
Berkshire Hathaway 2014 Annual Report [pdf] - dluan
http://berkshirehathaway.com/2014ar/2014ar.pdf
======
tptacek
Interesting:

 _Shortly after we purchased Gen Re, it was beset by problems that caused some
commentators --- and me as well, briefly --- to believe I 'd made a huge
mistake. That day is now long gone. General Re is now a gem._

And, regarding Clayton Homes (their mobile-home manufacturer which also offers
mortages both to Clayton homeowners and owners of other manufactured homes):

 _Many of our buyers how low incomes and mediocre FICO scores.. our blue-
collar borrowers have often proved to be much better credit risks than their
higher-income brethren._

This is interesting as it is apparently true, by the numbers, and also a slap
at investment bankers.

I also love that the person who manages the annual shareholder meetings,
"Woodstock for Capitalists", is a 30 year old that was hired 6 years ago.

Also, does anyone have color on went wrong with Tesco? Buffett writes that he
lost faith in the management team, which seems like an unusually direct
condemnation given all the other way he had to explain their exit from that
position.

~~~
rdtsc
> This is interesting as it is apparently true, by the numbers, and also a
> slap at investment bankers.

Usually the "higher-income brethren" are not succumbing to the ethical and
moralistic brainwashing regarding defaults, and bankruptcies. For them
"bankruptcy" != "I am a lazy, bad, and irresponsible person" it is just a risk
calculation in an excel spreadsheet.

~~~
darkstar999
> succumbing to the ethical and moralistic brainwashing

Ugh. "brainwashing"? A bankruptcy for a low- or middle income earner would be
much more disruptive than it would be to a high-income earner. Your opinion
(or how I am reading it) is elitist at the very least.

~~~
rdtsc
> A bankruptcy for a low- or middle income earner would be much more
> disruptive than it would be to a high-income earner

It would be. But I am saying even if even they wouldn't, the higher income
earner will have less moral and ethical qualms about walking away.

In other words they would do the math and seeing that their million dollar
home is under water, they would throw the keys at the bank and walk away.

While perhaps someone raised and believing in hard work, paying your debts,
being fair and responsible, would actually feel like they are letting the bank
down or they are violating some core ethical principles, and might lose sleep
over it.

~~~
darkstar999
That makes sense. But "succumbing to the ethical and moralistic brainwashing"
makes it sound like you think it's ethically and morally justified to walk
away from a loan.

~~~
science4sail
I imagine that he/she is looking at it from the perspective of the high-income
person. In that case, defaulting is no more evil than losing money in the
stock market or having one's business perform badly this quarter. Sure, the
financial impact may be painful, but all parties involved should have been
aware of the risks of making the loan.

------
kbenson
Need a definition for ambition?

 _With the acquisition of Van Tuyl, Berkshire now owns 9 1⁄2 companies that
would be listed on the Fortune 500 were they independent (Heinz is the 1⁄2).
That leaves 490 1⁄2 fish in the sea. Our lines are out._

There you go.

~~~
aristus
It has all of the trappings of a successful slogan: definitional, pithy, &
ambitious-sounding enough to make everyone ignore the bad math.

Berkshire itself is on that list, so surely there are only 489.5 to go. :)

~~~
mikeash
A company that contains all companies that do not contain themselves?

------
drited
I thought it was interesting that Berkshire intentionally hasn't harmonized
its systems across subsidiaries. It reminded me of one of Taleb's ideas on
robustness from his book Antifragile, where he argues that a system of
individually managed municipalities would be more robust than an economy with
a single central government because system failure would tend to only affect
isolated parts of the overall population at any single point in time.

~~~
tptacek
That goes hand-in-hand with how simple Berkshire's home-office system is,
right? It seems like, by design, BH itself does as little as possible. It runs
out of a small office suite with something like 30 people. That system _can
't_ be harmonized across companies like Geico and Gen Re, even before you
realize that those companies run alongside a furniture store and a jeweler.

------
Animats
Classic Warren Buffett: _The unconventional, but inescapable, conclusion to be
drawn from the past fifty years is that it has been far safer to invest in a
diversified collection of American businesses than to invest in securities –
Treasuries, for example – whose values have been tied to American currency.
That was also true in the preceding half-century, a period including the Great
Depression and two world wars. Investors should heed this history. To one
degree or another it is almost certain to be repeated during the next
century._

Buffett buys boring, but practical businesses. Also, because Berkshire
Hathaway owns insurance companies, their "float" can be invested. It has to be
invested in low-risk investments, which is just fine with Buffett. Berkshire
Hathaway has such a delightfully boring portfolio.

~~~
tptacek
Is "boring" the right word? BH owns a huge chunk of DIRECTV, the whole BNSF
railroad (can you _imagine_ how complex that business is to run?), and
NetJets.

I think there's a difference between "businesses Warren and Charlie feel like
they can get their heads around" and "boring businesses". Also: I don't
understand why they bought DIRECTV.

~~~
crimsonalucard
I don't think Warren purchased DTV. It's likely purchased by one of his
prodigies.

~~~
pg314
DIRECTV was indeed a purchase by Ted Weschler and Todd Combs, as Buffett wrote
in the 2012 Annual Report (p. 15). They operate pretty much autonomously.

------
3am
I thought it was notable that Buffet referred people to Airbnb for lodgings in
the Omaha area for the shareholder meeting. Not a guy particularly noted for
being on top of trends (note: I am a huge WEB fan in numerous ways, though).

edit: see page 22

~~~
drited
Haha yes his love of a good bargain overcame his self-professed technophobia
in that case!

I'd guess he's just being modest with his frequent professions of technophobia
though. I'd guess he knows a lot about technology businesses, but just figures
that it's impossible to see their futures clearly enough for them to meet his
standards.

He did forewarn disappointment with the 1999 tech boom, so he can at least
spot extreme misvaluation in trendy businesses:
[http://archive.fortune.com/magazines/fortune/fortune_archive...](http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm)
(if anyone wants to ctrl+f to the start of the relevant section, it begins
with 'I thought it would be instructive')

------
takahisah
Of the 15 largest stock investments, IBM is the only one that has lost value
(page 15). Simultaneously, it looks like the largest cost based investment
(next to BAC, which is unlisted in the table). Yet, he does not seem to
address that position in any of his writing. I wonder what he thinks of the
company.

~~~
crimsonalucard
He thinks it's good.

[http://www.gurufocus.com/StockBuy.php?GuruName=Warren+Buffet...](http://www.gurufocus.com/StockBuy.php?GuruName=Warren+Buffett)

You can see he's added more to his position as of Dec 31st.

the big IBM drop happened in October.

------
pdevr
I used to read Berkshire's annual reports - good to see HN discussing them.

If you liked the annual report, take a look at the "Owner's Manual" as well -
it is worth a read:
[http://berkshirehathaway.com/ownman.pdf](http://berkshirehathaway.com/ownman.pdf)

------
Nicholas_C
>BNSF is, by far, Berkshire’s most important non-insurance subsidiary and, to
improve its performance, we will spend $6 billion on plant and equipment in
2015.

That's an incredible amount of capex.

------
ankurpatel
Their site reminds me of the nineties
[http://www.berkshirehathaway.com/](http://www.berkshirehathaway.com/)

What is with the Geico ad at the bottom?

~~~
scoggs
I actually show this website to clients sometimes to demonstrate that just
getting a functional website online is more important than mastering and
zeroing in on a perfect logo, perfect color scheme, perfect layout, etc. If
you waste all of your time worrying about things that people have extensively
varied opinions on (anything with artwork, colors, layout, etc.) you are
wasting your time when you could be selling, learning your market, and getting
to know your potential customers with a basic yet fully functional website.

~~~
smackfu
I see the Berkshire Hathaway website as being perfectly aimed at the kind of
person who goes looking for the Berkshire Hathaway website. It looks frugal
and old fashioned, which is exactly the image BH wants to project to their
investors.

Contrast to the websites for their consumer brands like Geico.

------
lpolovets
Here's a good post that highlights some of the takeaways from the annual
report: [http://25iq.com/2015/02/28/a-dozen-things-taught-by-
warren-b...](http://25iq.com/2015/02/28/a-dozen-things-taught-by-warren-
buffett-in-his-50th-anniversary-letter-that-will-benefit-ordinary-investors/)

------
dluan
Gets good at page 26, the chairman discusses how Berkshire Hathaway got
started, though really the whole thing is fascinating. I wonder at what point
YC will begin to compete with Berkshire Hathaway.

~~~
tptacek
I don't see how they're on comparable trajectories.

Berkshire wins by using a formula that relies on them owning whole businesses
with sustainable, predictable returns, ensuring that they're extremely well
managed, and backstopping them with a gigantic pile of cash that they can use
to roll up other smaller bolt-on companies with.

YC works almost exclusively with unproven, highly speculative new firms, with
unproven management teams (many of whom will, after joining YC, hire their
first employee ever), owns so little equity in each firm that they don't even
get a board vote, and by design avoids further capitalizing companies they bet
on.

That doesn't make YC bad; the model seems to work extremely well. It just
seems like a very different model.

 _edit: HN- >YC. Embarrassing._

~~~
dluan
Of course, I don't think it's a direct analogy. But it seems that partly what
makes YC successful is also what makes BH successful.

BH also has an extra 50 years on YC, so of course the models don't match up.
And I'm not Sam, so I can't speak to whether not YC's ownership or investment
models will change over the next 50 years (and yes, I think there's a good
chance YC will be around in 50 years). YC is focused on testing and validating
its thesis across other industries, but the thesis started in one area. Very
much the same with BH.

In other words, if BH's only value is that they can successfully help grow a
candy company, an insurance company, and a train shipping company, and YC is
able to help grow a fusion company, a hotel industry company, and a home
cleaning company, then they are both doing something right. It seems they are
both heavily driven by focused principles.

Another great point is that YC and BH don't have traditional competition. See
pg 31 starting

"Berkshire has one further advantage that has become increasingly important
over the years: We are now the home of choice for the owners and managers of
many outstanding businesses."

~~~
maxlybbert
> Of course, I don't think it's a direct analogy. But it seems that partly
> what makes YC successful is also what makes BH successful.

In what way? Yes, they both invest in companies, and the investments represent
people trying to figure out how to make money and beat their competitors. But
there are a lot of differences in the details (Buffet has a source of stable
income that people trust him to reinvest; Y Combinator makes money
sporadically when other investors decide to buy their companies). They're
about as similar -- to me -- as football and bowling. Sure, both sports have
balls, but there are a few relevant differences.

~~~
maxlybbert
I feel like I should add
[http://www.econ.yale.edu/~af227/pdf/Buffett%27s%20Alpha%20-%...](http://www.econ.yale.edu/~af227/pdf/Buffett%27s%20Alpha%20-%20Frazzini,%20Kabiller%20and%20Pedersen.pdf)
(alpha is supposed to measure how much better a manager does compared to the
market,
[http://en.wikipedia.org/wiki/Alpha_%28investment%29](http://en.wikipedia.org/wiki/Alpha_%28investment%29)
).

Compared to ordinary investors, Buffet's alpha is consistently high. He looks
like a genius. But if you change the definition of alpha based on his
strategy, his alpha ends up being much lower. Personally, I don't think that
diminished Buffet in any way: he came up with the strategy, after all; but it
does show that his investments work because he's doing something different
than the competition.

And, again, Y Combinator is also doing something different than the
competition (or at least, different from what the competition was doing when
YC launched), but it's also doing something wildly different from Berkshire
Hathaway. BH invests in a small number of mature companies, YC invests in many
small and risky companies. I would be interested to see what kind of
personalized alpha YC manages to get (and, even, what kind of generic alpha
they have). I don't know if they publish their investment numbers, so I don't
know if it would be possible to calculate.

------
rglover
_Over the last 50 years (that is, since present management took over), per-
share book value has grown from $19 to $146,186, a rate of 19.4% compounded
annually._

Insanity.

------
xmpir
1,826,163% growth in stock price is quite a performance...

------
than
A measly 1,826,163% since 1964. SELL.

~~~
maxlybbert
If I'm doing the math right, that's only about 16% annualized (
[http://en.wikipedia.org/wiki/Rate_of_return#Geometric_averag...](http://en.wikipedia.org/wiki/Rate_of_return#Geometric_average_rate_of_return)
). Which, for the record, is much better than I've ever done. But Buffet is
being a little sneaky there: it's really a good example of compound interest
over long time periods.

~~~
ewanmcteagle
It's not sneaky. This is the way returns are calculated in the industry. 1.09
* 1.09 * 1.09 would be 3 years of 9% returns compounded. In the same way if
the total return over 3 years is 50% you take the cube root of 1.5 to figure
out what return each year would give you the same. In this 50% over 3 years
example it would be around 14.5% a year.

~~~
maxlybbert
I've certainly seen journalists give out such a simplistic number, usually
phrased as "$1 invested when the company went public would be worth $XXX
today." And when the numbers are presented in a _chart_ , it shows basically
the same thing (often labeled the "growth of $1" or "growth of $100"). But
when the numbers show up in a table, they are annualized. That allows you to
compare the different cells in the table (
[http://blog.greaterthanzero.com/post/57991351347/measuring-i...](http://blog.greaterthanzero.com/post/57991351347/measuring-
investment-performance) ).

