Buffett’s Annual Letter 2013 / 2012

At 4:15 pm EST today [Friday March 1, 2013], thousands of journalists and a large percentage of the 600,000 shareholders of Berkshire Hathaway downloaded the company’s 2012 annual report, which includes Warren Buffett’s famous annual letter.  (Fans may also include the company’s nearly 300,000 employees.)

I was among those downloading and talking to reporters afterwards, conversations which will continue all weekend and indeed right through the annual meeting in Omaha on May 4 when about 40,000 shareholders will convene for what Buffett has for decades called “the Woodstock of capitalism.”

Among this year’s highlights:  2012 was only the 9th year in Berkshire’s 48 year history that the company’s percentage gain in book value did not beat the S&P’s gain.  But the gain was still impressive at 14.4% (versus 16% for the S&P), with Berkshire racking up $24.1 billion for its shareholders.

Berkshire benefited from powerful insurance operations that gave it the free use of $73 billion, called float, premiums received which Berkshire holds for its own use.  Float has been a huge driver of Berkshire’s success over the years.

Buffett is very bullish on America, from both an investment and management perspective. That is a contrarian outlook compared to the skittishness and cash-hoarding propensities of many fellow CEOs.  “Opportunities abound in corporate America,” Buffett writes, adding “America’s destiny has always been clear: ever-increasing abundance.”  (See also Matt Krantz at USA Today, quoting me on this point.)

For the first time, Buffett shares investment and capital allocation responsibilities with others. As part of the succession planning underway at Berkshire for a few years, the board appointed Todd Combs and Ted Weschler as senior investment officers. In 2012, they participated in selecting one of Berkshire’s 15 common stock investments whose market value exceeds $1 billion.  The pick: DIRECTV.  Berkshire/Buffett followers will be watching that stock like a hawk this year.

Another treat is a fascinating essay on the economics of the newspaper business, in which Berkshire increasingly allocates investment capital. That’s interesting because this marries one of the most traditional businesses imaginable to today’s complex tech environment in which the news is delivered.  (That essay will go into future editions of my book, The Essays of Warren Buffett: Lessons for Corporate America, a new edition of which will be released on March 15, well ahead of this year’s annual meeting!)

(A related point: the separation of church and state seems alive and well.  Buffett tells us he voted for President Obama, whereas of the 12 daily newspapers that Berkshire owns making a public endorsement, 10 chose Mitt Romney while 2 picked Buffett’s favorite.)

An interesting new discussion of why it’s better for Berkshire to avoid paying cash dividends, its historical practice, appears, and is well worth reading.  In it, notably, Bufett notes that he has given away 4.5% of his Berkshire shares to charity in each of the last 7 years and intends to continue increase that giving in coming years.  Even so, the value of his Berkshire holdings have increased over that period, from $28 billion to $40 billion.

Sometimes what’s not said is also important, and Buffett makes no mention of his cancer treatment or diagnosis. I take that as a good sign, that the radiation therapy disclosed last summer is doing what the oncologists hope.  I certainly hope so.

There are other highlights in this year’s missive, too numerous to mention. And having only enjoyed this year’s letter for less than one hour, I’m going back to it to see what else is there.

An update: check out my notes on the 2013 Berkshire annual meeting, here.   

Photograph: Warren Buffett teaching my class at Cardozo Law School (1999).

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