserveCapital » Sat Feb 25, 2012 3:58 pm

Beagler wrote:
craigr wrote:
nisiprius wrote:I do not feel that Warren Buffett is intellectually honest in his public statements; I put him in the "spinmeister" category.
Couldn't agree more.

BTW. The past decade he was trounced by Vanguard's Wellington and Welleseley funds. He barely beat Vanguard's short-term Treasury bond fund over this time:

Image
Over a longer period of time...

Image
Actually all the difference in the returns shown in the first chart has occurred since the 08/09 crisis. It would be interesting to see how much of the outperformance of the funds w/r/t Berkshire since that time could be attributed to the artificially low interest rates of the QE's. If it's very substantial then one would have to speculate that the lines might re-cross at some point in the future under a different interest rate/economic regime.

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Re: Berkshire Annual Letter Out Saturday

Post by chaz » Sat Feb 25, 2012 6:33 pm

Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

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Re: Berkshire Annual Letter Out Saturday

Post by FafnerMorell » Sat Feb 25, 2012 7:27 pm

ilmartello wrote:
FafnerMorell wrote:As for examples of propoganda, there's some on every page. Heck, let's look at the very first page:
Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly
moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than
when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential
is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders
for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and
effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But
look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and
1941, America’s best days lie ahead.
Now, this is nice, upbeat propaganda - a form of communication that is aimed at influencing the attitude of a community toward some cause or position (definition stolen right from Wikipedia). But those exact words it could have been said by Reagan in the 1981, W. Bush right after 9/11, or Obama/Romney/whoever today - they're feel-good fluffery. And heck, maybe our best days are ahead (it's depressing to consider if they're not). And it's better advice than "Sell everything you own and buy guns and live in the woods and shoot at anyone who approaches".
this was not in the annual letter
Yeah, it was. The 2010 annual letter (not the one that came out today, because I posted the day before).
http://www.berkshirehathaway.com/letters/2010ltr.pdf

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Re: Berkshire Annual Letter Out Saturday

Post by hq38sq43 » Sat Feb 25, 2012 9:53 pm

abuss368 wrote:Has anyone read his book, The Snowball?
Yes and for me it was a page-turner. As I recall, the author put a journalism career on hold for five years to research and write the book, spending much time with Buffett. From that biography and Buffett's own writings, I am persuaded that Buffett has little interest in day-to-day or even year-to-year stock prices. He has said repeatedly that he and his partner Charlie Munger view themselves as owners or part owners of companies, not just owners of stock, and do not buy a stock they would fear holding if the stock market closed for two years. It is telling that virtually his entire personal fortune consists of his ownership interest in Berkshire and he relishes his role as steward of the fortunes of his family and friends. As he says, he and Charlie eat their own cooking. I would not choose his career even if I could, but I admire his personal success and the financial independence he has helped his family, friends, and many others attain.
Harry at Bradenton

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Re: Berkshire Annual Letter Out Saturday

Post by ilmartello » Tue Feb 28, 2012 5:56 am

nisiprius wrote:I do not feel that Warren Buffett is intellectually honest in his public statements; I put him in the "spinmeister" category. So, no, I do not make a point of trying to absorb what he says. A good example would be his recent pronouncement about "bonds" being "among the most dangerous of assets" due to inflation risk. The point here is his complete failure to mention the existence of TIPS. Not even in passing, even to dismiss them.

Since I am sure that he knows that TIPS exists, there can only be one reason for talking about inflation risk and bonds and not mentioning TIPS at all, and that is that while it would be intellectually honest to mention them, it would make a simplistic story complicated. Buffett wants, for whatever reason, to present a simplistic story.

SImilarly, his presentation of the "safety" of stocks is not fairly presented. It, too, is a simplistic story. The "safety" of stocks was the whole premise behind the book Dow 36000, which said that :"A sensible target date for Dow 36000 is early 2005 but it could be reached much earlier." They said that for a specific reason. The reason was that Jeremy Siegel's work demonstrated that stocks were as safe as bonds, and now that the information was diffusing through the investment world, stocks would be bid up to the point where the risk premium was eliminated and were all but mathematically certain to reach Dow 36000 within that time frame. The fact that it did not happen shows that stocks are not as safe as bonds.

I believe Buffett's motive for presenting as he does is not to inform, but to exhort; not to present the clearest and most accurate picture of the truth as he knows it, but to convince the general public to invest in stocks--in the interest, perhaps, of a greater good. Virtuous propaganda, perhaps, but propaganda.
Current TIPS yields guarantee you an after-tax negative real return.
That's not a good deal.

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Re: Berkshire Annual Letter Out Saturday

Post by hazlitt777 » Tue Feb 28, 2012 11:20 am

charlesmorgan wrote:Do any bogleheads look forward to Warren's annual letter to shareholders? I really enjoyed reading the compilation of his essays titled "Lesson's for Corporate America" and many of his annual letters were featured in this book.

They are always good for a common-sensical overview of current conditions. I look forward to reading this next week. :)
Don't read too much into his great returns. People that are well connected like him have information we don't and it makes it unfair. I wouldn't buy his Berkshire shares just on principle. Eventually though, the game will end for him, and I wouldn't want to be holding those shares when it does.

Stay with indexes and stay broadly diversified amongst stocks and bonds...and I include gold in that diversification.

[political comments removed by admin alex]

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Re: Berkshire Annual Letter Out Saturday

Post by abuss368 » Tue Feb 28, 2012 6:08 pm

I don't like gold and am of the opinion that Mr. Bogle is correct. Mr. Swensen has also stated as much. The metal has no intrinsic value, no earning power.

The gold you were holding 100 years ago is the same gold you are holding today with no differences.

That being said, I can respect the various opinions of the many different investors on the forum.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Berkshire Annual Letter Out Saturday

Post by hazlitt777 » Tue Feb 28, 2012 9:58 pm

abuss368 wrote:I don't like gold and am of the opinion that Mr. Bogle is correct. Mr. Swensen has also stated as much. The metal has no intrinsic value, no earning power.

The gold you were holding 100 years ago is the same gold you are holding today with no differences.

That being said, I can respect the various opinions of the many different investors on the forum.
Think a bit about your post. Can't the same, in fact less, be said of the dollar?

The dollar you could have held 100 years ago is not the same as the dollar you are holding today, in fact, much much more valuable. Today's dollar is worth about 2 cents of the dollar of the early 1900s.

And as far as intrinsic value, whatever that is, does the dollar have more? I would argue less.

As far as earning power, is there any intrinsic reason gold couldn't have earning power, just like the dollar? Once, it too could earn interest like the dollar.

But, to each their own. Be diversified in as many ways and with as many different things with which you are comfortable.

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Re: Berkshire Annual Letter Out Saturday

Post by Ruprecht » Tue Feb 28, 2012 10:15 pm

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