David Winters: Annual Letter to Investors

Found via GuruFocus.

I am a success today because I had a friend who believed in me and I didn’t have the heart to let him down. -Abraham Lincoln

Perhaps no company is more closely associated with its CEO than Berkshire Hathaway. When people think of Berkshire Hathaway, they think of Warren Buffett, and vice versa. Less well-known but equally important to Berkshire’s long term success is Buffett’s business partner, Charlie Munger. Since Buffett first bought shares in Berkshire in 1962, he and Munger have left an indelible mark on the company and created fortunes for many of its shareholders. Years of shrewd capital allocation amongst shares of public companies and takeovers of entire enterprises turned Berkshire into a compounding machine which currently generates nearly $1 billion per month in free cash flow. Buffett and Munger have recently stated a willingness to purchase Berkshire shares for up to 120% of book value, and have nearly $50 billion in cash at their disposal to back up their words at year-end. With the shares currently trading for approximately 127% of book value and the underlying businesses growing nicely, we believe Berkshire is an example of an asymmetric trade — an opportunity to own a stock where the upside potential should exceed the downside risk.

Warren Buffett’s leadership is viewed by many as the textbook example of good corporate ethics — often chastising companies for excessive pay for executives, steering clear of regulatory problems, and honing his image as an honest and authentic person. This reputation has led to Berkshire being offered many “sweetheart” deals which are not offered to other large investors. When the owners of private companies such as Iscar Metalworking or Marmon Holdings want to sell their company, they often look to Berkshire first because they know Berkshire will provide a strong and permanent home for the company they have painstakingly built. Buffett and Munger have said repeatedly over the years that when Berkshire buys an entire company they will never sell it, and they have remained true to their word. Sometimes finding a good home for their business is more important to sellers than extracting every last dollar from a buyer, and this has led to Berkshire acquiring many high quality companies for reasonable prices. All Berkshire shareholders, Wintergreen Fund included, benefit economically from the reputations that Buffett and Munger have earned over their long careers.

It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things. -Leonardo da Vinci