QUALIPORT
I'm Fed Up With Buffett

By Maynard Paton (TMFMayn)
March 8, 2005

I'm fed up with Warren Buffett and his annual reports.

In years gone by, the US stock market legend used to pepper his shareholder letters with great common sense advice for the small investor.

No longer.

This year's effort (published on Saturday) sadly continues the recent trend -- it's boring.

Sure, Buffett writes his reports first and foremost for Berkshire Hathaway (NYSE: BRK.A) investors. Alongside the usual array of Berkshire-specific topics, this time shareholders were greeted with their chairman's thoughts on the US trade deficit and corporate governance. Last year, there was a rant about taxes and yet more corporate governance. And the year before that, observers were regaled with talk about derivatives and, um, yet more corporate governance.

All very informative I'm sure to hardcore Buffett disciples -- but of little practical use for the wannabe Buffett-like stock pickers!

(Indeed, Buffett's even fallen back on some of his old adages in his latest annual report. "Be fearful when others are greedy and greedy only when others are fearful" and "You only learn who has been swimming naked when the tide goes out" both re-appeared in this year's text!)

Anyway, here are the highlights (as such) within the 2004 annual report for non-Berkshire-owning fans of Buffett:

1. He still can't find any stocks to buy -- so tell us about the disposals and takeovers instead!

Gone are the times when Buffett waxed lyrical about the competitive strengths of some of his common stock favourites, notably Coca-Cola (NYSE: KO) and Gillette (NYSE: G). These days, shareholders are given the list of holdings (worth over $500m) and just a short paragraph or two:

Company	Cost         ($m)	Market value           (31/12/04)                    ($m)
American Express (NYSE: AXP)	1,470	8,546
Coca-Cola (NYSE: KO)	1,299	8,328
Gillette (NYSE: G)	600	4,299
H&R Block (NYSE: HRB)	227	703
M&T Bank (NYSE: MTB)	103	723
Moody's (NYSE: MCO)	499	2,084
PetroChina (NYSE: PTR)	488	1,249
Washington Post (NYSE: WPO)	11	1,698
Wells Fargo (NYSE: WFC)	463	3,508
White Mountains Insurance (NYSE: WMT)	369	1,114
Others	3,531	5,465
Total Common Stocks	9,056	37,717

Two changes to the list occurred during the year. Out has gone HCA (NYSE: HCA) and in has come White Mountains Insurance.

Buffett purchased around 15m shares in HCA, an operator of US hospitals and other healthcare facilities, during April 2003 at around $31 a pop. At the end of 2003, the HCA price was $43 and the stake was worth $665m. However, with a 2004 year-end price of $40, HCA should still have appeared within Berkshire's common stock list. It seems the stake was reduced during the year -- but why?

As for White Mountains Insurance, this holding appears to have been bought in September 2000 at around $214 a share. A share price rally in 2004 promoted the holding to the Berkshire list; the stock currently trades around $650.

What's really disappointing about Berkshire's common stock commentary is the lack of reference to the impending takeover of Gillette by Proctor & Gamble (NYSE: PG). Buffett's owned the razor firm for fifteen years and some remarks about the deal and why he's (reportedly) going to hold on to P&G stock would have been very enlightening.

In terms of current prospects, Buffett said: "What Charlie [Munger] and I would like is a little action now. We don't enjoy sitting on $43 billion of cash equivalents that are earning paltry returns. Instead, we yearn to buy more fractional interests similar to those we now own or -- better still -- more large businesses outright. We will do either, however, only when purchases can be made at prices that offer us the prospect of a reasonable return on our investment."

2. He still regrets not selling during the market boom -- don't we all?

Another year, another chance for Buffett to regret not selling during what he calls the Great Bubble:

Buffett admitted: "Nevertheless, I can properly be criticised for merely clucking about nose-bleed valuations during the Bubble rather than acting on my views. Though I said at the time that certain of the stocks we held were priced ahead of themselves, I underestimated just how severe the overvaluation was. I talked when I should have walked."

And I thought Buffett had deemed Coke and so on as 'permanent' holdings, and that Buffett's favourite holding period was 'forever'! Read more.

In fact, had Buffett written more about his common stocks in past reports, perhaps he'd have noticed some were ripe for selling!

3. He's still down on the dollar -- so what?

Buffett's 2004 annual report contained a long piece about the US trade deficit. To cut a long story short, Buffet's essentially bearish of the US dollar and holds (through Berkshire) some $21b of foreign exchange contracts.

How all the macro-economic predictions square up with Buffett's own advice of buying into fine business at sensible prices wasn't made all that clear. In fact, hasn't Buffett in the past claimed: "We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen"? He surely has. Read more.

Note that Buffett ended his 2004 thoughts on the US trade deficit with this caveat: "Macro-economics is a tough game in which few people, Charlie and I included, have demonstrated skill. We may well turn out to be wrong in our currency judgments. (Indeed, the fact that so many pundits now predict weakness for the dollar makes us uneasy.)"

And remember, Buffett expressed concern about a mounting US trade deficit back in 1987, only for the American economy to thrive during the 1990s.

4. He reads The Financial Times -- and so should you!

"If you wish to keep abreast of trade and currency matters, read The Financial Times. This London-based paper has long been the leading source for daily international financial news and now has an excellent American edition. Both its reporting and commentary on trade are first-class." writes Buffett in the 2004 annual report.

I'd say the FT's company news, interviews and market statistics are even more valuable to the ordinary punter.

(Hey Warren, ever considered buying Pearson (LSE: PSON))?

And over on Fool.com…

It seems I'm not the only one fed up with Buffett. Respected Berkshire Fool UsuallyReasonabl gives his contrarian verdict here. There's also this Fool US Take by TMF writer Rick Aristotle (not his real middle name, by the way) Munarriz, who, among other snipes, says the great man "completely botched his baseball metaphors".

More: Berkshire Hathaway

Portfolio value

Holding	Number of shares	Closing price 07/03/05 (p)	Value (£)
Associated British Ports	681	482.25	3,284.12
Emap	372	858.5	3,193.62
Halma	1,920	160.5	3,081.60
Johnston Press	1,608	576	9,262.08
London Stock Exchange	2,018	497	10,029.46
Cash			207.07
Total			29,057.95