Study of Signals

[j.c.]

Buffett's Letter Eagerly Awaited
By NELSON LAMPE, Associated Press Writer

OMAHA, Neb. - The annual meeting of Berkshire Hathaway shareholders in Omaha has been called a carnival in celebration of capitalism.

If so, chairman Warren Buffett's yearly letter to stockholders is his incisive, often witty and always candid invitation to share the wealth.

On Saturday, at 8 a.m. Omaha time, where the 75-year-old investing legend lives in a leafy neighborhood of stately brick or stucco-covered homes, his annual letter will be posted on the Berkshire Hathaway Web site.

A frenzy of downloading will follow from shareholders, stockbrokers and Buffett buffs alike, all eager to see what the "Oracle of Omaha" has to say about his decisions, his company's profit and his country's political or financial state.

Joshua Kennon, on his Web site for beginning investors, says Buffett's letters are regarded "as one of the most important and informative bodies of work ever written in the business and investing world."

"These are an absolute must read if you want to get involved in investing or corporate management," Kennon says.

Besides the informative nuggets of information Buffett shares, there are often humorous gems.

Here's a quote from 1996:

"And now we pause for our usual commercial:

"If you own a large business with good economic characteristics and wish to become associated with an exceptional collection of businesses having similar characteristics, Berkshire may well be the home you seek.

"Our requirements are set forth on Page 21. If your company meets them — and if I fail to make the next birthday party you attend — give me a call."

Andy Kilpatrick, who wrote "Of Permanent Value, the Story of Warren Buffett," said the first sign of good news in the annual report is where Buffett compares any gain in Berkshire's per-share book value to the annual return for the S&P 500.

Last year, for example, Berkshire reported a gain of 10.5 percent in 2004, only 0.4 percentage points behind the S&P 500 in what Buffett called a "remarkable year for the stock market."

Kilpatrick expects Buffett will be sharing good news on Saturday.

"He had a solid year — not a gangbuster year — but a solid year," Kilpatrick said.

Kilpatrick, who also is a stockbroker, said Berkshire took "a huge loss from hurricanes" Rita and Katrina in the third quarter, "but I look for the fourth quarter to be pretty strong."

In November, Berkshire estimated that its third-quarter losses from the hurricanes totaled $2.988 billion.

Berkshire reported that net income fell 48 percent to $586 million, or $381 per share, in the quarter from $1.137 billion, or $739 per share, in the third quarter of 2004.

Kilpatrick doesn't expect Buffett to discuss at length the indictments of three former executives of his wholly owned General Re subsidiary.

They pleaded not guilty in February to federal fraud and conspiracy charges.

The Justice Department has accused the three and a former top executive of American International Group of putting together a sham reinsurance transaction that allowed AIG to falsely report some $500 million in reserves against losses.

Buffett was interviewed by the Securities and Exchange Commission and New York state investigators in April, but has not been accused of any wrongdoing. Berkshire acquired General Re in late 1999.

"It seems to me that this is a handful of bad apples," Kilpatrick said.

"It's a tough issue for him. When you get a company with 180,000 employees, somebody's doing something wrong."

Other possible topics for extra review by Buffett this year:

• In the second-biggest deal in its history, a Berkshire subsidiary agreed to pay $5.1 billion in cash and assume $4.3 billion in debt and preferred stock to acquire electric utility PacifiCorp.

Only the $16 billion stock purchase of reinsurance giant General Re cost Berkshire more. Berkshire controls PacifiCorp's actual buyer, MidAmerican Energy Holdings Co. of Des Moines, Iowa.

• In Berkshire's third quarter, it spent $1.8 billion to complete the purchase of two Indiana-based companies: Medical Protective Corporation, of Fort Wayne, Ind., which sells medical malpractice insurance, and Forest River Inc., of Elkhart, Ind., which makes recreational vehicles.

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On the Net:

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

Securities and Exchange Commission: http://www.sec.gov

http://news.yahoo.com/s/ap/20060304/ap_on_bi_ge/earns_berkshire