The 2009 letter to shareholders of Berkshire Hathaway Inc.—it's always called a "letter," not an "annual report"—was published last week. As always, it was written by the chairman of the board himself, Warren Buffett—the world's second-richest man—and as always it's a model of sharp writing and excellent corporate communication. No hedging. No fuzzy buzzwords. And because its author is the boss and that's how he rolls, it includes stories, jokes, and confessions.
Here's part of you might call Buffett's mission statement. It's not what he calls it; he titles the section "What We Don't Do":
We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.
As a shareholder-slash-fan-of-colorful-language, I am very pleased by "a gusher of earnings."
And here's how Buffett acknowledges a costly error:
For many years I had struggled to think of side products that we could offer our millions of loyal GEICO customers. Unfortunately, I finally succeeded, coming up with a brilliant insight that we should market our own credit card. I reasoned that GEICO policyholders were likely to be good credit risks and, assuming we offered an attractive card, would likely favor us with their business.
We got business all right – but of the wrong type.
Our pre-tax losses from credit-card operations came to about $6.3 million before I finally woke up. We then sold our $98 million portfolio of troubled receivables for 55¢ on the dollar, losing an additional $44 million.
GEICO’s managers, it should be emphasized, were never enthusiastic about my idea. They warned me that instead of getting the cream of GEICO’s customers we would get the – – – – – well, let’s call it the non-cream. I subtly indicated that I was older and wiser.
I was just older.
Here's an example of what's sometimes called Buffett's folksy approach. I call it vivid imagery:
We told you last year that very unusual conditions then existed in the corporate and municipal bond markets and that these securities were ridiculously cheap relative to U.S. Treasuries. We backed this view with some purchases, but I should have done far more. Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.
You won't find me recommending many companies' annual reports for their prose style, but I make an exception every year for Berkshire Hathaway. Three years ago I wrote a detailed analysis of why Buffett's letters work so well. I stand by everything I said then—including my mention of the Berkshire website, whose Shaker-like austerity hasn't changed a whit. I dare you to find another company in the Fortune 1000 that invests so little in design—or in copywriting, for that matter. Or needs to.
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In other news, I will be mostly offline for the rest of the week. Please continue to leave comments, but please understand that I may not be able to review and publish them until the weekend.
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