Choice Quotes from the 2011 Berkshire Hathaway Annual Report

I’ve been a Berkshire Hathaway fan since I was in 6th grade, and like many others, I always look forward to reading their annual report. It’s amazing that in the 46 years since Warren Buffett took over management of the company, there hasn’t been a single major down year for investors to fret about. When the S&P shed 9%, 12%, and 22% during the three-year dot-com 1.0 bust, Berkshire’s book value was up about 10%. During the 2008 financial crisis, the S&P dropped 37% while Berkshire only lost 9.6% (their worst year ever). Every Berkshire annual report is written in plain English and provides indispensable advice for all levels of investors, but there are always a handful of choice quotes that really make me proud to put a few pennies where Warren Buffett puts his. Among my favorites from this year’s report include:

• “More than 98% of my net worth is in Berkshire stock, all of which will go to various philanthropies.”
• “About 95% of … (our companies’ capital investments)… were made in the U.S., a fact that may surprise those who believe our country lacks investment opportunities. We welcome projects abroad, but expect the overwhelming majority of Berkshire’s future capital commitments to be in America. In 2012, these expenditures will again set a record.”
• “People may postpone hitching up during uncertain times, but eventually hormones take over. And while ‘doubling-up’ may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.”
• “We now have eight subsidiaries that would each be included in the Fortune 500 were they stand-alone companies. That leaves only 492 to go. My task is clear, and I’m on the prowl.”
• “The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another.”
• “There are a lot of ways to lose money in insurance, and the industry is resourceful in creating new ones.”
• “If something’s not worth doing at all, it’s not worth doing well.”
• “Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965.”
• “(A cube of) 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.”

… and the most profound passage of the entire report:

• “Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%. Naturally, what happens to the company’s earnings over the next five years is of enormous importance to us. Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. Our quiz for the day: What should a long-term shareholder, such as Berkshire, cheer for during that period? I won’t keep you in suspense. We should wish for IBM’s stock price to languish throughout the five years.”

That last bit is why no casual investor (and even many professional ones) should ever think they know even half as much about investing as Warren Buffett. For a compelling, uplifting take on where the U.S. economy might be headed, be my guest and read the rest.