Monday, February 27, 2012

Buffett’s Annual Shareholder’s Letter

Warren Buffett’s Annual letter to Berkshire Hathaway shareholders came out this past weekend. It contains his usual mixture of clarity and wit. Here are a few quotes that struck me as noteworthy.

Increasing Employment

The U.S. is still soaking up an excess of housing units, but “demographics and our market system will restore the needed balance – probably before long. When that day comes, we will again build one million or more residential units annually. I believe pundits will be surprised at how far unemployment drops once that happens.”

Market Predictions

In discussing Berkshire’s record of beating the S&P 500 in all rolling 5-year periods, Buffett said that this streak “will almost certainly snap, though, if the S&P 500 should put together a five-year winning streak (which it may well be on its way to doing as I write this).”

I hope that Buffett is right in the sense that these businesses go on to produce impressive earnings growth. However, because I expect to be a net buyer of stock over the next 5 years, I’d rather see share price increases lag earnings growth.

Wind Power

Berkshire subsidiary “MidAmerican will have 3316 megawatts of wind generation in operation by the end of 2012.” According to a Wikipedia entry on hydro use, this represents about 0.8% of U.S. electricity consumption. That’s a great start. I’d like to see this increase tenfold and be matched by solar generation.

Foreclosure Victims

“A largely unnoted fact: Large numbers of people who have “lost” their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner, and the victim was the lender.”

These people may have come out ahead on their financing, but I would be willing to bet that most of them were victims of their own poor choices as they spent their money recklessly. They may be winners in their battle with mortgage lenders, but on the whole, they don’t look much like winners.


“Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: ‘Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.’”


  1. I didn't think of this while reading the letter, but the kind of person who refinances their house to the max while the price doubles probably doesn't stick all of that in a savings account :) I guess the bank took phantom profits and the consumer took phantom enjoyment, and then everyone woke up at the same time.

  2. @Value Indexer: There are definitely some cases where the lenders and borrowers deserve each other.