2008 Warren Buffet investment letter Berkshire Hathaway

Every year investors in the United States and around the world wait for Birkshire Hathaway annual report. Not so much to read about Warren Buffet's company, but rather to read the investment opinion in his open letter to shareholders. Warren Buffet, the most followed investor in the history of modern financial markets.

As details of the Warren Buffet investment letter are read, I will release additional details.

"The answer will be in the Berkshire Hathaway annual report...sort of..."

Interesting note on Foreign Investment in the US

There's been much talk recently of sovereign wealth funds and how they are buying large pieces of American businesses. This is our doing, not some nefarious plot by foreign governments. Our trade equation guarantees massive foreign investment in the U.S. When we force-feed $2 billion daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?

Especially, I might add, when those stocks aren't bought on the secondary market, but instead are bought directly from capital-constrained banks, with the effect of helping to keep the US financial system functioning.

Perhaps the comments below are somewhat akin to the comments Mr. Buffett plans to release at 4:30pm this evening:

On January 18, 1963, Mr. Buffett shared in his letter to partners a discussion on The Joys of Compounding:

I have it from unreliable sources that the cost of the voyage Isabella originally underwrote for Columbus was approximately $30,000. This has been considered at least a moderately successful utilization of venture capital. Without attempting to evaluate the psychic income derived from finding a new hemisphere, it must be pointed out that even had squatter's rights prevailed, the whole deal was not exactly another IBM. Figured very roughly, the $30, 000 invested at 4% compounded annually would have amounted to something like $2,000,000,000 (that's $2 trillion for those of you who are not government statisticians) by 1962 Historical apologists for the Indians of Manhattan may find refuge in similar calculations. Such fanciful geometric progressions illustrate the value of either living a long time, or compounding your money at a decent rate. I have nothing particularly helpful to say on the former point.

The following table indicates the compounded value of $100,000 at 5%, 10% and 15% for 10, 20 and 30 years. It is always startling to see how relatively small differences in rates add up to very significant sums over a period of years. That is why, even though we are shooting for more, we feel that a few percentage points advantage over the Dow is a very worthwhile achievement. It can mean a lot of dollars over a decade or two.

5% / 10% / 15%

10 years: $162,889 / $259,374 / $404,553

20 years: 265,328 / 672,748 / 1,636,640

30 years: 432,191 / 1,744,930 / 6,621,140

Mr. Buffett's letter a year later, dated January 18, 1964, again discussed The Joys of Compounding, with the following example:

Now to the pulse-quickening portion of our essay. Last year, in order to drive home the point on compounding, I took a pot shot at Queen Isabella and her financial advisors. You will remember they were euchre d into such an obviously low-compound situation as the discovery of a new hemisphere.

Since the whole subject of compounding has such a crass ring to it, I will attempt to introduce a little class into this discussion by turning to the art world. Francis I of France paid 4,000 ecus in 1540 for Leonardo de Vinci's Mona Lisa. On the off chance that a few of you have not kept track of the fluctuations of the ecu, 4,000 converted out to about $20,000.

If Francis had kept his feet on the ground and he (and his trustees) had been able to find a 6% after-tax investment, the estate now would be worth something over $1,000,000,000,000,000.00. That's $1 quadrillion or over 3,000 times the present national debt, all from 6% I trust this will end all discussion in our household about any purchase of paintings qualifying as an investment.

However, as I pointed out last year, there are other morals to be drawn here. One is the wisdom of living a long time. The other impressive factor is the swing produced by relatively small changes in the rate of compound.

Below are shown the gains from $100, 000 compounded at various rates:

4% / 8 % / 12% / 16%

10 Years: $ 48,024 / $115,892 / $210,584 / $341,143

20 years: 119,111 / 366,094 / 864,627 / 1,846,060

30 years: 224,337 / 906,260 / 2,895,970 / 8,484,940

And finally, Mr. Buffett explained to his partners:

Our last two excursions into the mythology of financial expertise have revealed that purportedly shrewd investments by Isabella (backing the voyage of Columbus) and Francis I (original purchase of Mona Lisa) bordered on fiscal lunacy. Apologists for these parties have presented an array of sentimental trivia. Through it all, our compounding tables have not been dented by attack.

Nevertheless, one criticism has stung a bit. The charge has been made that this column has acquired a negative tone with only the financial incompetents of history receiving comment. We have been challenged to record on these pages a story of financial perspicacity which will be a bench mark of brilliance down through the ages.

One story stands out. This, of course, is the saga of trading acumen etched into history by the Manhattan Indians when they unloaded their island to that notorious spendthrift, Peter Minuit in 1626. My understanding is that they received $24 net. For this, Minuit received 22.3 square miles which works out to about 621,688,320 square feet. While on the basis of comparable sales, it is difficult to arrive at a precise appraisal, a $20 per square foot estimate seems reasonable giving a current land value for the island of $12,433,766,400 ($12 1/2 billion). To the novice, perhaps this sounds like a decent deal. However, the Indians have only had to achieve a 6 1/2% return (The tribal mutual fund representative would have promised them this) to obtain the last laugh on Minuit. At 6 1 /2%, $24 becomes $42,105,772, 800 ($42 billion) in 338 years, and if they just managed to squeeze out an extra half point to get to 7%, the present value becomes $205 billion.

So much for that.

The final page of the Warren Buffet Annual Letter to Shareholders.

The Annual Meeting

Our meeting this year will be held on Saturday, May 3rd. As always, the doors will open at the

Qwest Center at 7 a.m., and a new Berkshire movie will be shown at 8:30. At 9:30 we will go directly to

the question-and-answer period, which (with a break for lunch at the Qwest’s stands) will last until 3:00.

Then, after a short recess, Charlie and I will convene the annual meeting at 3:15. If you decide to leave

during the day’s question periods, please do so while Charlie is talking.

The best reason to exit, of course is to shop. We will help you do that by filling the 194,300-

square-foot hall that adjoins the meeting area with the products of Berkshire subsidiaries. Last year, the

27,000 people who came to the meeting did their part, and almost every location racked up record sales.

But you can do better. (If necessary, I’ll lock the doors.)

This year we will again showcase a Clayton home (featuring Acme brick, Shaw carpet, Johns

Manville insulation, MiTek fasteners, Carefree awnings and NFM furniture). You will find that this 1,550-

square-foot home, priced at $69,500, delivers exceptional value. And after you purchase the house,

consider also acquiring the Forest River RV and pontoon boat on display nearby.

GEICO will have a booth staffed by a number of its top counselors from around the country, all of

them ready to supply you with auto insurance quotes. In most cases, GEICO will be able to give you a

special shareholder discount (usually 8%). This special offer is permitted by 45 of the 50 jurisdictions in

which we operate. (One supplemental point: The discount is not additive if you qualify for another, such as

that given certain groups.) Bring the details of your existing insurance and check out whether we can save

you money. For at least 50% of you, I believe we can.

On Saturday, at the Omaha airport, we will have the usual array of aircraft from NetJets available

for your inspection. Stop by the NetJets booth at the Qwest to learn about viewing these planes. Come to

Omaha by bus; leave in your new plane. And take all the hair gel and scissors that you wish on board with

you.

Next, if you have any money left, visit the Bookworm, where you will find about 25 books and

DVDs – all discounted – led again by Poor Charlie’s Almanack. Without any advertising or bookstore

placement, Charlie’s book has now remarkably sold nearly 50,000 copies. For those of you who can’t

make the meeting, go to poorcharliesalmanack.com to order a copy.

An attachment to the proxy material that is enclosed with this report explains how you can obtain

the credential you will need for admission to the meeting and other events. As for plane, hotel and car

reservations, we have again signed up American Express (800-799-6634) to give you special help. Carol

Pedersen, who handles these matters, does a terrific job for us each year, and I thank her for it. Hotel

rooms can be hard to find, but work with Carol and you will get one.

At Nebraska Furniture Mart, located on a 77-acre site on 72nd Street between Dodge and Pacific,

we will again be having “Berkshire Weekend” discount pricing. We initiated this special event at NFM

eleven years ago, and sales during the “Weekend” grew from $5.3 million in 1997 to $30.9 million in 2007.

This is more volume than most furniture stores register in a year.

To obtain the Berkshire discount, you must make your purchases between Thursday, May 1st and

Monday, May 5th inclusive, and also present your meeting credential. The period’s special pricing will

even apply to the products of several prestigious manufacturers that normally have ironclad rules against

discounting but which, in the spirit of our shareholder weekend, have made an exception for you. We

appreciate their cooperation. NFM is open from 10 a.m. to 9 p.m. Monday through Saturday, and 10 a.m.

to 6 p.m. on Sunday. On Saturday this year, from 5:30 p.m. to 8 p.m., NFM is having a Baja Beach Bash

featuring beef and chicken tacos.