Investment in Warren Buffetts Letter to Shareholders

Table of Contents

Introduction
Main Body
Conclusion
References

Introduction

Warren Buffetts annual letter to shareholders presents one of the most read and analyzed documents by investors within business calendar. The letter basically updates shareholders on Berkshires progress and at the same time gives investment wisdom to various investors (Buffett, 2013).

Main Body

Warren Buffett gives detailed explanations on newspaper investment. Berkshires investment on newspapers presents one of the surprises within Buffetts 2013 letter, since the letter reveals the fact that Berkshire has spent huge amount on only 28 dailies i.e. $344 million, within the last 15 months (Buffett, 2013). Buffet acknowledges the fact that Berkshires newspaper acquisition was in decline and fell far short of meeting off-stated size requirements for acquisitions (Buffett, 2013).

Conclusively, he emphasizes on his intention to continue purchasing newspapers provided the economics makes sense. Buffett asserts that there is still premium especially in high quality local news since they serve special informational needs of entire target community. On newspaper investment, Buffett still asserts that newspapers can bring returns by constructing pay-wall. Good example provided in the letter concerns The Wall Street Journal known to have captured pay model from the time of its inception. The other local newspapers adopted a pay format during early days, making them to retain excellent circulation over the past decade (LaCroix, 2013).

Good part of the letter explains issues on dividends as he argues that his business is better off since money was reinvested into the company (Buffett, 2013). However, their shareholders have been greatly concerned with the fact that Berkshire Company relishes dividends received from most stocks the company owns but pays nothing. However, Buffett tries to defend this point and explains from financial standpoint how Berkshires shareholders are better off whenever Berkshire retains and re-invests its earnings rather than paying them in dividends. Contrary to their formula on dividends, other multinational corporations such as Coca-Cola pay consistent dividends to their shareholders as they try to make annual increments (LaCroix, 2013).

Buffett conclusively suggests that companies should always be clear and consistent concerning their dividend policy. Therefore, he comments: I have made plenty of mistakes in acquisitions and will make more. Overall, however, our record is satisfactory, which means that our shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchases or dividends (Buffett, 2013).

On leadership, Buffett suggests that keeping staff levels manageable and light is good for any company. Berkshire recorded a big leap in employment within branches other than the headquarters. The company never made any changes on the headquarters crew but in other areas Berkshires year-end employment recorded 288,462 employees, representing an increase of 17,604 from the year 2012. In his succession plans, Buffett assures shareholders that the two investment managers recently hired, Todd Combs and Tedd Wechsler, outperformed the S&P 500 in 2012 by double-digit margins (LaCroix, 2013).

On uncertainties within business world, Buffett encourages shareholders to stay put amid difficult times. Buffett is known for his ability to maintain good investments even during troubled times. Buffett argues that anyone stepping out of business investment based on various uncertain times misses the point (LaCroix, 2013). He suggests that since the basic game is so favorable, they believe its a terrible mistake to try to dance in and out of it based up on the turn of cards, the prediction of experts, or the ebb and flow of business activity (Buffett, 2013).

From the explanation on his first investment on stock purchase in 1942, he shares the fact that they suffered major set-backs due to political unrest across the region. Despite such uncertainties the companys destiny has been based on ever-increasing abundance. The same spirit can be realized currently on Berkshires performance and in 2012 the company invested more in plant and equipment that is $ 9.8 billion, compared to 2011. This illustration reveals more opportunities within American market (LaCroix, 2013).

In the letter, Buffett emphasizes on the fact that insurance business has grown rapidly and produced higher float over the years. This can be revealed from the companys financial statements which shows that in addition to he $1.6 billion in underwriting profit, insurance business alone ploughed investment returns of $ 3.4 billion. Buffett also notes that the insurance industry has benefited from higher yields based on its legacy portfolios. According to Buffett, yields on older assets present much higher figure compared to current assets. However, as the legacy assets mature out of the portfolios, earnings of insurers might receive significant backdrop (LaCroix, 2013).

Conclusion

The letter describes various crucial points on business investments to shareholders. Buffett provides insights into financial markets from his own investment views. It is important for shareholders to understand various issues surrounding investments based on practical experiences and from financiers point of view. From such perspective many businesses would eventually discover the difference between companys value and the price required to maintain profits at higher levels.