Every year, investors look forward Warren Buffett's Berkshire Hathaway annual report, and it's not because they love analyzing the holding companies expenses.
The report is valuable because it comes with a letter from the Oracle of Omaha discussing his thoughts on markets, investing, finance and more.
So to get you ready for this year's letter, which comes out today at 4:00 p.m., Business Insider went back through Buffett's letters starting in 2010 and grabbed some of our favorite insights.
Some of these are meditations on management, others are on investing strategy. There are even some predictions that have come true.
On learning about GEICO at age 20: He hopped on a train and banged on the door until someone answered.
Sixty years ago last month, GEICO entered my life, destined to shape it in a huge way. I was then a 20-year-old graduate student at Columbia, having elected to go there because my hero, Ben Graham, taught a once-a-week class at the school.
...I decided to visit the company. The following Saturday, I boarded an early train for Washington.
Alas, when I arrived at the company’s headquarters, the building was closed. I then rather frantically started pounding on a door, until finally a janitor appeared. I asked him if there was anyone in the office I could talk to, and he steered me to the only person around, Lorimer Davidson.
That was my lucky moment. During the next four hours, “Davy” gave me an education about both insurance and GEICO. It was the beginning of a wonderful friendship. Soon thereafter, I graduated from Columbia and became a stock salesman in Omaha...
Subsequently, Davy became CEO of GEICO, taking the company to undreamed-of heights before it got into trouble in the mid-1970s...
Source: Berkshire Hathaway, 2011
On his favorite kind of investment: You want companies with staying power that don't need tons of reinvestment.
"...assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See’s Candy meet that double-barreled test. Certain other companies – think of our regulated utilities, for example – fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.
Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle."
Predicting the future: Buying Energy Future Holdings was a mistake.
Bloomberg reported that the company faced bankruptcy a few days ago.
Here's what Buffett said about the company in his letter last year:
A few years back, I spent about $2 billion buying several bond issues of Energy Future Holdings, an electric utility operation serving portions of Texas. That was a mistake – a big mistake. In large measure, the company’s prospects were tied to the price of natural gas, which tanked shortly after our purchase and remains depressed. Though we have annually received interest payments of about $102 million since our purchase, the company’s ability to pay will soon be exhausted unless gas prices rise substantially. We wrote down our investment by $1 billion in 2010 and by an additional $390 million last year.
At yearend, we carried the bonds at their market value of $878 million. If gas prices remain at present levels, we will likely face a further loss, perhaps in an amount that will virtually wipe out our current carrying value. Conversely, a substantial increase in gas prices might allow us to recoup some, or even all, of our write-down. However things turn out, I totally miscalculated the gain/loss probabilities when I purchased the bonds. In tennis parlance, this was a major unforced error by your chairman.
Source: Berkshire Hathaway, 2012
See the rest of the story at Business Insider
Please follow Clusterstock on Twitter and Facebook.