Monday, March 4, 2013

Takeaways from Warren Buffett’s 2012 Letter to Shareholders

My portfolio consists entirely of index ETFs except for an investment in Berkshire-Hathaway, whose Chairman is Warren Buffett. Every year I read his letter to shareholders because it is so clearly-written and contains many useful insights. His 2012 letter is no exception. Instead of trying to summarize the whole letter, let’s hit some of the highlights.

Re-investing in the U.S.

While many businesses held back on re-investing in the U.S. because of uncertainty in the economy, Berkshire was “spending a record $9.8 billion on plant and equipment in 2012, about 88% of it in the United States.” Buffett declares “Opportunities abound in America.”

Stock Trading

“Charlie and I believe it’s a terrible mistake to try to dance in and out of [the stock market] 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.”

Renewable Energy

Berkshire-owned businesses “account for 6% of the country’s wind generation capacity,” and will soon “own about 14% of U.S. solar-generation capacity” at a total cost of $13 billion.

Newspapers and the U.S. Election

Buffett “voted for Obama,” but of the 12 Berkshire-owned daily newspapers “that endorsed a presidential candidate, 10 opted for Romney.”

Dividends

In response to shareholders who call for Berkshire to initiate a dividend, Buffett explained the economics of using earnings for dividends versus using them for further investment in existing Berkshire businesses, buying new businesses, or share repurchases. As long as Berkshire continues to reinvest profits in a way that drives up per-share value, don’t hold your breath waiting for a dividend. Buffett gives an example to show how Berkshire shareholders are better off selling shares when they need cash than receiving a dividend.

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