Berkshire 2013 Letter

Here is the Letter To Shareholders of Berkshire Hathaway, Inc. 2013 Annual Letter.

My observations are as follows (and I am citing the actual page number on the document–not the page numbers listed on my reader):

1)  Page 2:  The company’s reported compounded gain from 1964-2013 is 693,518%.  The S&P 500’s reported compounded gain (including dividends) over the same period is 9,841%.  So Berkshire’s done relatively well … or the S&P 500 stinks.

2)  Page 3:  Mr. B believes that Berkshire’s intrinsic value far exceeds its book value and therefore is willing to repurchase Berkshire shares at 120% of book value, meaning that the shares he would repurchase would be bought on the cheap.  This seems, to me, to be not a high-enough percentage for the repurchase.  So his decision to repurchase at 120% of book value is yet another conservative play by Mr. B–if in fact he is correct, which he usually is.

3)  Page 5:  I found interesting that Berkshire’s “bolt-on” acquisitions ranged from 1.9 million to 1.1 billion.  1.9 million is not a very large purchase for Berkshire.  Perhaps it found something very cool yet very small.  So for you small business owners–keep hope alive.  As I tell people from time to time:  Do your job well, and the top will find you.

4)  Page 5: “Our subsidiaries spent a record $11 billion on plant and equipment during 2013, roughly twice our depreciation charge.”   I shall confess ignorance on this point, and perhaps my accountant friends can clarify this point:  Does this simply mean that Berkshire’s overall depreciation charge is 50% of the “spend” on PPE capital charges?  Or does something more complex exist here?

5)  Page 6:  Mr. B exhibited his optimism (and consequently reminded me that, despite what I consider to be leadership failures, this country is a good place to live.)  And I quote:

Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.

6)  Page 7-10:  Insurance is the topic.  Yawn.  All the way to Berkshire’s bank.

7)  Page 11:  Mr. B discusses Berkshire’s railroad and energy holdings.  He likes these businesses (obviously) and their ability to survive even during difficult economic periods.  And I quote:

A key characteristic of both companies is their huge investment in very long-lived, regulated assets, with these partially funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is in fact not needed because each company has earning power that even under terrible economic conditions will far exceed its interest requirements. Last year, for example, BNSF’s interest coverage was 9:1. (Our definition of coverage is pre-tax earnings/interest, not EBITDA/interest, a commonly-used measure we view as seriously flawed.)

Anyone want to comment on why he believes this is “seriously flawed”?

8)  Page 15:  Read the first 2/3 of this page.  I think you’ll find it interesting.

9)  Mid 17- Mid 21:  If you want a glimpse into the mind of (arguably) history’s greatest investor, take 10-15 minutes and read these pages, and tell anyone you know who is interested in investing to read them.

Go Fighting Berkshires!


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