BUFFETT’S ANNUAL LETTER TO SHAREHOLDERS
The master has spoken in his freshly released letter to shareholders and as usual, it is filled with brilliance, hypocrisy and more brilliance. You can read the full letter here. I will keep my personal thoughts on the letter short and sweet, but a few things stood out to me:
Buffett appears to attempt to distance himself from the notion of “too big to fail” and implies that the firm is not dependent on the “kindness of strangers”:
“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.”
These are interesting comments now that we know Buffett in fact played a role in orchestrating the bank bailouts (see here for his letter to Hank Paulson). Of course, Buffett had a substantial amount at stake if the banks were allowed to implode. As Barry Ritholtz has previously shown, Buffett did indeed rely on the kindness of strangers. He claims to have been a supplier of capital, but this was nothing more than doubling down on bad bets that he had made with the hope that the government would ultimately step in. Of course, we all know they did. I don’t know how he can make such comments when it is so obvious that he directly benefited from the bank bailouts and played an instrumental role in orchestrating them? It’s disingenuous at best.
A few other things that jumped out:
- His discussion on risk management (p. 16) should be required reading for every CEO and money manager in America.
- He is still extraordinarily funny.
- He sounds very optimistic about the state of the housing market.
- He sells his company and the idea behind Berkshire better than any CEO on the planet.
For more reading please see his annual letters from the Buffett Partnership days.
This is brilliant from ZH:
“We were a supplier of liquidity, and capital to the market, not a supplicant”
Translation: After I called my buddies Lloyd Blankfein, Hank Paulson, Barack Obama, and John McCain, and after I got assurances that they’d be willing to STEAL from taxpayers to bailout many of my investments, and after they’d assured me that they’d do EVERYTHING in their considerable power to backstop any further investments I might be inclined to make, well, I went ahead and made those investments – and we’ve done VERY well with them.
Oh and by the way, I’m a really principled person. I’ve take an aw-shucks, self deprecating attitude toward taking people’s money, I find that having such an attitude is the “spoonful of sugar, that makes the medicine go down”.
Non-steroidial annual homerun king:
Roger Maris – 61* (extended season – 1961)
Lifetime investment king (by average annual return):
Warren Buffet – 20.3%* (lobbied for and received govt. bailout – 2008)
I see a lot of people on the internet criticizing Buffett for doing his job, which is to run his businesses successfully, provide goods and services that people demand, and make money for shareholders. It’s not his job to manage the size of the government deficit, punish bankers, or turn down help in making money – the opposite, in fact. If he said “y’know, this GS preferred is too good of a deal for me, and btw the government ought to take more from GS”, he would be violating his duty to do his best for shareholders. He has never pretended that his job at Berkshire isn’t about making money, and it’s not wrong to make money. If you do think it’s wrong, you probably don’t pay much in taxes and aren’t that interested in stocks, yet I still see such people complaining vociferously that he sought government support for companies in which he invested.
Our government is in the business of helping business make money. If you don’t like it, vote for a different government. But it makes no sense to criticize capitalists for being capitalists, especially not ones like Buffett that intelligently and effectively run real businesse, don’t cheat, communicate clearly, and donate heavily to charity. Is there a CEO in America you trust more? If your answer is “I distrust every CEO”, maybe the problem is with you and not with them. Or maybe you just need to go vote for the Communist Party candidate in the next election. I don’t mean that as a slur – different people have different political beliefs. It’s just baffling to me that anyone would expect one of the world’s greatest, most well-known, most government-connected capitalists to enact their chosen non-capitalist political/economic values.
No one ever denied that Buffett is a great capitalist and seizes every opportunity he has to make money, but let’s be honest here – who is he fooling with this “we didn’t benefit from the bailouts” line?
I wonder if Buffett would be so widely praised if Goldman had failed and many of his investments had blown up in his face. Would investors think differently of this man who can say and do no wrong? I think so. But we’ll never know because he got a huge gift from the government.
The steroids comparison above is not far off.
If Goldman and GE were allowed to go under, WB wouldn’t have been the only one to have their investments blow up in their faces.
I love how everyone has fallen for this myth that the world would have collapsed if GS had failed. As if the US economy couldn’t have continued on if this firm didn’t exist.
Remind me again what Goldman does that is so vital to the existence of the US economy? All they do is shuffle money around and charge fees. The few services they actually do provide (asset management & IB) are performed by hundreds of other firms. They provide no essential function in this society.
Would chaos have reigned for a few weeks if GS had failed? Sure, but we would have recovered. It’s not like Americans would have stopped living just because GS failed and took down a few banks with them….
You fail to understand GS (sarcasm laid on thick and heavy) completely. If GS failed the whole world would have come to a halt. Who else would skim off the top of most transactions? Who would secretly buy government bonds? Who would put people into high ranking positions of power within world governments? Who would get AIG bailed out so they could be saved? Who I ask you, who!?
Too big to fail is a farce. It would have hurt, likely badly. But I prefer my bandaids ripped off instead of slowly peeled off and taking all my hair with it. The government has just stolen from the people to give to the corporations. It’s not their job. The corporations I’m sure would rob us alone just fine
The adoration the society has with Buffet reminds me that of Greenspan. He can do no wrong. It remains to be seen how history will see him in the end.
TPC,
That is a very true quote about Goldman. The question I pose is where would all of our Treasury Secretaries, Fed Presidents, policy makers, etc come from? They all seem to come from Goldman Sachs…