Warren Buffett’s annual letter to shareholders is always anticipated for its carefully homespun wisdom. Friday’s edition was perhaps a bit light on original bons mots, but otherwise fitted the bill. One exception, perhaps not surprisingly, was his silence on the legal woes at Berkshire Hathaway Inc.’s insurance unit General Re Group, several former executives of which were last month convicted of fraud.
Elsewhere in the letter, the weak lending practices underlying the ongoing subprime mortgage debacle came in for another blast from Buffett, who recalled one of his favourite aphorisms: “You only learn who has been swimming naked when the tide goes out.”
The Sage of Omaha also let off a volley at US politicians’ questioning of investments in US firms by foreign sovereign wealth funds, especially given the country’s trade imbalances. “When we force-feed $2 billion (Rs7,980 crore) daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?” In another swipe at the US government spending, he noted the $1.2 billion tax Berkshire paid on its very profitable sale of PetroChina Co. Ltd stock “paid all costs of the US government — defence, social security, you name it, for about four hours.”
He warned that Berkshire’s big insurance business would be less profitable in 2008 than in recent years. But on the troubles at General Re specifically, he referred only to “costly and time-consuming legacy problems”. This is partly a question of not muddying legal waters. The annual report accompanying?the?letter?contains more than two pages of small print outlining investigations and litigation. There has been talk of Buffett himself being dragged in. That’s not impossible, but it would seem unfair, as company bosses go, he is revered as among the most upright and open. That aura is largely deserved, but he has reinforced it with more frequent folksy television appearances over the past year or two.
That happens to match the timing of General Re’s legal woes. It could be coincidence, but it wouldn’t be surprising if the Berkshire chairperson had borrowed one of his investing mantras and set about making sure he has minimized any chance of a bad outcome.