Rodent Regatta

The beauty of one lesson from Warren Buffett is that it keeps on giving. It makes you want to learn more, and he tells you how to go about that.

The 2004 annual report and letter to shareholders is different only in that it provides a greater incentive to dig deeper. Take these topics for instance: (Note: the first two are pdf files.)

• Fuzzy Math and Stock Options
• America’s Growing Trade Deficit is Selling the Nation Out from Under Us
• What were the titles of the eighteen (recommended) books sold at last year’s annual meeting?
• What are the three reasons most investors suffer results “ranging from mediocre to disastrous?”
• What’s the second largest real estate broker in the country?
• Why is a $20,000 hiring decision a $3 million business decision?
• Why would Warren Buffett and Charlie Munger applaud a business manager who is reducing his sales volume?
• The World Trade Center disaster cost the insurance industry an estimated $35 billion. What would happen if the insurance industry faced a $100 billion event? (Hint: “At bottom, any insurance policy is a promise, and as everyone knows, promises vary enormously in their quality.”)
• “Like Hell, derivative trading is easy to enter but difficult to leave. (Other similarities come to mind as well.)”
• Are women wearing more or less underwear these days?
• What company leads the world in training pilots and who is their number one customer?
• Why did Berkshire Hathaway own approximately $21.4 billion of foreign exchange contracts at the end of 2004?
• How do the budget deficit and the current account deficit differ?
• ”...lemmings as a class may be derided but never does an individual lemming get criticized.”
• What should you read if you want to keep abreast of trade and currency matters?
• “Self-interest inevitably blurs introspection.”
• Options expensing is scheduled to become mandatory on June 15^th. What should you expect between now and then?
• What book has Warren Buffett asked to be added to this year’s list of annual meeting titles?

Stay tuned for some answers to these questions. In the meantime, please understand why any person participating in the business world today should pay any attention to this stuff:

“I do this in the spirit of the farmer who enters his hen house with an ostrich egg and admonishes the flock: ‘I don’t like to complain, girls, but this is just a small sample of what the competition is doing.’”

Now, get busy. It’s free. It’s fun. It’s enriching.

Others have said that a thorough reading and re-reading of Warren Buffett’s letters to shareholders from 1977 to now is a better education than two years in business school.

Tomorrow, at 9:00a.m. EST, we get another instalment in this great body of work. The annual report (and letter) for Berkshire Hathaway is due to be posted on the web. You can find it by visiting the company’s web site here.

For the techies in the crowd, you should know that Bill Gates has joined Berkshire’s board. A Saturday morning, a hot pot of coffee, a notebook and good pen and a new annual report. Priceless.

Google announced blow-the-doors-off numbers today. For the year the company posted $3.189 billion in sales. That was more than double the prior year. Against those sales, they recorded a net profit of $399 million. That was almost four times the prior year’s profit.

Google employs just over 3000 people and has approximately 286 million shares outstanding. Profitability amounted to $1.46 per share and $133,000 per employee.

At a market price of about $191.90 per share, the whole company is valued at $54.6 billion. Invest your $192 expecting a five percent annual return, and the company is going to have to post earnings of $9.60 per share. They are on their way, but with a P/E of 230.37, well that’s a 1999 multiple!

For perspective consider that Berkshire Hathaway earned $4,134.48 per share during 2003 with a current share price of $90,850. That’s a P/E of only 21.97 by comparison. Invest your $91,000 and, to get a five percent return, the company has to earn only $4550 per share. Sometime in March we’ll know how they did against that target.

We live in an era of great uncertainty. The risks are higher than ever before. Risks are about probabilities. We’ve dealt with those throughout history. What makes this era so different is the set of events which – given the right set of circumstances – could happen which have never happened before.

This country sits on a record level of debt as do its citizens. Long standing industries have now moved to other nations. Rates of personal bankruptcy set new records each year. Our trade and budget deficits soar. Our currency is shrinking in value.

Today, warnings he has given before were the topic of an interview with Warren Buffett. If you have not done some serious reading and study in this area, I’d encourage you to understand what he said today and where the mindset that influences is remarks began.

As of the end of June, here’s a list of the public companies in which Berkshire Hathaway had major holdings. The point of this was going to be to discuss the notion of holding over $25 billion in common stocks.

Because of all this, I lost interest.

It was going to be such a simple matter to simply clip a portion of a text document that was filed with the government and post it here. Hours later, I’m too frustrated to focus on the content.

Weblogs – bah!