***Buffett's Annual Letter
***A Caveman Could Do It
***Buy These Stocks
is blanketed in
snow. I have a few of my staff in “work at home” mode. And
that’s great. A good snowstorm has been a rarity these last few
years. I’m going to encourage the parents of my group to get out
and do a little sledding with their kids.
Buffett’s annual report for Berkshire Hathaway was released over
the weekend. His letter to his shareholders is one of the most
widely read investment documents there is. Buffett’s down home
charm, inviting sense of humor and investment savvy are always a
Perhaps the biggest surprise was that the net asset value of
Berkshire Hathaway dropped by $11.5 billion. Buffett was not immune
to the market’s drop. Despite well-publicized investments in
General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS) that are down
considerably, the lion’s share of balance sheet loss has come from
derivatives, what Buffett has called “financial weapons of mass
is that Buffett sold a few billion in S&P 500 puts. Mark to
market accounting forces him to show the loss. But that’s not
going to give an accurate picture of his company’s true health.
For one, those put options can come back to life and even enter the
profit zone. And two, we don’t know what he did with the money. If
the premiums he received from the options sales are used wisely,
he’ll compound his returns.
of the more interesting tidbits from Buffett’s letter to
certain, for example, that the economy will be in shambles
throughout 2009 – and, for that matter, probably well beyond…
said one of his goals for 2008 was “…widening
the ‘moats’ around our operating businesses that give them
may have noticed that “widening the moat” has meant that
approximately 1 out of 5 commercials on TV these days is from Geico,
a Buffett company. And the results?
insurance group delivered an underwriting gain for the sixth
consecutive year. This means that our $58.5 billion of insurance
‘float’ – money that doesn’t belong to us but that we hold
and invest for our own benefit – cost us less than zero. In fact,
we were paid $2.8 billion to hold our float during 2008. Charlie and
I find this enjoyable.”
to make money. He could have thrown that “float” money in a
money-market account and been profitable. It’s
so easy, even a caveman could do it.
you know that Buffett is investing in alternative energy? He said “…when
we purchased PacifiCorp in 2006, we moved aggressively to expand
wind generation. Wind capacity was then 33 megawatts. It’s now
794, with more coming.... today the company is number one in the nation among regulated utilities
in ownership of wind capacity.”
bought a large amount of ConocoPhillips stock when oil and gas
prices were near their peak. I in no way anticipated the dramatic
energy prices that
occurred in the last half of the year. I still believe the odds are
good that oil sells far higher in the future than the current
makes mistakes. Unthinkable! But his contention that oil prices will
be higher in the future should be noted. At current levels, oil
assets should be good investments.
medicine that was previously meted out by the cupful has recently
been dispensed by the barrel. These once-unthinkable dosages will
almost certainly bring on unwelcome aftereffects. Their precise
nature is anyone’s guess, though one likely consequence is an
onslaught of inflation.” And “…the
Treasury bond bubble of late 2008 may be regarded as almost equally
I’m fond of saying, I feel better about my short Treasury bond
investment in Recovery
Portfolio every day. For more about the upcoming video conference, click
HERE. The event is free, but you do need to sign up.
course, Buffett also sounds a pro-America refrain “…never forget that our country has faced far worse travails in the
past. In the 20th Century alone, we dealt with two great wars (one
of which we initially appeared to be losing); a dozen or so panics
and recessions; virulent inflation that led to a
211⁄2% prime rate in 1980; and the Great Depression of the
1930s, when unemployment ranged between 15% and 25% for many years.
has had no shortage of challenges.
fail, however, we’ve overcome them. In the face of those obstacles
– and many others – the real standard of living for Americans
improved nearly seven-fold during the 1900s, while the Dow Jones
Industrials rose from 66 to 11,497. Compare the record of this
period with the dozens of centuries during which humans secured only
tiny gains, if any, in how they lived. Though the path has not been
smooth, our economic system has worked extraordinarily well over
time. It has unleashed human potential as no other system has, and
it will continue to do so.
’s best days lie ahead.”
worth noting that, despite Buffett’s optimism, he hasn’t exactly
gone hog wild buying stocks. He continues to prefer the preferred
– stocks that pay a dividend.
who can blame him? In these cash-lean days, his ability to inject
liquidity is getting him favorable rates.
”…the market value of
the bonds and stocks that we continue to hold suffered a significant
decline along with the general market. This does not bother Charlie
and me. Indeed, we enjoy such price declines
we have funds available to increase our positions. Long ago, Ben
Graham taught me that “Price is what you pay; value is what you
get.” Whether we’re talking about socks or stocks, I like buying
it is marked down.”
are on sale, according to the Oracle. Buy them. My
has had his eye on the 715
range as a short-term bottom on the S&P 500.
not going to tell you to load up on stocks. But you should buy
something. Past Daily Profit
issues have recommended: Graham
), CardioNet (Nasdaq:BEAT),
SXC Health Solutions (Nasdaq:SXCI)
and Emergent BioSolutions (NYSE:EBS).
That's it for
03-02-2009 1:54 PM
Filed under: SXCI, General Electric, Goldman Sachs, GHM, EBS, GS, GEICO, ConocoPhillips, BEAT, Buffett, Berkshire Hathaway, GE