Berkshire Hathaway’s annual letter to shareholders came out on Friday. The company’s net book value declined by 9.6%, only the second losing year in its 44-year history (2001 was the other). That loss, though, crushed the S&P’s results, which declined 37.4%.
Despite the (relatively) strong results compared to the broader markets, Warren Buffett and Charlie Munger (pictured) aren’t happy. Buffett doesn’t pull any punches in his assessment of the results in the markets this year, or the government’s reaction.
In other words, only companies having problems that can infect the entire neighborhood – I won’t mention names – are certain to become a concern of the state (an outcome, I’m sad to say, that is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won’t do; it’s mindboggling screw-ups that are required.
Yes, this is slightly off topic for a law blog, but clients are reading this letter (and their own companies’); you should, too. Plus, you can just quote from it at cocktail parties and sound like you know what you’re talking about (there are other great lines referencing poker, weaning companies off the government teat, and other colorful turns of phrase). Letters going back to 1977 are also available.
Still, there is a tenuous connection. Before he went on to earn billions with fellow Omaha-native Buffett, Charlie Munger (Caltech undergrad, no degree, Harvard JD ‘48) co-founded the firm now known as Munger, Tolles & Olson. He practiced real estate law before moving onto investment management.
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