Warren Buffett's Annual Shareholder Letter

There is much lore surrounding Buffett's annual shareholder letter. Many of the top investment managers in the country read the letter religiously. You too can read this years letter in its entirety here (warning it is 23 pages long).

This years letter was typical Buffett. He describes his company's successes in a self-effacing manner and throws in some of his characteristic folksy charm. He gives high praise to the managers who run his companies and insists it is them, not him, who truly drive results.

Buffett also highlights some of the major transitions Berkshire has gone through over the years. When Buffett began back in 1965 he and Charlie Munger invested the company's retained earnings and insurance float entirely in marketable securities. Over the years they have shifted to investing in operating companies. In so doing they have for many become a "buyer of choice." In other words business owners would rather sell to Berkshire than any other major buyer. Business owner and entrepreneurs prefer selling to Berkshire because of their successful history and tendency to leave companies in tact. The latter for many entrepreneurs may well be the most important factor.

After 40 years of operations however, Berkshire had never acquired an operating business outside of the US. In 2006 Berkshire did just that, acquiring ISCAR, an Isreali cutting tool business. Personally I feel that this is an important ideological shift for Berkshire and I'm certain it opens up the door to another period of impressive growth. Berkshire should look to increase its international holdings without lowering the quality of its acquisitions.

Later in the letter Buffet bemoans US spending habits and the transfer of assets overseas. He sees further dollar declines to come as the price to pay for our trade imbalances. Indeed he has put his money where his mouth is and his shareholders are profiting immensely from foreign currency transactions.

The most interesting part of the letter however was Buffett's acknowledgement that Berkshire doesn't actually have a long term replacement to run his investment division. He has developed a plan however:

I intend to hire a younger man or woman with the potential to manage a very large portfolio, who we hope will succeed me as Berkshire's chief investment officer when the need for someone to do that arises.

Anyone care to send in an application?