Berkshire Report

Symbol	Price	Change
BRK-A	120,350.00	+350.00
XOM	87.23	-0.11

On Saturday, Warren Buffet released his annual letter to Berkshire Hathaway Inc. shareholders in which the he announced that he had found a CEO successor for his company, but the billionaire and current head of Berkshire Hathaway wouldn’t name names, and doesn’t appear to be retiring any time soon.
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For investors who don’t own a share of the high-priced Berkshire Hathaway, there’s still plenty to glean from Buffet’s 22-page letter. Here’s a few Buffet takeaways, according to Forbes, followed by some key excerpts from Buffet’s letter:

• Buffett says No! to bonds and gold for long-term investors.
• He was “dead wrong” in forecasting a 2011 housing recovery, but he is still optimistic one will be here “probably before long.”
• He explains his test for stock buybacks: when to do so and when it may not be such a good idea.

Bonds

• “Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.”
• “High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments – and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label…”
• “Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: ‘Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.’”

Gold Not a not a fan of gold, Buffett includes it in a group of investments “that will never produce anything” and says they are “purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future.” Other highlights include:

• “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.”
• “As ‘bandwagon’ investors join any party, they create their own truth – for a while.”
• “A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions.” The 170,000 tons of gold in the world, if melded together, would form a cube of about 68 feet per side. In a century, that cube will be “unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.”
  

Stock buybacks Even though he repurchased stock for Berkshire Hathaway last September, Buffet still says he’s not a fan of buybacks and believes, along with Berkhire’s Vice Chairman Charles Munger, they only make sense under two conditions: “First, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated.” Here’s some additional buyback commentary from his annual letter:

• “We have witnessed many bouts of repurchasing that failed our second test. Sometimes, of course, infractions – even serious ones – are innocent; many CEOs never stop believing their stock is cheap. In other instances, a less benign conclusion seems warranted. It doesn’t suffice to say that repurchases are being made to offset the dilution from stock issuances or simply because a company has excess cash. Continuing shareholders are hurt unless shares are purchased below intrinsic value. The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another. (One CEO who always stresses the price/value factor in repurchase decisions is Jamie Dimon at J.P. Morgan; I recommend that you read his annual letter.)”
• “Charlie and I have mixed emotions when Berkshire shares sell well below intrinsic value. We like making money for continuing shareholders, and there is no surer way to do that than by buying an asset – our own stock – that we know to be worth at least x for less than that – for .9x, .8x or even lower. (As one of our directors says, it’s like shooting fish in a barrel, after the barrel has been drained and the fish have quit flopping.) Nevertheless, we don’t enjoy cashing out partners at a discount, even though our doing so may give the selling shareholders a slightly higher price than they would receive if our bid was absent. When we are buying, therefore, we want those exiting partners to be fully informed about the value of the assets they are selling.”

http://finance.yahoo.com/video/cnbc-22844419/analyst-685-price-target-on-priceline-28442202.html