Quotes From Warren Buffett’s Letter to Berkshire Shareholders – February 28, 2014

These are some quotes from Warren Buffett’s annual Letter to Shareholders dated February 28, 2014 and posted on Berkshire’s web site March 1:

(1) “Berkshire’s intrinsic value far exceeds its book value.”  Berkshire will aggressively purchase its shares if the stock price drops below 120% of book value.  (Note: At the Friday, February 28, 2014 closing price of $173,708 for Berkshire class A, and at its yearend 2013 book value of $134,973, Berkshire’s price equals 129% of book value.)

(2) “With the Heinz purchase… we created a partnership template that may be used by Berkshire in future acquisitions”

(3) “Mid-American is one of our “Powerhouse Five” .. large non-insurance businesses that include BNSF, Iscar, Lubrizol, and Marmon.”

(4) “In a year in which most equity managers found it impossible to outperform the S&P 500 (Note: S&P 500 up 32% in 2013), both Todd Combs and Ted Weschler handily did so…I must again confess that their investments outperformed mine.”

(5) “Berkshire increased its ownership interest last year in each of its “Big Four” investments – American Express, Coca-Cola, IBM, and Wells Fargo.  We  purchased additional shares of Wells Fargo (increasing our ownership to 9.2% versus 8.7% at yearend 2012) and IBM (6.3% versus 6.0%).  Meanwhile, stock repurchases at Coca-Cola and American Express raised our percentage ownership. …The four companies possess excellent businesses and are run by managers who are both talented and shareholder-oriented.  At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business; it’s better to have a partial interest in the Hope diamond than to own all of a rhinestone….The earnings that these four companies retain are often used for repurchases of their own stock.. as well as for funding business opportunities…All that leads us to expect that the per-share earnings of these four companies will grow substantially over time.”

(6) “Indeed, who has ever benefited during the past 237 years by betting against America?”

(7) “We can buy 700 million shares of Bank of America at any time prior to September 2021 for $5 billion.  At yearend these shares were worth $10.9 billion.  We are likely to purchase the shares just before expiration of our option.  In the meantime, it is important for you to realize that Bank of America is, in effect, our fifth largest equity investment and one we value highly.”

(8) “Put 10% of the cash (in a trust for his wife) in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)  I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”

(9) “Last year they (Berkshire’s small staff) dealt with the 40 universities (selected from 200 applicants) who sent students to Omaha for a Q&A day with me.”  (Note: The University of Maryland was one of the 40 universities.)

The entire Letter to Shareholders is available at:

http://www.berkshirehathaway.com/letters/2013ltr.pdf