Warren Buffett's Annual Letter
March 8, 2004 1:02 PM   Subscribe

Warren Buffett's annual letter to his shareholders is worth a read.
posted by BlueTrain (27 comments total)
Um. Okay. Can you point us towards what we should look for among the 22 pages? What's notable?
posted by ao4047 at 1:08 PM on March 8, 2004

From Page 6 -- "Berkshire, on your behalf and mine, will send the Treasury $3.3 billion for tax on its 2003 income, a sum equaling 2½% of the total income tax paid by all U.S. corporations in fiscal 2003. (In contrast, Berkshire’s market valuation is about 1% of the value of all American corporations.) Our payment will almost certainly place us among our country’s top ten taxpayers. Indeed, if only 540 taxpayers paid the amount Berkshire will pay, no other individual or corporation would have to pay anything to Uncle Sam. That’s right: 290 million Americans and all other businesses would not have to pay a dime in income, social security, excise or estate taxes to the federal government. (Here’s the math: Federal tax receipts, including social security receipts, in fiscal 2003 totaled $1.782 trillion and 540 “Berkshires,” each paying $3.3 billion, would deliver the same $1.782 trillion.)"

And, most interestingly, I don't think he's really complaining about it. He seems more upset that the Bush administration said that he "played the tax code like a fiddle".
posted by anastasiav at 1:15 PM on March 8, 2004

Great read! Thanks for the link.

What a fiddle player that man is. If only Ken Lay were so honest and straightforward ... or the former Harken Energy board member .... or the guy who ran Arbusto ...
posted by nofundy at 1:25 PM on March 8, 2004

I have read a couple Warren Buffett biographies and all of his annual letters starting from the year 1977. He is one of the most admirable rich man alive. His annual letters not only give you insights on the microeconomics of his organization and the macroeconomics of the world, but they also offer nuggets of wisdom on corporate governance, business honesty, and life.

Berkshire Hathaway is not your typical corporation, and the Berkshire Hathway letter to shareholders is not your typical letter to shareholders. I know his letters are already a must-read for MBA courses of some business schools, but I wish more of the corporate world would study them meticulously.
posted by VeGiTo at 1:40 PM on March 8, 2004

"Today, many large corporations – run by CEOs whose fiddle-playing talents make your
Chairman look like he is all thumbs – pay nothing close to the stated federal tax rate of 35%."


"If class warfare is being waged in America, my class is
clearly winning."
posted by weston at 1:42 PM on March 8, 2004

Here is the last line of the letter:

"So join us at the Qwest for our annual Woodstock for Capitalists."

I guess all the money in the world can't keep you from being a complete tool.
posted by quadog at 2:08 PM on March 8, 2004

quadog: I guess all the money in the world can't keep you from being a complete tool.

what does that mean? Woodstock is a very apt metaphor for the annual Berkshire meeting.
posted by o2b at 2:59 PM on March 8, 2004

yeah, Buffett always plays the Star-spangled banner with a solid-silver electric guitar there. he also shoots a lot of heroin.

I also consider the sentence " He is one of the most admirable rich man alive " an involuntary stroke of genius
posted by matteo at 3:37 PM on March 8, 2004

This is precious (p. 7):
"In 1944, I filed my first 1040, reporting my income as a thirteen-year-old newspaper carrier.... I sent my check to the Treasury and it - without comment - promptly cashed it. We lived in peace."
Don't we all just hope to live in peace with the Treasury.

By the way, 25% of Americans don't pay the income tax. Whenever I hear about a "tax outrage" and it focuses on something else (which inevitably it does) I am outraged.
posted by loafingcactus at 4:02 PM on March 8, 2004

Wow, rad. Thanks BlueTrain.
posted by kavasa at 4:11 PM on March 8, 2004

loafingcactus... is that 25% that simply don't file or 25% that find loopholes or don't make enough to pay the tax?
posted by namespan at 4:16 PM on March 8, 2004

Don't make enough. For some reason we therefore _encourage_ people who may feel separated from society anyway (due to their poverty) to just be cut off entirely by not making a contribution to the joint project of our society. I don't mean to be cruel; I don't want the widow's last dollar, but there is something seriously wrong with this kind of class divide.
posted by loafingcactus at 4:41 PM on March 8, 2004

loafing you seem to be forgetting about payroll taxes-- aren't almost all of those 25% paying payroll taxes which end up being a higher income tax relative to their total gross income?

I am for a flat tax personally with minimal payroll taxes, but when you speak of 25% not paying as an 'outrage' I think you're missing the point, because almost all those people are paying ever 14 days.
posted by chaz at 4:45 PM on March 8, 2004

loafingcactus - I know the indignation of seeing how taxes are paid. Why was I working when they aren't? It's a matter of injustice, right? It's just not fair and somehow you end up losing. You're taken advantage of, yes?

While statements like "25% of Americans don't pay income tax" sounds pretty black and white, the truth is that it's not an accurate portrait at all.

A good book to start with is America: Who Really Pays The Taxes?
posted by stevis at 5:58 PM on March 8, 2004

A couple things about Buffett stand out and make what he has to say worth listening to. First, the substance: his investing strategy is smart, makes sense, and is incredibly hard to emulate because it runs counter to the buy-the-popular-stuff impulse in us all. Second, he's honest. Third, and most important, he's readable. Check out the story on pp. 5-6 regarding Berkshire's purchase of Clayton Homes. Aside from an occasional over-emphasis of the aw-shucks, he stands out in the sea of deliberately obfuscating CEOs and mutual fund managers. (The guys at Clipper are cool that way too.)

This book is a good intro to the WB.
posted by ssukotto at 8:36 PM on March 8, 2004

It is a sad commentary on our society, these thin ranks of the honest rich - of which Buffett is one.
posted by troutfishing at 8:45 PM on March 8, 2004

loafingcactus: to add to chaz's point, everyone who made over $5 in taxable income is subject to federal income tax. Lucky me, I have yet to have to send a check to the IRS, but that's because the government has made a practice of withholding a sizable chunk of my paycheck and keeping it for itself until after I claim a refund, at which point they give it back to me. In the meantime, they've used it to fund all manner of things, or put it in interest-bearing accounts, while depriving me of its use for such purposes for up to a year or more. And this is something that affects low-income working people disproportionately -- for people who are going to end up paying those withheld amounts in taxes anyway, it makes an odd sort of sense (so you don't end up defaulting on your tax bill), but for people like me, who regularly and predictably get substantial refunds, that's money I could have been using (to pay my now-overdue bills and student loan payments, for example) that the Feds have gotten their hands on instead, with interest.

So you have little reason to envy the working poor for their low taxes - we're getting subtly screwed too. And more so than, say, General Electric, who for several years in the 1980s and 1990s, paid zero income tax. And they were hardly alone.
posted by skoosh at 11:42 PM on March 8, 2004

What's more interesting in the letter is that Berkshire has discontinued its charitable giving program because some anti-abortion nuts decided to take their dislike of Buffett's beliefs out on poor kitchen knife salesmen (page 21 and 22). So now, instead of millions of dollars flowing to various charities, no one gets anything. Thanks a lot.
posted by calwatch at 11:52 PM on March 8, 2004

Loafing drank the Lucky Duckies Kool Aid!
posted by nofundy at 5:03 AM on March 9, 2004

skoosh - I'm certainly no expert on tax law, but I have worked several low paying jobs where a portion of my income was withheld. Two things to note: 1) I'm pretty sure that when I was first hired and had to fill out that form to calculate how much should be withheld (the one that asks if you are married, have dependents, etc.) there was an option to not have any of your wages withheld, and you would just have to pay more on april 15th. As I understood it, withholding tax from wages is a service that is supposed to be a convenience. Admittedly, that does let the government play with your money while you can't. 2) When I have recieved refunds, they are never for the full amount that had been withheld during my employment. I didn't keep close enough track to know a percentage, but I'm positive that the government kept a good chunk of my money.

Again, I'm speaking only from my own (not-that-well remembered) experiences, so feel free to correct me if I'm totally wrong.
posted by rorycberger at 9:06 AM on March 9, 2004

Getting back to Berkshire Hathaway, can someone please explain to me why the stock prices are so incredibly high? ($94,600 for one share of class A stock, $3,157 for class B). Also, what is the difference (other than $91,443 per share) between the two classes of stock? I would imagine it has something to do with never/rarely splitting and/or lots of reverse splitting, but what is the point? Is this an underhanded way to keep out the average investor? How many of which kind of share does Buffett own?
posted by rorycberger at 9:32 AM on March 9, 2004

BH has never split and doesn't pay dividends which is why their stock is so high. I can't recall why but Warren has good reasons and those reasons are well accepted. It's something to do with the philosophy of treating the company as an investment and dividends are better spent growing that investment.
posted by Mitheral at 9:55 AM on March 9, 2004

More on the Pampered Chef hoo-ha from Snopes. I have to say that I always admire what Buffett says, and when I read him, he always seems like those rarest of all creatures - an honest, straight-talking Wall Street insider. On the other hand, some Buffalonians blame Berkshire Hathaway (which bought what is now the Buffalo News) for destroying Buffalo's other daily paper, the Buffalo Courier-Express, by undercutting their ad rates, and then hiking them into the sky once they had a monopoly. I wasn't here at the time (and even if I had been, I was only five when the Courier went under), so I can't speak from personal experience. The Buffalo Newspaper Guild mentions the rivalry, but chalks up the loss of the Courier in 1982 to "an economy that couldn't support two daily newspapers." The Columbia Journalism Review links Buffett's reintroduction of a Sunday edition of the News to the eventual demise of the Courier, but also mentions that the News "lost millions during its struggle with the Courier," and "relentlessly raised circulation and advertising rates" after it became a monopoly paper. So was the outcome made inevitable by the forces of the market, or by Berkshire's fallback position of gobs of cash? We report, you decide.

On preview: rorycberger, it is possible to claim exemption from having your taxes withheld, if you had no tax liability at all (which is indeed possible if you aren't making enough to make ends meet even on a stringent budget), but since I keep ending up with tax liabilities of $75 or $120 (i.e. I'm not quite poor enough), I cannot legally claim that exempt status. That's how I read the fine print on the W-4 form, anyway. Also, according to IRS Publication 919, page 4, "you can only claim the number of allowances to which you are entitled" on your W-4, which in my case is three. [both IRS links are PDF.] So I can always opt to have more money withheld from me, but at this point I can't have them withhold any less.
posted by skoosh at 10:05 AM on March 9, 2004

there was an option to not have any of your wages withheld, and you would just have to pay more on april 15th

Non. Withholding is required by law.

There's an option to withhold *extra* above the regular withholding. Dual-income families might make use of this to avoid having to write a check come April 15 -- if you're not careful, both spouse's incomes get taxed as if they were each claiming the full deduction, and this is a way out of that problem.
posted by ROU_Xenophobe at 10:06 AM on March 9, 2004

Don't make enough. For some reason we therefore _encourage_ people who may feel separated from society anyway (due to their poverty) to just be cut off entirely by not making a contribution to the joint project of our society.

Eh? Of all possible tax strategies — raising, cutting, etc. — looting the poor has got to be the absolute worst. The government took ridiculous amounts of my subsistence-level income last year — I hate to imagine how poor one would have to be to have 0 tax liability at all.
posted by IshmaelGraves at 12:43 PM on March 9, 2004

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