Highlights of Warren Buffett’s Letter to Shareholders – February 27, 2016

Highlights of Warren Buffett’s Letter to Shareholders – February 27, 2016
Berkshire Hathaway 2015 Annual Letter

On Saturday, February 27, Warren Buffett released his Letter to Shareholders.  Some of the highlights are:

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(1) He praised 3G Capital for buying, building, and holding large businesses in contrast to private equity firms that sell the businesses they acquire.

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(2) Berkshire’s “appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for Berkshire’s endless gusher of cash.  Beyond that, having a huge portfolio of marketable securities gives us a stockpile of funds that can be tapped when an elephant-sized acquisition is offered to us”.

(3) “For 240 years it’s been a terrible mistake to bet against America…America’s kids will live far better than their parents did.”

(4) “Our definition of interest coverage is the ratio of earnings before interest and taxes to interest,not EBITDA/interest, a commonly used measure we view as seriously flawed.”

(5) With respect to GAAP treatment of stock-based compensation: “If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?”

(6) He provided a vigorous defense against charges of predatory lending at Clayton Homes.  Clayton Homes retains 100% of of its mortgages so its economic interest is aligned with those of its customers.  Clayton Homes is subject to oversight by several Federal agencies and its total fines over the past two years were only $38,200, with refunds to customers of $704,678.  “Furthermore, though we had to foreclose on 2.64% of our manufactured-homes mortgages last year, 95.4% of our borrowers were current on their payments at year-end, as they moved toward owning a debt-free home.”

(7) He provided a discussion of the importance of productivity growth on prosperity, citing examples from farming, railroads, and automobile insurance, and the important role played by 3G Capital.


I am quoted in two Omaha World-Herald articles on Buffett’s Letter to Shareholders:

David Kass, a business professor at the University of Maryland and a Berkshire Class B shareholder, said 3G and Berkshire have clearly different business models but share one trait: They buy and plan to hold long term, as opposed to private equity firms, which enact wholesale changes to wring out profits and then sell quickly at top dollar.

“Berkshire does things differently than 3G,” Kass said. “But Buffett is saying that he is proud to be their financing partner.”


“It was an extremely vigorous defense of Clayton Homes,” said David Kass, a business professor at the University of Maryland and owner of Class B shares.

Kass said Buffett took pains to point out that Clayton owns in perpetuity all of the mortgages it writes as opposed to selling them, as other lenders do, ostensibly meaning the company would do its best to keep borrowers from defaulting and getting repossessed.


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David I Kass Clinical Associate Professor, Department of Finance Ph.D., Harvard University Robert H. Smith School of Business 4412 Van Munching Hall University of Maryland College Park, MD 20742-1815 Phone: 301-405-9683 Email: [email protected] (link sends e-mail) Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance, and is the Faculty Champion for the Accelerated Finance Fellows. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, PBS Nightly Business Report, Maryland Public Television, Business News Network TV (Canada), Fox TV, American Public Media's Marketplace Radio, and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News and The Wall Street Journal, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.

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