HORMONES, MISTAKES AND MOYNIHAN: Here Are The Highlights From Warren Buffett's Annual Letter

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Warren Buffett’s annual letter to Berkshire Hathaway’s shareholders is a must-read for both novice and advanced investors.It’s a treasure trove of investment insights, management tips, and witty witticisms. 

Unfortunately, the quotes that everyone talks about are hidden in a 22-page letter, which at some times can get pretty technical.

On Saturday, we pulled around 30 extended quotes that you need to know.

Here, we present to you the 16 quotes that everyone will talk about repeatedly today and for years to come.

That's the increase in Berkshire Hathaway's book value per share since 1965. That's an annualized gain of 19.8 per cent during that period, versus just 9.2 per cent in the S&P 500.

Source: Berkshire Hathaway

'A few years back, I spent about $2 billion buying several bond issues of Energy Future Holdings, an electric utility operation serving portions of Texas. That was a mistake -- a big mistake. In large measure, the company's prospects were tied to the price of natural gas, which tanked shortly after our purchase and remains depressed.'

Source: Berkshire Hathaway

'In aggregate, our five housing-related companies had pre-tax profits of $513 million in 2011. That's
similar to 2010 but down from $1.8 billion in 2006.'

Source: Berkshire Hathaway

On the subject of share buybacks: 'One CEO who always stresses the price/value factor in repurchase decisions is Jamie Dimon at J.P. Morgan; I recommend that you read his annual letter.'

Source: Berkshire Hathaway

On being a shareholder of IBM, which will likely spend around $50 billion on share repurchases: '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...

...The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise.'

Source: Berkshire Hathaway

'The banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its
assets solid and its capital at record levels.'

Source: Berkshire Hathaway

'At Bank of America, some huge mistakes were made by prior management. Brian Moynihan has made excellent progress in cleaning these up, though the completion of that process will take a number of years. Concurrently, he is nurturing a huge and attractive underlying business that will endure long after today's problems are forgotten. Our warrants to buy 700 million Bank of America shares will likely be of great value before they expire.'

Source: Berkshire Hathaway

On financial weapons of mass destruction: 'There is little new to report on our derivatives positions, which we have described in detail in past reports. (Annual reports since 1977 are available at berkshirehathaway.com.) One important industry change, however, must be noted: Though our existing contracts have very minor collateral requirements, the rules have changed for new positions. Consequently, we will not be initiating any major derivatives positions. We shun contracts of any type that could require the instant posting of collateral. The possibility of some sudden and huge posting requirement -- arising from an out-of-the-blue event such as a worldwide financial panic or massive terrorist attack -- is inconsistent with our primary objectives of redundant liquidity and unquestioned financial strength.'

Source: Berkshire Hathaway

On his favourite type of investment: 'My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See's Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labour for a Coca-Cola or some See's peanut brittle.'

Source: Berkshire Hathaway

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