

Berkshire Hathaway Shareholder Letters 2010 [pdf] - npalli
http://www.berkshirehathaway.com/letters/2010ltr.pdf

======
vladd
Some of this year's jewellery for those that need the motivation to begin
reading it:

>> Throughout my lifetime, politicians and pundits have constantly moaned
about terrifying problems facing America. Yet our citizens now live an
astonishing six times better than when I was born. The prophets of doom have
overlooked the all-important factor that is certain: Human potential is far
from exhausted, and the American system for unleashing that potential – a
system that has worked wonders for over two centuries despite frequent
interruptions for recessions and even a Civil War – remains alive and
effective. <<

>> Coca-Cola paid us $88 million in 1995, the year after we finished
purchasing the stock. Every year since, Coke has increased its dividend. In
2011, we will almost certainly receive $376 million from Coke, up $24 million
from last year. Within ten years, I would expect that $376 million to double.
By the end of that period, I wouldn’t be surprised to see our share of Coke’s
annual earnings exceed 100% of what we paid for the investment. Time is the
friend of the wonderful business. <<

>> The highlight of 2010 was our acquisition of Burlington Northern Santa Fe,
a purchase that’s working out even better than I expected. [We] are
enthusiastic about BNSF’s future because railroads have major cost and
environmental advantages over trucking, their main competitor. Last year BNSF
moved each ton of freight it carried a record 500 miles on a single gallon of
diesel fuel. That’s three times more fuel-efficient than trucking is, which
means our railroad owns an important advantage in operating costs.
Concurrently, our country gains because of reduced greenhouse emissions and a
much smaller need for imported oil. When traffic travels by rail, society
benefits. Over time, the movement of goods in the United States will increase,
and BNSF should get its full share of the gain. The railroad will need to
invest massively to bring about this growth, but no one is better situated
than Berkshire to supply the funds required. However slow the economy, or
chaotic the markets, our checks will clear. <<

>> The fundamental principle of auto racing is that to finish first, you must
first finish. That dictum is equally applicable to business and guides our
every action at Berkshire. Unquestionably, some people have become very rich
through the use of borrowed money. However, that’s also been a way to get very
poor. Companies with large debts often assume that these obligations can be
refinanced as they mature. That assumption is usually valid. Occasionally,
though, either because of company-specific problems or a worldwide shortage of
credit, maturities must actually be met by payment. For that, only cash will
do the job. Borrowers then learn that credit is like oxygen. When either is
abundant, its presence goes unnoticed. When either is missing, that’s all that
is noticed. Even a short absence of credit can bring a company to its knees.
[We, at Berkshire] have pledged that we will hold at least $10 billion of
cash. We customarily keep at least $20 billion. By being so cautious in
respect to leverage, we penalize our returns by a minor amount. Having loads
of liquidity, though, lets us sleep well. Moreover, during the episodes of
financial chaos that occasionally erupt in our economy, we will be equipped
both financially and emotionally to play offense while others scramble for
survival. That’s what allowed us to invest $15.6 billion in 25 days of panic
following the Lehman bankruptcy in 2008. <<

~~~
samtp
> Yet our citizens now live an astonishing six times better than when I was
> born.

By what metric? From everything I've read the income disparity in America has
increased steadily since the 1950s. Are we 6x happier? 6x Healthier? 6x More
free?

~~~
jakarta
You honestly have to ask this question? In the 1950s a significant percentage
of our population was without civil rights. Beyond that:

Life expectancy at birth: 69.9 to 77.9 (we live longer)

Infant mortality: 26.0 to 6.7 (less of us are dead on arrival)

% of population over 25 with 4 yrs or more of college education: 7.7% to 29.5%
(access to education has improved)

Estimated Hourly Wage PPP, 2009 USD: $16.87 to $25.31 (we are making more
money)

Real labor productivity index (in 1960): 100 to 172.8 (we are more productive)

~~~
blurry
As overdue as it was, women and blacks being able to vote is not "6 times
better".

60 years to 80 years life expectancy is not "6 times better".

26 to 7 infant mortality is not "6 times better".

8% to 30% college graduation rate is not "6 times better".

Estimated hourly wages have actually fallen drastically, when estimated apples
to apples (i.e. adjusted for inflation).

Labor productivity is mostly based on advances in technology, and in any
event, working harder is hardly the same as being "6 times better" off.

In other words, let's stay within the context of what is actually being
argued. Plus, it's rude to open your argument with, _You honestly have to ask
this question?_ If you have something to say, you can say it without implying
that @samtp is too dumb to see the obvious.

~~~
jakarta
If you want to quibble about his use of the "6 times" figure, go ahead.

The fact remains that we live much better today than in 1930, when Buffett was
born (during the Great Depression).

~~~
blurry
If you don't want to "quibble" about it the why do you keep posting? If you
think this thread is immaterial, you are free to leave.

~~~
funthree
I bet the internet makes your life at least 6 times better than what it would
have been in 1930.

------
juiceandjuice
On his frugality and practicality:

>> Airlines have often jacked up prices – sometimes dramatically so – for the
Berkshire weekend. If you are coming from far away, compare the cost of flying
to Kansas City versus Omaha. The drive is about 21 ⁄2 hours and it may be that
you can save significant money, particularly if you had planned to rent a car
in Omaha

~~~
diego
If someone else said that, he'd probably get panned. If you are a BH
shareholder, odds are that the added five hours of driving cost you much more
(time, effort, risk) than the difference in ticket prices, especially if you
are flying in for a weekend.

~~~
kalvin
That's definitely not the case. This isn't your usual shareholder meeting.
40,000 shareholders (I'd call many of them "fans", really) showed up last year
and many of them have more enthusiasm than wealth. You can get tickets just by
holding a mutual fund that owns Berkshire and calling up the fund.

(My mom and I among them. "At Berkshire, our time horizon is forever." And he
pretty much means it.)

------
aboyeji
Wow. Thanks for posting this. There are some amazing quotes from that:

"Money will always flow toward opportunity, and there is an abundance of that
in America."

"Commentators today often talk of “great uncertainty.” But think back, for
example, to December 6, 1941, October 18, 1987 and September 10, 2001. No
matter how serene today may be, tomorrow is always uncertain.Don’t let that
reality spook you. Throughout my lifetime, politicians and pundits have
constantly moaned about terrifying problems facing America. Yet our citizens
now live an astonishing six times better than when I was born. The prophets of
doom have overlooked the all-important factor that is certain: Human potential
is far from exhausted, and the American system for unleashing that potential –
a system that has worked wonders for over two centuries despite frequent
interruptions for recessions and even a Civil War – remains alive and
effective."

Is it any wonder I want to move to America ASAP?

-Jaded kid languishing in a publicly funded Canadian chill out(University) forced to educate himself because the kids in his crew don't get it.

~~~
dean
Hey, if you want to chill out instead of studying, that's your call. Don't
blame it on the country.

~~~
SkyMarshal
_...forced to educate himself..._

He wasn't referring to himself with 'chill out'.

------
chrisaycock
I love Buffet's response to anyone concerned about America's future:

> The prophets of doom have overlooked the all-important factor that is
> certain: Human potential is far from exhausted, and the American system for
> unleashing that potential – a system that has worked wonders for over two
> centuries despite frequent interruptions for recessions and even a Civil War
> – remains alive and effective.

~~~
HSO
>> "the American system for unleashing that potential – a system that has
worked wonders for over two centuries despite frequent interruptions for
recessions and even a Civil War – remains alive and effective"

as feel-goody as that might sound to patriotic american ears, you also have to
take into account that america pretty much had the playing field (much) to
itself for a long time. there was competition of different systems and it
turns out the market-based system is best. good.

now that everybody has learnt that and is busy implementing that system (more
or less gradually), there is no obvious reason why america should remain
special.

turns out human potential is great everywhere, and in the brief period after
world war 2, i'd say germany, japan, korea, etc. have done a mighty good job
catching up and even surpassing the us in many areas, measured by social as
well as industrial metrics. now comes china et al.

if i was american, i wouldn't take anything for granted. you guys were lucky
to live in the winning system, other than that, there is nothing special about
you.

~~~
gxs
>>Human potential is far from exhausted

At no point did Buffett say American Human potential.

And yes - the system that worked is the system Americans chose to implement,
sure - it's ok to be proud of that.

>> there is nothing special about you.

Your post comes across as spiteful - almost resentful. I am sorry for whatever
hardships you've had to deal with - if that motivates you, great. But the
inferiority complex jumps out astonishingly in your writing.

------
getpost
I appreciate the positive outlook expressed in these letters, and it's helpful
to reflect on progress our society has made in so many areas.

Coca-Cola's performance is striking. In 2011 you can still make a fortune, as
Steve Jobs put it, 'selling sugar water to children.'[1] Does Mr Buffett care
about, or even consider, the public health and social costs of the success of
Coke and its products?[2]

Philip Morris has traditionally had strong financial performance as well. It's
safe to say drug dealers can be financially successful. Should we be
celebrating that fact?

I admire Mr Buffet's modest, down-to-earth style. He seems proud that his
investment in BNSF will promote the greater good. I wish he had that goal for
all his investments.

[1] Jobs was referring to Sculley's work at Pepsi, of course.
<http://www.pbs.org/nerds/part3.html> [2] Lustig, Sugar, The Bitter Truth
<http://www.youtube.com/watch?v=dBnniua6-oM>

~~~
xiaoma
Coca Cola's performance is about the brand and the distribution, not the
product. They also own and successfully operate much healthier product lines.
At this time, they aren't what the market wants for the most part. Most place
a higher value on the extremely low cost and good taste of sugary fizzy water.
When that changes, whether for cultural, regulatory or other reasons, the
Coca-Cola company will still be in an excellent position and possibly make
even more money from its healthier products.

Also, as a private consumer, I don't really appreciate attempts to protect me
from myself.

------
patrickgzill
He is a creature of fiat and baby boom population expansion.

Since Charlie Munger's "suck it up" comment and WB's heavily profiting from
TARP, I have developed a jaundiced view of what the real business is that BH
engages in... he is less free market than he would have you believe.

------
jakarta
My favorite quote:

"The Flat Earth Society probably views a ship’s circling of the globe as an
annoying, but inconsequential, anomaly"

------
SkyMarshal
Also available from Berkshire's website:

<http://www.berkshirehathaway.com/letters/letters.html>

------
CCs
"We can afford to lose money - even a lot of money. But we can’t afford to
lose reputation - even a shred of reputation."

------
bufordtwain
A couple more gems copied from Buffett's Memo to Berkshire Hathaway Managers
at the end of the letter:

"If you see anything whose propriety or legality causes you to hesitate, be
sure to give me a call.However, it’s very likely that if a given course of
action evokes such hesitation, it’s too close to the line and should be
abandoned. There’s plenty of money to be made in the center of the court. If
it’s questionable whether some action is close to the line, just assume it is
outside and forget it.

As a corollary, let me know promptly if there’s any significant bad news. I
can handle bad news but I don’t like to deal with it after it has festered for
awhile. A reluctance to face up immediately to bad news is what turned a
problem at Salomon from one that could have easily been disposed of into one
that almost caused the demise of a firm with 8,000 employees."

------
netcan
A good little snippet:

 _Charlie and I hope that the per-share earnings of our non-insurance
businesses continue to increase at a decent rate. But the job gets tougher as
the numbers get larger. We will need both good performance from our current
businesses and more major acquisitions. We’re prepared. Our elephant gun has
been reloaded, and my trigger finger is itchy_

------
jorgem
BOO: This is so NOT what I read HN for.

~~~
gatsby
Sorry to hear that. It should be obvious that 100% of the
articles/sites/documents posted won't appeal to 100% of the HN community.

That said, I encourage you to actually read this letter, or at least skim it.
At the end of the day, Warren's letters aren't so much about investing and
returns as they are about good customer relations and transparency - two
things everyone from startup hackers to billionaire executives should find
interesting and refreshing.

~~~
jorgem
I read it before I posted. It's interesting, but not technical or appropriate.

Off I go to delete my HN account. I think that's it for me.

EDIT: If I could figure out how to delete my account.

~~~
getsat
You can't.

