In the press in the past few days as been a lot of comment on the annual report from Berkshire Hathaway and the comments from the CEO of Berkshire Hathaway, the revered investor, Warren Buffett.

It makes fantastic reading.

[http://www.berkshirehathaway.com/letters/2012ltr.pdf]

Some salient facts. It has  “Big Four” investments:

American Express, Coca-Cola, IBM and Wells Fargo. In the past year Berkshire Hathaway has increased its stake.

Amex 13.7%. [151,610,700 shares worth  $8,715 Million = $8.7 Billion]
Coca-Cola 8.9% [400,000,000 shares worth $14,500 Million = $14.5 Billion]
IBM 6.0% [68,115,484  shares worth $13,048 Million =$13 Billion]
Wells Fargo 8.7% [456,170,061 worth $15,592 Million = $15.5 Billion]

A great quote from the annual report:-

“The four companies possess marvellous businesses and are run by managers who are both talented and shareholder-oriented. At Berkshire we much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business”

Funding Berkshire Hathaway comes from its insurance businesses, giving Berkshire $73 billion of free money to invest. This is explained by another brilliant quote:

“Property-casualty (“P/C”) insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit…..This is truly having your cake and eating it too.”

What makes great reading is the dividend policy on page 18, they don’t like them, wanting to invest the money organically.

It is a great read, and a long term investor with insight and common sense.