Warren Buffet

Warren Buffet Assignment

          The letter issued by Berkshire Hathaway Inc. is filled with a lot of information detailing the information that happened in 2014 and years prior. This letter comes on the 50 year anniversary and feature Warren Buffet and Charlie Munger’s thoughts on the past 50 years and what they expect over the next 50. The introductory section of the letter titled “To the Shareholders of Berkshire Hathaway Inc.:” it outlines a general overview of the occurrences of the stock over the past 50 years and how it has increased dramatically, and also what they believed was the best way to show it has increased. They end it saying that there has been a 1,826,163% increase in per share value.

The Businesses of Success

The first Major section with a lot of Substance within the letter is “The year at Berkshire.” A part that really interested me from this section is where they speak of how much their subsidiaries spent on new plant equipment in 2014. The amount they list $15 billion dollars which they say is more than double their depreciation charges. What is even more interesting is that 90% of that money was spent in the USA in a day and age where you seem to hear everything is being bought or done overseas. The next section titled “Intrinsic Business Value” albeit short have an interesting fact that since 1970 per-share investments have increased at 19% annually.

        The section “Insurance” is full of interesting information detailing their strategies for what they consider to be their core operation. It is said in this section that even if a major catastrophe were to occur to the insurance industry and it incurred costs of $250 billion which is said to be triple the amount of loss the industry has ever seen that they would still likely record a profit for that year. I find this interesting because one would think that a loss of that magnitude in an industry where they claim to be its core operation at Berkshire Hathaway would seriously hurt the revenue and profits for the year. It’s explained that because of the many streams of earnings that that is why they would expect profits regardless. The next section labeled “Regulated, Capital-Intensive Business” has a very interesting segment about Berkshire Hathaway Energy that personally helped me learn something new. It’s mentioned that one of the factors that allow BHE to be able to service its debt under all circumstances is that it deals with recession-resistant earnings. It’s a concept that I’ve never actually thought about before. The idea that no matter how bad a recession in an economy is that the utilities BHE exclusively provides are things that are considered to be essential services.

        Moving on to the section titled “manufacturing, Service and Retailing Operations” it’s said that he has not made his last mistake in purchasing stocks or business and that not everything works out as planned. This interests me because it’s easy to think that Warren Buffet such a successful man or on a more broad term Berkshire Hathaway can do no wrong because of how successful it's proven to be over the past 50 years. It is easy to overlook that mistakes do happen even to the best of them. He also goes on to say that it’s not just risky purchases that can be a mistake but also if you pay too high of a price for a business even if it’s in a terrific economy. The next section in the letter labeled “Finance and Financial Products” goes into depth of their railroad car industry. Towards the end of the section before the earnings are stated it is stated that since the “retail” price is so slowly reflected in the earnings through smaller annual depreciation charges on the 30-year life that Marmon’s rail fleet specifically is worth more than the $5 billion that is carried on the books. It’s interesting that even though they record a certain price in the books that in reality the worth of the assets can be considerably higher.