THE LONG VIEW
As a Berkshire Hathaway investor, I like many had been looking forward to Warren Buffett's letter to shareholders, out today. The news as one might expect in these unprecedented times, was not good, but the long-term perspective as usual, was most welcome and refreshing.
The Wall Street Journal provides some context of the letter in this report:
"Warren Buffett's Berkshire Hathaway Inc. reported Saturday morning that 2008 was the legendary investor's worst year ever. It also reported a grim fourth quarter, though it eked out a slight gain. (Berkshire's annual letter to shareholders.)
A common metric Berkshire uses to track performance, book value per share, fell 9.6% in 2008, its biggest decline since Mr. Buffett took over the company in 1965.
It was only the second year in more than 40 years that Berkshire posted negative results. In 2001, Berkshire's book value per share fell 6.2%. The company's performance in 2008 still far outpaced the Standard & Poor's 500-stock index, which fell 37% last year, including dividends."
If pressed for time, I'd also recommend the WSJ's summary of the Highlights. A couple of sobering ones that they highlight is the following:
"In poker terms, the Treasury and the Fed have gone 'all in.' Economic 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..."
"Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year's report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at yearend 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering.
A highlight I'd add is his current view on how risk is being priced:
"The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc.
A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s.
But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary."
One of my favorites from this year's letter was the following:
"Approval, though, is not the goal of investing.
In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier.
Beware the investment activity that produces applause; the great moves are usually greeted by yawns."
Here's to more yawns for all of us, large and small.
The whole letter (PDF) is worth reading in it's entirety, especially this year over all others.