2017 letter

[Charlie]

http://www.berkshirehathaway.com/news/feb2218.pdf

 

OMAHA, NE—Berkshire Hathaway Inc.’s 2017 Annual Report to the shareholders will be posted on the Internet on Saturday, February 24, 2018, at approximately 8:00 a.m. eastern time where it can be accessed at www.berkshirehathaway.com. The Annual Report will include Warren Buffett’s annual letter to shareholders as well as information about Berkshire’s financial position and results of operations. Concurrent with the posting of the Annual Report, Berkshire will also issue an earnings release.

 

 

Cheers!  :)

[rb]

Warren Buffett to retire from Kraft Heinz board.

 

https://www.bloomberg.com/news/articles/2018-02-23/warren-buffett-to-retire-from-kraft-heinz-board-as-his-term-ends

 

I don't want to be a downer but this coupled with Abel and Jain being named vice chairs gives me a bad feeling that the Buffett era may be coming close to an end. We may get some big changes/revelations in the Letter tomorrow.

[fareastwarriors]

Warren Buffett to retire from Kraft Heinz board.

 

https://www.bloomberg.com/news/articles/2018-02-23/warren-buffett-to-retire-from-kraft-heinz-board-as-his-term-ends

 

I don't want to be a downer but this coupled with Abel and Jain being named vice chairs gives me a bad feeling that the Buffett era may be coming close to an end. We may get some big changes/revelations in the Letter tomorrow.

 

I saw (and posted on Kraft thread) but I was also thought about potential future Kraft m/a action. It might be easier to work a deal with him off the board. 

[John Hjorth]

Warren Buffett to retire from Kraft Heinz board.

 

https://www.bloomberg.com/news/articles/2018-02-23/warren-buffett-to-retire-from-kraft-heinz-board-as-his-term-ends

 

I don't want to be a downer but this coupled with Abel and Jain being named vice chairs gives me a bad feeling that the Buffett era may be coming close to an end. We may get some big changes/revelations in the Letter tomorrow.

 

Nothing wrong about that, if its based on BRK corporate govenance.

[StubbleJumper]

Warren Buffett to retire from Kraft Heinz board.

 

https://www.bloomberg.com/news/articles/2018-02-23/warren-buffett-to-retire-from-kraft-heinz-board-as-his-term-ends

 

I don't want to be a downer but this coupled with Abel and Jain being named vice chairs gives me a bad feeling that the Buffett era may be coming close to an end. We may get some big changes/revelations in the Letter tomorrow.

 

Nothing wrong about that, if its based on BRK corporate govenanence.

 

 

It could be a very good thing.  If WEB's energy level or mental acuity are weakening, then we want him to concentrate what's left on the allocation of BRK's $109+ billion of cash.  That's where he has a comparative advantage over almost everyone else on the planet.

 

Let somebody else sit on the Heinz board of directors to agonize over the best way to produce ketchup and Kraft Dinner.

 

 

SJ

[Sharad]

It's released.

[Sharad]

It's released.

 

Love the discussion on the Protégé 10 year wager.

 

"Performance comes, performance goes. Fees never falter."

 

"The bet illuminated another important investment lesson: Though markets are generally rational, they

occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in

economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an

ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look

unimaginative for a sustained period – or even to look foolish – is also essential."

 

I should repeat this to myself early and often.

 

"I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far

riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio

of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible

multiple of earnings relative to then-prevailing interest rates.

 

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."

 

No wonder he's trading shorter term bills.

 

 

[Dynamic]

Before the impact of Tax Cut Bill, Book Value Per Share increased by 12.72%.

After the Tax Cut, Berkshire's BVPS increased by 23.03%.

 

BVPS = $141.17 for BRK.B, $211,750 for BRK.A

 

Markel increased 12.74% in 2017 including the effect of the Tax Cut.

 

Fairfax increased 22.36% in USD in 2017 (Canada)

 

White Mountain Insurance increased 15.82% in USD in 2017 (Bahamas)

 

S&P500 TR rose 21.8% in 2017.

BRK rose 21.9% in 2017.

[Sharad]

Before the impact of Tax Cut Bill, Book Value Per Share increased by 12.72%.

After the Tax Cut, Berkshire's BVPS increased by 23.03%.

 

BVPS = $141.17 for BRK.B, $211,750 for BRK.A

 

Markel increased 12.74% in 2017 including the effect of the Tax Cut.

 

Fairfax increased 22.36% in USD in 2017 (Canada)

 

White Mountain Insurance increased 15.82% in USD in 2017 (Bahamas)

 

S&P500 TR rose 21.8% in 2017.

BRK rose 21.9% in 2017.

 

Did you find the letter incredibly short, and mostly devoid of the usual nuggets of wisdom? There was an incredible silence, I feel.

[tede02]

Buffett's public comments about stocks being "cheap" certainly contrast with his comments on the lack of attractive acquisition opportunities (because of high prices). 

[thowed]

It's pretty easy to read into it what you want, but I did pause on the part about the four major dips, as well as the lack of attractive acquisition opportunities.

[Sharad]

It's pretty easy to read into it what you want, but I did pause on the part about the four major dips, as well as the lack of attractive acquisition opportunities.

 

The last time I recall the letter being this short was the 1999 letter.

[ValueMaven]

Wow...what an odd letter!!!!!!!!

 

Even still I enjoyed it....

 

Would have liked to hear more on the operating results of our companies however...

 

Greg Abel is next CEO, and Ajit will remain head of insurance opps....

 

Nothing on buyback, or the cash levels...basically, BRK isnt going to pay a dividend anytime soon...also odd nothing mentioned on intrinsic value....WEB did say he has talked a lot about this before, so maybe he wanted a change? 

 

Sincerely,

ValueMaven

[kiwing100]

The last time I recall the letter being this short was the 1999 letter.

 

The discussion of the business units was not included in the Chairman's letter as in prior years.  The discussion of the business units was covered in another part of the annual report - that was referred to in the Chairman's letter.

 

"For many years, this letter has described the activities of Berkshire’s many other businesses. That discussion

has become both repetitious and partially duplicative of information regularly included in the 10-K that follows the

letter. Consequently, this year I will give you a simple summary of our dozens of non-insurance businesses. Additional

details can be found on pages K-5 – K-22 and pages K-40 – K-50."

[StubbleJumper]

Not much insight in this year's letter.  Just another re-hash about how "helpers" adversely affect your returns.  It was a quick read and I likely won't refer back to it in the future (unlike some previous letters which I've re-read multiple times).

 

 

SJ

[scorpioncapital]

I get the impression the dynamic he describes about selling a 100 p/e bond and buying a 20 or lower P/E Berkshire stock is a process that may be going in reverse but with quite some lag. I mean he did wait for the bond to reach 100 p/e, not 80 or 70 or 60. However today the S&P yield is 1.8% and the 10 year bond is about 3%. The ratio he describes is 0.88% to 2.5% cash yield or 2.8x. Not sure if this suggests that the two should diverge by this number for the very reverse dynamic to occur. However eyeballing it this would imply a a 4 to 4.5% 10 year and adding in a bit for dividend growth.

 

I don't remember where I saw the formula but something about a maximum stock p/e in relation to long bond. If the long bond is 3%, that's a P/e of 33...so is it better to buy a stock at 1/2 that (16.5x p/e max?) to be conservative +/-?

 

[Guest longinvestor]

What a gift from the tax act! Earnings per share essentially doubled with the stroke of a pen. Unless they take it away, this is the shot heard around the shareholders’ world in a long time to come. Berkshire ‘s move towards owning ever more of America is paying off big time. Mother lode of opportunity indeed.

 

Bring on more such underwhelming and boring letters. Some big deals will spice things up. Munger “ The stuff we already have should be enough"

[gfp]

He's bummed he can't buy anything big.  It will be particularly interesting to see his tone and general condition in Monday morning's CNBC interview.

 

Waiting for the cycle to turn in your favor sucks for everyone, but it's especially lame when you're almost 90... 

[Cigarbutt]

Read the letter in parallel to the Semper Augustus piece.

Typical annual reminder how the stuff is simple but not easy.

 

In terms of valuation,

-for the underwriting side, the table of growth in premiums and float and related comments suggest that this aspect still warrants a premium but much less than in the earlier years.

-for the investment side, the premium attributed may be a function of the importance that one attributes to the cash optionality that is now potentially formidable.

 

The letter was short and to the point. I liked it.

BH is a masterpiece and it may be time for the last strokes from the Master.

 

[Cardboard]

"Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us

believe it is insane to risk what you have and need in order to obtain what you don’t need."

 

Add to leverage, aversion to high concentration, and this is a lesson from 2013-2014 that I am not about to forget.

 

When things go your way for years (almost 2 decades), delivering 10-20%+ above index returns (pre-leverage) and appear easy, you are highly subject to make over-confidence mistakes and to ignore some risks.

 

I also wish I had never heard of Buffett's bet that he could make 50% returns with a small sum. Setting high goals is essential in my opinion to achieve something great however, when ambition becomes too large it too makes you ignore some risks.

 

Cardboard

[Aberhound]

The letter was short but I wonder if he has a lesson from the lack of discussion of the prospects of many businesses. He focuses instead on the big picture prices silly, bond rates were ridiculously low with ridiculously easy deabt availability last year, he is loading up on cash and now they introduce mark to market valuation of unrealized gains? Notice he points the huge historical drops in BRK prices.

 

In Wayne Jett's excellent book Fruits of Graft he points out that this mark to market rule is stupid as in enhances instability in downturns and it was brought in by the mercantalists along with other similarly stupid policies during the Great Depression, removed only in 1938 and in 2007 just before the 2008 crisis.

 

What does Buffett expect? He can't say everything he thinks hence the short letter to emphasize these points? Policies in the EU and during Obama's term have been as stupid as the policies leading up to the Great Depression. Wayne Jett points out that mercantalists from time to time choose policies to enhance booms then worsen the collapses so they can buy cheap and impoverish the middle classes to better maintain their power.

 

We should all prepare for the same like Berkshire.

[Munger_Disciple]

I was surprised that there were no comments about the IBM sale & reallocation of the proceeds to Apple and about the on-going saga at Wells Fargo.

[sleepydragon]

I have read all of Web's past letters for three times. I thought this one is another great one!

[augustabound]

I have read all of Web's past letters for three times. I thought this one is another great one!

 

What in particular did you like?

[Cigarbutt]

Aberhound,

"...this mark to market rule is stupid as in enhances instability in downturns and it was brought in by the mercantalists along with other similarly stupid policies during the Great Depression, removed only in 1938 and in 2007 just before the 2008 crisis."

 

With all due respect, I don't subscribe to the "mercantalist theory" in its pure form. With all due respect 'cause I tend to respect people who are more intelligent.

 

Would like to add the following:

Going in 2008-9, it seems that many scenarios could have played out as animal spirits were in disarray.

Who knows what measures were necessary, planned or otherwise, but I think (FWIW) that a major (and unusually little mentioned) factor that helped turn the sentiment tide around was the FASB "modification" imposed by Congress in March/April 2009 concerning the "relaxed" definition of mark-to market accounting to take into account liquidity distortions (rule 157 suspension).

In my mind, that simple measure contributed immensely in asset value recovery.

Some would say that these measures prevented perhaps a necessary restructuring and was actually part of a series of moves to extend and pretend.

Some would even say that this was orchestrated. :)

Kindergarten advice from Mr. Buffett:

"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."