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Berkshire Hathaway Shareholder Letters 2010 [pdf] (berkshirehathaway.com)
120 points by npalli on Feb 26, 2011 | hide | past | web | favorite | 65 comments

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

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.

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.)

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.

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

...forced to educate himself...

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

...or "his crew."

Wait, you don't have to pay for university? What is this accounting magic? I had to pay!

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.

>> "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.

>>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.

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

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.

Your comment got me thinking. Buffett has pledged 99% of his net worth to charity when he's gone, and has enlisted other wealthy entrepreneurs to follow suit by donating at least 50%. Will that allocation of capital produce greater good than would a lesser amount garnered through investments based not on seeking the best ROI but instead based on furthering the greater good?

Honest questions, and ones that I don't have the answers to: has his contribution to Coca-Cola and Philip Morris as an investor harmed the greater good more than the $44 billion or so of his net worth that will flow to charities? Could entrepreneurs and capitalists create more good with that $44 billion than the Gates Foundation?

I don't think the tech companies get off free here though, Apple have reportedly turned a blind eye in the past to conditions in factories producing their products.

Coca-Cola does sell a lot more than their flagship drink though, when it comes to ethics of what you can legally invest in they could do a lot worse.

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. <<

On the subject of the social benefits of railroads, I really liked this Tony Judt essay a while ago, “Bring Back the Rails” http://www.nybooks.com/articles/archives/2011/jan/13/bring-b...

The problem is that its hard to schedule both passenger trains and freight trains on the same railways, and the benefits of transporting freight by train instead of truck are both economically and environmentally more important. OTOH high speed rails with their own tracks are awesome and let us get around this dilemma.

Perhaps I'm naive, but with today's technology (GPS, processing power for scheduling, communications, etc.) and a modest investment in some more switching tracks (compared to high speed rail) why couldn't we saturate the bus?

Because of geography and property rights this is pretty much a monopoly as a class of transport. And while the government's stewardship of rail thus far is not seen as a paragon of efficiency or customer service (http://reason.com/archives/2005/12/01/amtrak-sucks), the only way to make this work would be to have the tracks effectively nationalized.

Class 1 Railroads of North Ameria http://en.wikipedia.org/wiki/File:Class1rr.png

The issue is that high speed passenger rail requires trainsets that are built basically like aircraft, and really do not do well in a collision with a freight train built and loaded like...a freight train.

It is definitely reasonable to use improved signaling to increase capacity, but rails for HSR need to be smoother, different grade limits, possibly banked, etc. They can often but not always share right of way with existing freight lines. Still, designing them to be grade separated, protected from incursions by malfunctioning freight, etc. is a hard problem.

I think the low hanging fruit is increasing investment in conventional freight, metro area rail for passengers, and limited investment in dedicated HSR only on routes where air travel faces capacity limits -- northeast corridor, los Angeles to las Vegas, and probably unfortunately not sf to la (as much as I would personally enjoy it).

> 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?

Buffett was born in 1930. The US GDP per capita was about $7,200 then, today it is about $42,000 (both values in 2005 dollars from http://www.measuringworth.com/usgdp/).

Per capita GDP is frequently used to measure standard of living, in addition to per capita income, ref http://eh.net/encyclopedia/article/steckel.standard.living.u... and http://en.wikipedia.org/wiki/Standard_of_living_in_the_Unite...

I'd be much more interested in seeing the differences in median wealth (for the population as a whole, and broken down by race/ethnicity), adjusted for inflation.

The term "wealth" refers to "private assets (such as savings and property) minus debts. It is what you own minus what you owe. In other words, it is net assets. Income, on the other hand, refers to wages, salary, interest that you earn, Social Security benefits, etc."

"In the 22 years between 1976 and 1998, the share of the nation's private wealth held by the top 1% nearly doubled, going from 22% to 38%. During those two decades, the size of the overall "wealth pie" grew, but the ownership of that wealth is now more concentrated than at any time since the 1920s."

Source: http://www.osjspm.org/101_wealth.aspx#6

The stats above are kind of dated, but I'd be willing to bet the disparity in wealth between the richest and poorest in America is even more pronounced now.

Here is a measure of the increase of "U.S. median family net worth by percentile of net worth" from 1989 to 2007:




Wealth distribution isn't the same as wealth though.

I'm not sure what you're getting at by pointing out this obvious difference. Could you elaborate?

You said

"I'd be much more interested in seeing the differences in median wealth (for the population as a whole, and broken down by race/ethnicity), adjusted for inflation."

Which I agree with wholeheartedly.

But then to my disappointment, you posted information about wealth distribution rather than median wealth.

I got the impression you were saying that wealth distribution says something about median wealth. I don't think it does.

The wikipedia links were good though, so thanks.

Knowing a distribution, you know its median. Even if you just know the weight in a quantile (e.g. X% of wealth is in the hands of the top Y% of people), then you can upper bound the median wealth once you know per-capita wealth. And if you're willing to make some assumption about the general shape of the distribution, knowing it tells you even more.

Your original comment is about relative wealth. Therefore, I think his point is that your original comment is irrelevant in the context of a 6x increase in wealth.

Are they using the same methods for GDP in both time periods? I doubt it.

Per capita is not a great metric, especially since GDP is not distributed per capita across the country, and there are many ways of measuring GDP.

Even bad metrics can be better than nothing, and they can also be worse than nothing, but if you're going to quantify it, GDP is probably the only way to go. Based on my limited knowledge of 1930, I'd still much rather be living in 2011. Maybe not 6x, but at least 1.5x more. Back then they didn't even have Turing machines down on paper, much less actual physical hardware...

There's more than one way to use GDP. I think that, for describing standard of living, median GDP would be better than average GDP (= GDP per capita).

Averages are sensitive to outlier performance. This is important when the distribution follows a power law, as in the case of wealth distribution.

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)

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.

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).

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.

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

For what its worth, jakarta's hourly wage number _does_ claim to be adjusted for inflation.

I'd love to see references from both of you on the hourly wage numbers.

Don't stop there...

Language and comprehension skills: Down 76%

Happiness index: Down 65%

Opinions: Up 435%

There's some double-counting here: life expectancy at birth includes infant mortality. (Taking your figures, 1.35 years of the 8-year life-expectancy difference comes from the infant-mortality difference.)

But does any of this equate to a 6x better life? This is extremely subjective, but I'd measure overall happiness, autonomy, and ability to participate in power as key ingredients for a better life. And going by those metrics, I seriously doubt that we are 6x better (or even 2x better).

All of the stats that you provided point to Americans being more productive over a longer period of time. People are becoming better at producing and consuming. However, by only looking at these numbers, you ignore what I feel makes us human. I don't think that the ultimate goal in a person's life is to add to their country's GDP. We are more than a cog in a machine. You can point to improvements centered around work, but what about enjoyment and free time? Surely a better life is one where you have more time to enjoy with family and friends, rather than being able to exceed your company's 3rd quarter sales projections.


That's not a percentage. It's likely per 1,000 or 100,000 or something.

Yes, it's per 1000.

And now you know why income disparity has nothing to do with increases in standard of living.

All of that. But also 6x grumpier, it seems.

Average US salary in today's dollars:

1930 - $ 250,000 2010 - $ 50,000

Add to that the declining purchasing power of the dollar, the growing income disparity and the thinning out of the middle and upper-middle class, etc, etc.

Average life expectancy in the US:

1930 - 60 yrs 2010 - 78 yrs

Clearly, Mr. Buffet's statement is PR rather than fact.

I don't understand your salary number. Do you mean that if you earned $250K in 1930, that is equivalent to $50K today? Isn't that good?

The line break disappeared when I posted. With the line break, it was:

Average US salary in today's dollars:

1930 - $ 250,000

2010 - $ 50,000

So, no, it's not good. When adjusted for inflation, the average American has about 5 times less purchasing power.

I understand now but you should have some sources to back that up!

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.

My favorite quote:

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

Also available from Berkshire's website:


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

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."

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

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

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.

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.

You can't.

Warren Buffet does the exact same thing PG does: invests in great people. The Berkshire newsletters are very much on-topic for this very reason, especially for the grains of wisdom that have been quoted in the comments here.

Warren Buffet invests in huge railroads and insurance companies. Not the same as tech startups.

I regularly complain about off topic stories about politics or other topics that wind people up.

This, however, seems fairly pertinent to the 'business' side of HN.

Maybe you're not reading it with the right expectations? http://ycombinator.com/newswelcome.html

> Stories on HN don't have to be about hacking, because good hackers aren't only interested in hacking, but they do have to be deeply interesting.

On a sidenote, Buffett's frugality is reminiscent of Zuckerberg's lifestyle.

> On a sidenote, Buffett's frugality is reminiscent of Zuckerberg's lifestyle.

Could you expand on this?

They are both known for living modestly relative to their vast wealth.

Far more poignant in Buffet's case given his age and the length of time he's been in the game, and the sheer financial impact he has on the country. He's not a paper tiger.

Mr. Zuckerberg is exceptionally wealthy for his age, but he's young, and it's all based on a single assett. So while not judging, let's hold off on comparing the two for a couple of decades at least.

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