FINANCIAL REPORTING - How Buffett swings it.

Warren Buffett is famous not just for his near $20bn wealth, but for writing the best annual report chairman’s letter of any company. His musings are a refreshing change from the stodgy commentary almost every other company produces – and a lot more informative.

The full report of Buffett’s Berkshire Hathaway is on the Internet at http://www.berkshirehathaway.com and there is a back catalogue of previous years’ letters to enjoy.

Here are a few edited highlights from 1995 and 1996 …

‘This double-barrelled approach – purchases of entire businesses (such as GEICO insurance) or purchases of part-interests through the stock market (such as $10bn-worth of Coca-Cola) – gives us an important advantage over capital allocators who stick to a single course. Woody Allen once explained why eclecticism works: “The real advantage of being bisexual is that it doubles your chances for a date on Saturday night.”‘

‘We don’t have a strategic plan. Thus we feel no need to proceed in an ordained direction … but can instead simply decide what makes sense for our owners.’

‘As I write this – with Berkshire stock at $36,000 – (vice chairman) Charlie (Munger) and I do not believe it undervalued. Berkshire is selling at a price at which Charlie and I would not consider buying it.’ In March 1996.

‘Today’s price/value relationship is both much different from what it was a year ago and, as Charlie and I see it, more appropriate.’ A year later, with the shares little changed but the asset value per share up 32%.

‘I would rather be certain of a good result than hopeful of a great one.’ Why Buffett shuns hi-tech investments.

‘Buying a retailer without good management is like buying the Eiffel Tower without an elevator.’

In 1996 Berkshire Hathaway bought FlightSafety International, whose CEO Al Ueltschi is 79 years old: ‘He will run operations just as he has in the past: we never fool with success … It’s difficult to teach a new dog old tricks.’

On management incentives: ‘We shun “lottery ticket” arrangements, such as options on Berkshire shares, whose ultimate value … is totally out of the control of the person whose behaviour we would like to affect.’

‘A friend once asked me: “If you’re so rich, why aren’t you smart?” ‘ On one of his rare bad investments, USAir.