Warren Buffett’s Annual Berkshire Letter: The Highlights

Warren Buffett’s Annual Berkshire Letter: The Highlights
Warren Buffett‘s annual letter is known for his folksy witticism and over-the-top compliments. WSJ Deal Journal has pulled out some of this year’s best. Let us know in the comments if you had other highlights from the letter.

Don’t you wish upon a star: “Your chairman has not been free of this sin. In Berkshire’s 1986 annual report, I described how twenty years of management effort and capital improvements in our original textile business were an exercise in futility. I wanted the business to succeed and wished my way into a series of bad decisions (I even bought another New England textile company.) But wishing makes dreams come true only in Disney movies; it’s poison in business.”

Buffett also made a series of warnings to those CEOs who didn’t do much because of “uncertainty” in the economic environment.

Uncertainty? Rubbish: “There was a lot of hand-wringing last year among CEOs who cried ‘uncertainty’ when faced with capital allocation decisions (despite many of their businesses having enjoyed record levels of both earnings and cash). At Berkshire, we didn’t share their fears, instead spending a record $9.8 billion on plant and equipment in 2012, about 88% of it in the United States.

That’s 19% more than we spent in 2011, our previous high. Charlie and I love investing large sums in worthwhile projects, whatever the pundits are saying. We instead heed the words from Gary Allan’s new country song, ‘Every Storm Runs Out of Rain.’”

Always be bullish on America: ”We will keep our foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America.”

A history lesson: ”A thought for my fellow CEOs: Of course, the immediate future is uncertain; America has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful).”

Don’t risk missing out: “Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.”

Call me, maybe: ”If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you.”

And as always, he lauded his lieutenants:

His investing managers: “Todd Combs and Ted Weschler, our new investment managers, have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit. We hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins. They left me in the dust as well.”

Ajit Jain, head of Berkshire Reinsurance: “If you meet Ajit at the annual meeting, bow deeply.”

Tony Nicely, head of Geico: “I rub my eyes when I look at what Tony has accomplished. Last year, it should be noted, his record was considerably better than is indicated by GEICO’s GAAP underwriting profit of $680 million.”
Railroad chiefs: “In Matt Rose, at BNSF, and Greg Abel, at MidAmerican, we have two outstanding CEOs. They are extraordinary managers who have developed businesses that serve both their customers and owners well. Each has my gratitude and each deserves yours.”
HomeServices: “Ron Peltier has done an outstanding job in managing HomeServices during a depressed period. Now, as the housing market continues to strengthen, we expect earnings to rise significantly.”

Newspaper editor 1: “Our confidence is buttressed by the availability of Terry Kroeger’s outstanding management group at the Omaha World-Herald, a team that has the ability to oversee a large group of papers.”

Newspaper editor 2: “Credit the editors of those papers – Margaret Sullivan at the News and Mike Reilly at the World-Herald — for delivering information that has made their publications indispensable to community-interested readers. (Margaret, I regret to say, recently left us to join The New York Times, whose job offers are tough to turn down. That paper made a great hire, and we wish her the best.)”. From WSJ Deal Journal.