Saturday is the day that Buffettologists await: Warren Buffett's annual letter to shareholders of Berkshire Hathaway Inc., the Omaha investment company he has built into a financial powerhouse over the past five decades.
Investors scour the letter for ideas and warnings. Berkshire shareholders look for reassurance about their stock and the companies Berkshire owns. Professors find lessons for their students. And you might even find a joke or two.
The letter is renowned for its clarity in explaining financial matters, and Buffett himself considers the letters, as they have accumulated over the decades, as a virtual textbook on his philosophy of money and the American capitalist system.
The letter is the first part of Berkshire's annual report, which will be posted on Berkshire's website and available at Omaha.com/Buffett this morning. Here's a guide to help you navigate the 15,000-plus-word letter from the man sometimes called the world's greatest investor:
How did we do? Page 2 will have a table comparing Berkshire's performance each year against Standard & Poor's Index of 500 stocks. Look to see whether Berkshire did better; the past two years, the S&P won. Page 3 starts a half-dozen or more pages of Buffett's evaluation of 2011 and commentary. It's perhaps the most quoted part of the letter.
Gold, bonds and stocks. This section might include Buffett's argument that it's better to buy stocks these days than to invest in gold or bonds. That part of the letter was adapted into an article printed two weeks ago in Fortune magazine.
Berkshire's companies. Each letter has a rundown of the performance and outlook for Berkshire's insurance, manufacturing, utility and other major businesses. Look for comments about the solar energy farms that MidAmerican Energy Holdings is buying and updates on Burlington Northern Santa Fe's rail operations and other operating companies.
Oops. The letter often includes an apology, an admission of error or a candid confession. Buffett believes in telling shareholders about his mistakes, such as his past losses on airline stocks. Since then, he has said, he appointed a staff member to hold him down if he starts talking about buying airline stocks again.
A laugh or two. Nothing makes a point more clearly than a good one-liner. In last year's report, Buffett wrote that one investor was complaining about the recession: "This is worse than divorce. I've lost half my net worth — and I still have my wife."
Numbers, numbers, numbers. While the report contains the required financial data, Buffett understands that's not for everyone. If there's a really important number, he points it out and explains it. He even gives a warning if something complicated is coming, as in 2006: "Warning: It's time to eat your broccoli — I am now going to talk about accounting matters. I owe this to those Berkshire shareholders who love reading about debits and credits. I hope both of you find this discussion helpful. All others can skip this section; there will be no quiz."
Praise. Berkshire managers who have done well often get a verbal pat on the back. Look for favorable words from Buffett about Todd Combs and Ted Weschler, who have helped manage Berkshire investments over the past year.
Invitation. Buffett sincerely wants his shareholders to attend the annual Berkshire meeting, to be held May 5 at the CenturyLink Center Omaha, and some 30,000 have been showing up in recent years. The letter will include a hearty invitation and an outline of events taking place in Omaha that weekend for shareholders.
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.
Contact the writer: 402-444-1080, email@example.com, twitter.com/buffettOWH
Have a question for Steve Jordon about the Oracle of Omaha and his annual letter to Berkshire Hathaway shareholders? Send it in below and then check back from 11:30 a.m. to 12:30 p.m. Monday and Tuesday for more Buffett discussion with Jordon. Find the mobile version of the upcoming chat here.
Replay Saturday's chat with Jordon here.
Check with Omaha.com throughout the weekend or pick up Sunday's World-Herald for more news and analysis from this year's report.