circulating today's NYTimes editorial on Warren Buffett and his annual
report to the shareholders in his company, Berkshire Hathaway. He is not
only a genius investor but my favorite (and only) guru on saving,
markets, investing, and corporate ethics. The edit text is below.
In 1995 I wised up and turned my modest post-retirement IRA over
to Buffett by buying a minuscule number of shares in his company. He
never pays a dividend, but his average annual gain for the past 40 years
has been better than 20% in share value, and in my case it's been closer
to 25% annually for the past 12 years. I'm not bragging; Buffett did all
the work. I won't recommend that you get on board, as that may put me in
trouble with the SEC or somewhere in this administration, who knows
where. Therefore, this is not a solicitation or recommendation for a
stock purchase...I trail off.
The Rational Mr. Buffett
Warren Buffett is famous worldwide for his investing acumen and lately also for his philanthropy. But his nickname, the Oracle of Omaha, does him something of a disservice. Rather than interpreting messages from the heavens, Mr. Buffett’s greatest asset may be his real-world sense, which too many others in the nation’s executive suites seem to lack.
Each year many in the investment community await his chairman’s letter to Berkshire Hathaway shareholders for hints on how they might imitate his extraordinary success. And each year Mr. Buffett uses the letter to warn about the business world’s misplaced enthusiasms and excesses, like outsized executive compensation — which he opposes — and stock options, which he has long insisted should be counted as expenses, as is now required.
Mr. Buffett is also against the practice of issuing quarterly earnings guidance, the self-imposed benchmarks that drive executives to sacrifice long-term strategy for a short-term payoff. This month a Chamber of Commerce commission is expected to urge companies to stop making these predictions. Given how often he is right, investors should take note of his critique this year of the exorbitant fees that hedge funds charge. “When someone with experience proposes a deal to someone with money,” he wrote, citing an old saying, “too often the fellow with money ends up with the experience and the fellow with the experience ends up with the money.”
Mr. Buffett’s letters are not only for those with a lot of money or a lot of experience. With a ribald joke here and a quote from Winston Churchill or Benjamin Franklin there, he demystifies rather than confuses. In this year’s letter he confesses that at times, even he is baffled by the footnotes in other companies’ annual reports, which too often obscure rather than explain their financial maneuvering. “We go away suspicious that the reporting company wished it that way,” he wrote. As an example, he suggests trying to decipher a few of Enron’s filings, “even after you know how the movie ended.”
It would be easy to reduce the man to a folksy cliché, a Norman Rockwell portrait of the kindly old investor who preaches fiduciary responsibility. But last week he also announced that his company made $11 billion in profits last year, up 29 percent from the year before. Reason enough for the financial community to heed his words.