LIVE: Warren Buffett's 2013 Letter To Shareholders Is Out

Warren Buffett’s 2013 annual letter to Berkshire Hathaway shareholders is out.

Q4 financial results are out. Berkshire reported operating earnings of $US2,297 per share, beating estimates calling for $US2,204 per share.

Berkshire’s book value grew by a respectable 18.2% in 2013. Unfortunately, it was one of the rare years Berkshire’s book value didn’t grow faster than the S&P 500.

“Charlie Munger, Berkshire’s vice chairman and my partner, and I believe both Berkshire’s book value and intrinsic value will outperform the S&P in years when the market is down or moderately up,” said Buffett. “We expect to fall short, though, in years when the market is strong — as we did in 2013. We have underperformed in 10 of our 49 years, with all but one of our shortfalls occurring when the S&P gain exceeded 15%.”

Buffett had nice things to say about his two deputies Todd Combs and Ted Weschler.

“In a year in which most equity managers found it impossible to outperform the S&P 500, both Todd Combs and Ted Weschler handily did so. Each now runs a portfolio exceeding $US7 billion. They’ve earned it,” said Buffett. “Their contributions are just beginning: Both men have Berkshire blood in their veins.”

Earlier this week, Buffett gave Fortune Magazine an exclusive excerpt from the letter. In it, he discusses two past property investment he had made. The first was a 400-acre farm in Nebraska, which he paid $US280,000 for in 1986. The second was retail property near New York University in 1993.

Both investment were made after prices collapsed.

“Income from both the farm and the NYU real estate will probably increase in decades to come,” he said. “Though the gains won’t be dramatic, the two investments will be solid and satisfactory holdings for my lifetime and, subsequently, for my children and grandchildren.”

Buffett bulleted five fundamentals of investing, which we paraphrase:

  • You don’t need to be an expert in order to achieve satisfactory investment returns.” But Buffett also warns that the investor should recognise her limitations and “keep things simple.
  • Focus on the future productivity of the asset you are considering.” Buffett notes that no one can perfectly forecast the future profitability of an investment. “[O]mniscience isn’t necessary; you only need to understand the actions you undertake.”
  • If you instead focus on the prospective price change of a contemplated purchase, you are speculating.” Buffett has nothing against price speculation. But he emphasises that it’s important to be able to know the difference between investing for the productivity of the asset versus investing on hopes that the price of the asset changes.
  • “With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.” In other words, focus on the long-run.
  • “Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important.” So mute CNBC, Bloomberg TV, and Fox Business. Unless Warren Buffett comes on.

Buffett open this excerpt with this quote from his mentor Columbia University finance professor Ben Graham: “Investment is most intelligent when it is most businesslike.”

Read the whole except at Fortune.CNN.com.

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