2011 Warren Buffet's Annual Letter

The 2011 annual letter from Warren Buffet to Berkshire Hathaway shareholders has been posted. As usual the letter is packed full of valuable investor insights and a bit of self-deprecating humor.

Here are some key takeaways for me from the letter:

  • Buffet acknowledges that a housing recovery has not come about as he anticipated, but that housing starts are still below housing formations and the housing industry will recover sooner rather than later.
  • Touched on the IBM investment, and share repurchasing. It strikes me that Warren is using the letter to remind the IBM execs to only use significant capital to repurchase shares if they can get them for a price that makes economic sense for shareholders.
  • Last year Warren announced that Berkshire would repurchase shares at up to 110% of book value. He inidicated they were only in the market for a few days during 2011 and purchased $67million of stock. Looking at historical prices for Berkshire it looked to be at the end of September and perhaps August when the BRK-B stock price briefly flirted between $66-$68.
  • Buffet made it clear he doesn't like currency based investments (ie bonds) in today's environment. "Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label."

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Comments (4)


I liked how in the IBM bullet he reminded us that it's a good thing for a stock's price to languish. I'm always perplexed by people who get excited when the price of a company they like rises. I prefer to buy when it's on sale.

Interesting letter. With respect to bond purchases, much of the risk in a rising interest rate environment can be reduced by purchasing investment grade corporate or municipal bonds or bond funds with a FIXED maturity date. Barring a default, one should receive return of principal if held to maturity. It's the bond funds and ETFs without a fixed maturity rate that one need worry about if interest rates start rising quickly. Also, US I bonds now are paying out over 3% annual interest currently and are a much better place to park your savings account money than in an account paying 1%.

The bond comment took me by surprise, it's one of my goals this year to increase our bond allocation.

I hope he's right about the housing market... this recovery's been too long coming. I read somewhere that 2012 is - at long last - supposed to be the bottom. We'll see...

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