In nearly 30 years at IBJ, I've read my share of chairman's letters in public-company annual reports.
Most are manicured masterpieces of fluff, well-vetted by lawyers and public-relations people to sound pretty and to avoid anything that might appear the least bit negative.
There may be only one company in the world with an annual report where you could find a paragraph like this:
"During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. ... Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action."
I guess if you're Warren Buffett—aka the Oracle of Omaha—you can get away with that. If you're a shareholder, it's difficult to complain about the chairman of Berkshire Hathaway, whose shares have produced an annual compounded gain of 20 percent since 1965.
One of the greatest investors of all time, Buffett is always refreshingly candid and informative in his letters to investors, and 2008's 21-page missive is no exception. What's more, he teaches and makes you laugh along the way.
Oh, that more CEOs could be as forthright and funny.
From the first paragraphs—"By year-end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game"—to the last, Buffett is engaging and entertaining.
He has a knack for explaining complex investments, like derivatives, in terms laymen can understand, then offers up a summary that reminds you he's just an Old Shoe.
On why he and partner Charlie Munger got Berkshire subsidiary General Re out of the derivatives business, Buffett offers this explanation: "Upon leaving, our feelings about the business mirrored a line in a country song: 'I liked you better before I got to know you so well.'"
While describing why many of his competitors in the tax-exempt bond insurance business got into trouble, Buffett writes, "The cause of their problems was captured long ago by Mae West: 'I was Snow White, but I drifted.'"
Naturally, I was looking for investment advice as I read the letter. It's implicit throughout, but I found a couple of explicit suggestions: No. 1, "When investing, pessimism is your friend, euphoria the enemy," and No. 2, "Our advice: Beware of geeks bearing formulas."
Employing those and other philosophies, Buffett and Munger have built an unusual conglomeration of investments, insurance companies and 67 non-insurance operating companies that overall produce astounding results year after year. Many of their businesses are obscure, but others are household names—Geico, Fruit of the Loom, Dairy Queen and Benjamin Moore.
Does Berkshire own anything in Indiana? Yes, in 2005, the company acquired Elkhart-based Forest River Inc., an RV manufacturer. As a tip of the hat to its new owner, Forest River launched a model called The Berkshire in late 2007. It's powered by Cummins' diesel engines.
About this time last year, my boss and fellow IBJ columnist Mickey Maurer was one of the 30,000 or so shareholders who trekked to the Berkshire annual meeting, which virtually takes over the city of Omaha every year. He was impressed enough to write a column about it.
Buffett calls the event his Woodstock for Capitalists. Wisely, he uses it to promote his companies and takes nearly 200,000 square feet of exhibit space in Omaha's Qwest Center for them to set up booths and sell their wares.
Of course, there is a rather lengthy shareholders' meeting in which Buffett and Munger allow several hours for questions from stockholders and members of the financial media. Never one to miss an opportunity to have some fun, Buffett writes, "If you decide to leave during the day's question periods, please do so while Charlie is talking."
Buffett's letter makes for great reading. If you're so inclined, go to www.berkshirehathaway.com, click on the letters-to-shareholders link, then click on 2008.
Katterjohn is publisher of IBJ. To comment on this column, go to IBJ Forum at www.ibj.com or send e-mail to firstname.lastname@example.org.