Warren Buffett's Annual Letter 2011: Key Takeaways ~ market folly

Friday, March 2, 2012

Warren Buffett's Annual Letter 2011: Key Takeaways

If you haven't seen it already, Warren Buffett is out with his 2011 annual letter to Berkshire Hathaway shareholders. Here are some key takeaways:

- Succession: Buffett puts the succession talk (somewhat) to rest as the company has identified a successor at CEO. They also have two backup candidates as well. The problem is, people will take issue with the fact that the identities still haven't been revealed.

So, when Buffett does finally decide to step down from Berkshire (or when he passes on, because he could certainly work there until the day he dies), the company will be able to transition to the next era. The question now becomes, how much "Buffett premium" is in the stock?

We've also long detailed how Buffett has chosen two new investment manager successors as well. He hired Todd Combs from hedge fund Castle Point Capital and Ted Weschler from hedge fund Peninsula Capital Advisors.

- Buybacks: The Oracle of Omaha clearly thinks his company's stock is undervalued and is anxious to buy back Berkshire Hathaway shares as high as 1.1x book value, which would be around $110,000 on the A shares (BRK.A) as of year-end. Shares currently only trade around 7% higher at $117,755.

- Acquisitions: The two most recent major acquisitions for Berkshire Hathaway, Lubrizol and Burlington Northern Santa Fe, have delivered record operating earnings. So yet again, Buffett has made some prescient buys.

It's also not out of the question that Buffett could possibly make some additional acquisitions in the near future. After all, his Berkshire businesses are throwing off around $1 billion per month as a whole that he could use. While he doesn't specifically mention anything in the letter, it seems like an obvious possibility. As to where he might look, we've detailed in the past how Buffett likes businesses with pricing power (Lubrizol).

Embedded below is what value investors have deemed a must read every year: Warren Buffett's annual letter to Berkshire Hathaway shareholders (you can download a .pdf copy here):

For more resources from one of the greatest investors ever, check out:

- Warren Buffett's recommended reading list

- Top 25 Warren Buffett quotes

- A compilation of Buffett's partnership letters

- Buffett's worst trade

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