2006 Letter to Shareholders

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Warren Buffett [pdf]:

Our gain in net worth during 2006 was $16.9 billion, which increased the per-share book value of both our Class A and Class B stock by 18.4%. Over the last 42 years (that is, since present management took over) book value has grown from $19 to $70,281, a rate of 21.4% compounded annually.*

We believe that $16.9 billion is a record for a one-year gain in net worth – more than has ever been booked by any American business, leaving aside boosts that have occurred because of mergers (e.g., AOL’s purchase of Time Warner). Of course, Exxon Mobil and other companies earn far more than Berkshire, but their earnings largely go to dividends and/or repurchases, rather than to building net worth.

All that said, a confession about our 2006 gain is in order. Our most important business, insurance, benefited from a large dose of luck: Mother Nature, bless her heart, went on vacation. After hammering us with hurricanes in 2004 and 2005 – storms that caused us to lose a bundle on super-cat insurance – she just vanished. Last year, the red ink from this activity turned black – very black.

In addition, the great majority of our 73 businesses did outstandingly well in 2006. Let me focus for a moment on one of our largest operations, GEICO. What management accomplished there was simply extraordinary.

Some Good Reasons for Governments NOT to invest Taxpayer Money in Schemes

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Richard Aboulafia:

Finding Two. If a state plays this game it quickly reaches an absurd level. Just after the LoPresti micro-triumph New Mexico announced a $100 million investment to build…a spaceport (I really wish I was making this up). This will service Richard Branson’s Virgin Galactic and is obviously a necessary subsidy, because Branson, for some reason, has no cash. (See the December 2005 press release at http://ww1.edd.state.nm.us. Title: Richardson Announces $100 Million Commitment to Build World’s First Spaceport. Implicit subtitles: “Private Sector Baulks At Risky Project; We’re enlisting New Mexico Taxpayers To Provide Generous Help” and “Hooray! We’re Morons!”). Today, Kansas and Florida. Tomorrow, Low Earth Orbit. Who can stop New Mexico from operating like an aerospace banana republic? In search of good government I asked my friend Jeff Schwartz what could be done. Jeff is one of the smartest government guys I know, and he works for the Appalachian Regional Commission, which funds development work in states in their jurisdiction. “We’re on it,” he reassured me, referring me to their code (http://www.arc.gov/index.do?nodeId=1242#chap8). The ARC prohibits its money from going to “(A) Any form of assistance to relocating industries; (B) recruitment activities that place a state in competition with another state or states; and (C) projects that promote unfair competition between businesses within the same immediate service area.”

Brenda Konkel recently wondered about the City of Madison’s $700K loan to Tomo Therapy. Generally, I think governments should stay out of this. We’re all better off if they spend time simplifying processes, taxes and paperwork.

Garlic Does Not Lower Cholesterol in Study

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Carl Hall:

Garlic may be good for a lot of things — spicing up your diet, for sure — but it seems to be no good at all at lowering your cholesterol.


After conducting one of the most elaborate studies yet on garlic’s effect on cardiovascular health, scientists at the Stanford University School of Medicine said Monday that they could find no benefit in terms of reduced levels of LDL cholesterol, the “bad” form linked to heart disease.


Christopher Gardner, a Stanford assistant research professor and lead author of the six-month study, said he was disappointed by the results, describing himself as a garlic lover whose office is an hour’s drive from Gilroy, the generally acknowledged “garlic capital of the world.”


“We really thought this was going to work,” he said. “I was going to get the key to the city of Gilroy. I was going to get ‘Dr. Garlic’ license plates.”

Another balloon pops. Perhaps the garlic farmers will need a subsidy of some sort to recover?

Specter’s Letter from Moscow

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Michael Specter:

The murder of Anna Politkovskaya was at once unbelievable and utterly expected. She had been hunted and attacked before. I 2001, she fled to Vienna after receiving e-mailed threats claiming that a special-services police officer whom she had accused o committing atrocities against civilians (and who was eventually convicted of the crimes) was bent on revenge. While she was abroad a woman who looked very much like her was shot and killed in front of Politkovskaya’s Moscow apartment building. Polic investigators believe the bullet was meant for Politkovskaya. In 2004, she became violently ill after drinking tea on a flight to Beslan in North Ossetia, where, at the request of Chechen leaders, she was to negotiate with terrorists who had seized a school and take more than eleven hundred hostages, most of them children. The Russian Army, which had bungled its response to the siege, did no want her there. Upon landing in Rostov, she was rushed to the hospital; the next day, she was flown by private jet to Moscow fo treatment. By the time she arrived, her blood-test results and other medical records had somehow disappeared. She survived, only t be called a “midwife to terror.” The threats became continuous: calls in the middle of the night, letters, e-mails, all ominous, al promising the worst. “Anna knew the risks only too well,’’ her sister told me. Politkovskaya was born in New York while her fathe was serving at the United Nations, in 1958; not long ago, her family persuaded her to obtain an American passport. “But that was a far as she would go,” Kudimova said. “We all begged her to stop. We begged. My parents. Her editors. Her children. But she alway answered the same way: ‘How could I live with myself if I didn’t write the truth?’

A Rare Heavenly Arc

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David Perlman:

No, this isn’t an upside-down rainbow, and the photographer hasn’t faked the picture. It’s an unusual phenomenon caused by sunlight shining through a thin, invisible screen of tiny ice crystals high in the sky and has nothing at all to do with the rain.


Andrew G. Saffas, a Concord artist and photographer, saw the colorful arc at 3:51 p.m. on a beautiful day recently when a slight rain had fallen in the morning. He thought it was a rainbow, created by raindrops refracting sunlight the way glass prisms refract any bright beam of light.


Instead, what Saffas saw was what scientists call a circumzenithal arc, according to physicist Joe Jordan, a former NASA space scientist at the Ames Research Center in Mountain View, who is now director of the Sky Power Institute in Santa Cruz, which promotes solar power and other alternative fuels.