Warren Buffett's Letters To Berkshire Shareholders

STORYs
One of the most respected person in the investment world is Warren Buffett. I read a Warren Buffett's letter to Berkshire shareholder in 2006. (You can download it at www.bekshirehathaway.com)

Look at  below. From 1965 to 2006, he beat the market 36 times and lost 6 times.
For example, Warren Buffett's gain was 23.8% and S&P500 gained 10% in 1965. Warren Buffett outperformed the market by 13.8%.
Berkshire S&P500
Year
-1 -2 (1)-(2)
1965 .................................................. 23.8 10 13.8
1966 .................................................. 20.3 -11.7 32
1967 .................................................. 11 30.9 -19.9
1968 .................................................. 19 11 8
1969 .................................................. 16.2 -8.4 24.6
1970 .................................................. 12 3.9 8.1
1971 .................................................. 16.4 14.6 1.8
1972 .................................................. 21.7 18.9 2.8
1973 .................................................. 4.7 -14.8 19.5
1974 .................................................. 5.5 -26.4 31.9
1975 .................................................. 21.9 37.2 -15.3
1976 .................................................. 59.3 23.6 35.7
1977 .................................................. 31.9 -7.4 39.3
1978 .................................................. 24 6.4 17.6
1979 .................................................. 35.7 18.2 17.5
1980 .................................................. 19.3 32.3 -13
1981 .................................................. 31.4 -5 36.4
1982 .................................................. 40 21.4 18.6
1983 .................................................. 32.3 22.4 9.9
1984 .................................................. 13.6 6.1 7.5
1985 .................................................. 48.2 31.6 16.6
1986 .................................................. 26.1 18.6 7.5
1987 .................................................. 19.5 5.1 14.4
1988 .................................................. 20.1 16.6 3.5
1989 .................................................. 44.4 31.7 12.7
1990 .................................................. 7.4 -3.1 10.5
1991 .................................................. 39.6 30.5 9.1
1992 .................................................. 20.3 7.6 12.7
1993 .................................................. 14.3 10.1 4.2
1994 .................................................. 13.9 1.3 12.6
1995 .................................................. 43.1 37.6 5.5
1996 .................................................. 31.8 23 8.8
1997 .................................................. 34.1 33.4 0.7
1998 .................................................. 48.3 28.6 19.7
1999 .................................................. 0.5 21 -20.5
2000 .................................................. 6.5 -9.1 15.6
2001 .................................................. -6.2 -11.9 5.7
2002 .................................................. 10 -22.1 32.1
2003 .................................................. 21 28.7 -7.7
2004 .................................................. 10.5 10.9 -0.4
2005 .................................................. 6.4 4.9 1.5
2006 .................................................. 18.4 15.8 2.6

It's also interesting that in 1999, the market gained 21%, but Warren Buffett only gained 0.5%. So, the market outperformed Warren Buffett by 20.5%. After IT bubble exploded in 2000, Warren Buffett beat the market again. In addition, Warren failed to gain only in 2001, 1 year out of 42 years. Over 42 years, book value has grown from $19 to $70,281, a rate of 21.4% compounded annually. (This is a really amazing result)

In his letter to shareholders, he explain how each business has been going to shareholders and also tell how he has been investing so far.


Here are several big companies Berkshire Hathaway invested. As you can see, it is only losing money with Wal-mart. Overall, the market value is almost 3 times cost. Here is one Korean company POSCO ,which manufactures steel, among others.
사용자 삽입 이미지


I found out two really interesting things in his letter to shareholders. He does believe the personal investing (I say) rather than institutional investing.
1> A flood of money went from institutional investors to the 2-and-20 crowd.
2 % of principal is paid each year to the manager even if he accomplishes nothing
20% of profit is paid to him if he succeeds, even if his success is due simply to a rising tide.
If a manager achieves a gross return of 10% in a year, 3.6% goes to the manager(2% + 1.6%<20% of 8%>). So, investors only have 6.4%, instead of 10%.

2> Efficient Market Theory
: any stock at any moment is not demonstrably mispriced, which means that no investor can be expected to overperform the stock market averages using only publicly-available information.

He doesn't  believe EMT at all. Neither do I. This is the main reason I still want to buy stock rather than buy mutual fund, even though I have to be more carefull and wise. But, there always exists the chance that we can buy stocks cheap.


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