Berkshire Hathaway Annual Report 2010

I really like to read the first few sections of each year's Berkshire Hathaway annual report. Warren Buffett writes it and he always proves to be entertaining and insightful. The following is a summary of the Berkshire Hathaway Annual Report 2010. You can also check out my sumary of the 2009 Berkshire Hathaway annual report. You can check out all of his reports in detail going back to 1977 here

Their book value increased by 13% in 2010 -- lagging the market by 2%. They have 20% CAGR since when they started tracking it over 40 years ago. However, it has slowed down in recent decades due to their size.

Their railroad acquisition has been nice so far. Warren is enthusiastic about railroads because they have major cost and environmental advantages over trucking. Movement in goods in the US will increase over time and his railroads should get a fair share of that. They will need to invest heavily in the railroads, but they have setup their business to always have plenty of cash to pay for those needs. This is a good lesson for any small business owner or for personal finance.

Then he gets into the more general parts about our economy. There was lots of pessimism about the economy last year. Despite that, they invested. There is an abundance of opportunity in America. Commentators today talk of "great uncertainty." Warren Buffett responds to that with "no matter how serene today may be, tomorrow is always uncertain." Uncertainty are actually usually the best times to invest.

"Don't let that reality spook you." Politicians and pundits have always "moaned about the terrifying problems facing America." Yet, we live "6 times better" than when he was born. They ignore the one "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 Civil War -- remains alive and effective." "America's best days lie ahead." Warren is always optimistic about the long-term prospects of the US economy -- as well he should be.

Warren Buffett and Charlie Munger believe that they should provide performance greater than the S&P. Otherwise they have done nothing for their investors who "could have realized an equal or better result by owning an index fund." Warren is a fan of broad index funds for the lay investor.

They look for long term profits. Due to short term hits taken intentionally for long term results, yearly results aren't incredibly telling. They give a 5 year performance table vs the S&P and they have beat it every time. For example, from 2006-2010, Berkshire Hathaway had a CAGR of 10% while the S&P had 2.3%, 2005-2009 BH cagr = 8.6% while S&P cagr = 0.4%, and from 2004-2008 Berk Hath had a cagr of 6.9% while the S&P was -2.2%. Every single 5 year period since 1965 Berkshire Hathaway has beaten the S&P. Someone please tell me why more people are not listening to every word this guy speaks or writes before the likes of Jim Cramer or whoever? No one else can boast a record like this over such a long time frame.

He then describes some of their major advantages: being able to invest resources in any market they want, being able to buy stocks if other investments are not as promising by comparison, and their managerial culture. All these things we would be wise to generalize and apply to our own investing strategy.

Then he gets into individual company details which I'm not terribly interested in. I don't find it necessary to read the whole 2010 Berkshire Hathaway annual report.

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