Buffet's Annual Letter
Research for Online Investors

by John Dalt

3/2/11

We are busy in the market today, and working on our mailing list problems.  I am however, taking time to read Warren Buffett’s annual letter to Berkshire Hathaway shareholders.  This is the first year in some time we have not owned Berkshire Hathaway (BRK-B) in our Long-Term Portfolio.

We elected to sell the stock last summer when everything looked pretty rough, and take some money off the table.  I don’t regret selling it (we made 49%) but it is always nice to own a great company.  Plus, I always enjoyed receiving the annual report and invitation to attend the shareholder’s meeting in Omaha.  I would tell our subscribers every year I was going to try to attend, but the date conflicts with high school and college graduation ceremonies.  It seems like I have had one or the other, and sometimes both for the last five years.

This will be the first year in some time I don’t have either, and I don’t own the stock!  Maybe I’ll see about a press pass or something.  If you have never read Mr. Buffett’s letters, they are better than mine.  It is refreshing to read his honest appraisal of the operations and decisions made on behalf of shareholders.

Read Buffett's Annual Letter

One of the interesting points I learned today was that BRK does not provide directors and liability insurance for the members of the Corporate Board.  Mr. Buffett tells readers that the board members own shares in the company in excess of $3 billion dollars (not counting his). “If they mess up with your money, they will lose their money as well.”

Wouldn’t we all sleep better if the company’s we owned stock in had the same requirement of their board of directors?  It always puzzles me when I see boards made up of “professional” members.  Most of these are just rubber stamps for the CEO, and collect their director fees.  One other refreshing point about BRK, they do not provide compensation, stock options, or restricted stock to the members of their board.

These are toxic arrangements to me.  I hate to see directors, and executives, lining their pockets with stock options.  Why don’t they just buy the stock with their hard earned money like the rest of us?

I would not serve on a board without the benefit of director’s liability insurance, and I speak from personal experience.  I served on the board of a non-profit organization up until last year.  I was a lone voice on the board pushing for change and accountability.  The problems of the organization’s management were happily ignored by the rest of the board members.  The destruction of the organization was only one lawsuit away, and we got it good and hard.  What do you say afterwards?  I resign.

Quote:
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact.—Warren Buffett

To the mailbag:
Is there any alternative to a consumption based economy? Is it possible to have a vibrant economy without ever increasing increases?---subscriber J.R.

John’s reply:  Yes.  Consumption based economies don't work.  That is like building a town on residential property taxes, it doesn't work.  You have to have business taxes because they do not consume services but pay higher rates of tax.  A consumption based economy is like a bloodhound following its own footsteps.  It runs in circles.  The only true way to have a PRODUCTIVE economy is manufacturing.  Produce things that people value more than the money in their pocket.  Further, the best manufacturing is capital goods because these are bought when other businesses are growing from demand.  The purchase of capital goods indicates a growing economy.  That is why the stimulus was such a waste.  Government tried to stimulate consumer demand, rather than reduce regulation and taxes to encourage business investment.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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