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Billionaire investing success Warren Buffett does not like owning bonds at this point, and he thinks the average investor should avoid them as well.

The chairman and CEO of Berkshire Hathaway, major investment conglomerate, believes that individual investors should have plenty of cash on hand so they are comfortable just in case something unexpected happens.

He also believes that they should invest the rest of their money in stocks, even though the price of stocks has risen quite higher than they were years ago when the Great Recession first hit.

On Monday while giving an interview on CNBC, Buffett told the world that bonds are a terrible investment at the current time, and he also mentioned that long-term bond owners may see large losses once interest rates eventually rise again.

The Oracle of Omaha also said that stocks are selling for very reasonable prices generally even though the Dow Jones Industrial average is seeing record high levels, along with the S&P 500 index.

Buffett, 82 years old, also mentioned that he doesn’t have any plans to retire in the near future, and he also believes the efforts of the Federal Reserve, with keeping interest rates low, have helped the stock market. Income improvements continue to play a role for stocks as well.

Buffett is a continued fan of Federal Reserve Chairman Ben Bernanke, and he mentions that he believes bond prices are artificially inflated because of the stimulus that is ongoing from the Federal Reserve. The stimulus is $85 billion worth of bonds being bought every month, which keeps the interest rates at a low level. At this time, bond yields are near historic lows, and they move inversely to prices.

On Monday, Buffett gave interviews to Fox Business News and CNBC after Berkshire Hathaway’s annual shareholders meeting this past weekend. It was a star-studded event.

At the time of this writing, Berkshire Hathaway owns more than 80 companies and has large investments in IBM, Coca-Cola and Wells Fargo, as well as other iconic brands.

Buffett also reiterated his support of Jamie Dimon, J.P. Morgan Chase chairman and CEO. He said that Chase has the right person running the show, and he also owns the stock as part of his personal portfolio.

Buffett also believes that Berkshire Hathaway will own a stake in H.J. Heinz – the ketchup maker – forever, and he said that he didn’t have any problem taking on 3G Capital as a partner. They are the Brazilian investment firm that split the bill for H.J. Heinz. He also hopes that the Berkshire Hathaway stake in Heinz will grow as time goes by.

He was also questioned about the way the Heinz deal was structured. People wonder if the 50% split is a change in the way Berkshire Hathaway will invest and do business from now on. Berkshire Hathaway typically buys a company outright, and they let the company run without any intervention whatsoever.

3G Capital is not your typical private equity firm, said Buffett, since they put a large amount of their own money in deals, and they also run businesses.

Buffett even mentioned that Burlington Northern Santa Fe railroad’s traffic is picking up, but it’s probably going to haul fewer carloads than it did before the recent recession.

Burlington Northern Santa Fe “has been a terrific acquisition for Berkshire,” said Buffett.

BNSF contributed $798 million to Berkshire Hathaway’s $4.9 billion profit for the first quarter, which the company reported on Friday. Berkshire Hathaway’s profits rose by over 51%, beating last year’s net income of $3.3 billion by a wide margin.

Warren Buffett, billionaire investor, encourages young workers to seek out jobs of which they are passionate about. This is career advice that he offered to youngsters online this Tuesday when he spoke about a number of topics.

Every year, Mr. Buffett takes time out of his busy schedule and he meets with students from roughly 40 colleges. He does this to answer questions about business and life. This Tuesday he did so in an online forum, and he had the opportunity to offer his advice to a much wider audience.

Buffett often chooses to compare the things he does as CEO and chairman of Berkshire Hathaway to painting a canvas with a masterpiece. He also regularly tells us that it doesn’t feel like he works because he loves what he does.

“I love painting on my canvas, and you’re lucky in life if you can find your passion,” said Buffett.

The 82-year-old Oracle of Omaha was fortunate that he figured out what he wanted to do early on in his life when he read books that he found lying around at his dad’s securities brokerage. Now his daily routine consists of finding the best deals for Berkshire Hathaway by reading five or six hours a day, speaking with his friends and playing online bridge.

Buffett tells us that he does not often do things that he doesn’t enjoy, and he’s been able to hand off almost all of the day-to-day tasks of running his company that has 285,000 employees, and other people take care of this for him.

“I have delegated like nobody has ever delegated with a company of this size,” said Buffett.

Berkshire Hathaway actually owns more than 80 subsidiaries, and they include furniture stores, jewelry stores, clothing stores and railroads. They are also in the insurance and utility business, which makes up about more than half of the income that Berkshire Hathaway enjoys. Plus, the company has large investments in businesses such as Wells Fargo, IBM, American Express and Coca-Cola.

Berkshire’s Class A shares, which actually make up the majority of Warren Buffett’s fortune, are still currently the most expensive stock in the United States of America. At Tuesday’s closing, the stock finished the day at $164,690 per share.

Money is not the only way you should measure the success of Warren Buffett. Did you know that he continues to live in the home in Omaha that he bought in 1958? Buffett’s lifestyle could allow him to live on $100,000 a year very easily, with the exception of the private jet that he really enjoys.

Last weekend alone, Warren Buffett spent over five hours answering questions for more than 30,000 people at the annual shareholder meeting held by Berkshire Hathaway. He even entertains groups of shareholders at events and steak dinners during the weekend.

This Tuesday Buffett spent around an hour responding to questions sent to the Levo League website. They help young professionals find job opportunities and mentors early in their career.

“It’s really important in life to have the right heroes,” said Buffett.

Buffett also mentioned that being able to study at Columbia University under Benjamin Graham, and working for Graham’s investment firm for two years, helped solidify his understanding of Graham’s investment techniques that Buffett used to create his huge fortune. Buffett also mentions that his first wife and his father’s influence also played a major role in his success because they taught him about life.

Buffett encourages the younger generation to try and work for and associate with those that they admire.

“If you’re working for somebody that makes your stomach turn, maybe you have to keep doing it for a while to eat, but don’t settle for it,” said Buffett.

Coca-Cola’s 2013 annual shareholders meeting started off like a fireside chat between the Oracle of Omaha, Warren Buffett, and the CEO and chairman of Coca-Cola, Muhtar Kent.

Warren Buffett’s presence at this meeting was a pleasant surprise for those attending the annual meeting at the Cobb Galleria Centre. Buffett has been on the board of directors of Coca-Cola for the last 17 years, and Howard Buffett, Warren’s son, has been a director since the year 2010.

Warren Buffett received a very warm welcome as he walked out onto the stage in front of 850 guests and shareholders.

“When you’re 82, they clap when you sit down because they’re not sure you’re going to get up,” said Buffett.

Kent asked Warren Buffett to tell everyone the story of how he first went into the Coca-Cola business at seven years old in Omaha. Buffett would buy a six-pack of Coca-Cola for $.25, then turn around and sell each bottle for a nickel to his friends.

Buffett has enthusiastically invested in Coca-Cola for decades.

“We’ve never sold a share of Coca-Cola stock, and I wouldn’t think of selling a share,” said Buffett. “I like wonderful brands if you take care of them.”

Kent then shared one of his favorite quotes from Warren Buffett: “What we learn from history is that we don’t learn from history.”

He then asked Warren Buffett to provide some examples.

“I like to study failures,” said Buffett in regards to enterprises. “The biggest thing that kills them is complacency. You always want to be on the move. When you’ve got a great business like Coca-Cola, the danger would always be that you would rest on your laurels. I see none of that at Coca-Cola. Tomorrow is more exciting than today.”

Kent then brought up the political and economic challenges in the United States, and asked Buffett his opinion.

“We always have problems” said Buffett. “The luckiest person is someone being born in the United States today.”

Buffett also mentioned that the laws in the United States, the economic climate and the quality of opportunities have “produced an abundance that you can’t believe.”

The CEO of Coca-Cola then asked Buffett – who as a senior chose to invest much of his amassed wealth in philanthropy, about the global wealth transfer and the economic wealth shift. What kind of advice would Buffett give a company like Coca-Cola?

“You have to be accepted in countries around the world and focus on something that’s going to make their lives better,” said Buffett.

Kent then asked if Coca-Cola’s commitment to conservation and renewable energy is the right move to make.

“We have only got one planet,” said Buffett. “We are sitting in the shade of trees that other people planted. It’s obligatory that we plant a few trees ourselves. It’s the right thing to do, and it’s good business.”

It was then requested that Warren Buffett talk about his early friendship with Don Keough, former Coca-Cola president that also stepped down from the board of directors during Wednesday’s annual meeting. Warren Buffett actually wrote the preface to his book: “Ten Commandments of Business Failure.”

Buffett mentioned that his greatest quality was the ability to connect with people from many generations.

Kent then quoted Buffett’s preface from the book: “If you wanted to invent a human personification of Coca-Cola, it is Don Keough.”

Kent mentioned that Coca-Cola’s goal was to double revenues by 2020. He asked Buffett if this was a sound move.

Buffett said it was the right approach, and he also said to “do it in a hurry because I’m 82.”

Warren Buffett then shared his business views.

“No business ever failed with happy customers,” said Buffett. “You are selling happiness.”

Kent’s last question to Buffett was about whether or not there was a chance of reforms passing through the U.S. Congress.

“I can promise you, 535 people can’t screw up 350 million,” said Buffett.

At this point, the crowd gave Buffett a standing ovation.

Buffett’s presence at the Coca-Cola annual meeting made it an unusual event, but thrilling all the same.

Dean Kamen, inventor, unveiled the EkoCenter at this event. This is a partnership with Coca-Cola to help develop small community centers that will provide electricity, clean water and communications to the impoverished areas all around the world.

There was much less negativity this year after Kamen’s presentation and the presence of Warren Buffett. Regular critics usually take the company to task for a whole host of issues, but the negativity was a lot more subdued this year.

Back in 1969, billionaire investor Warren Buffett wrote a letter to his investing partners that is now quite famous. In this letter he told his investing partners that he was not able to find any value in the marketplace and he believed it best to return their money and dissolve the partnership.

In the letter he came to the conclusion that only two businesses possess relative value, and one of those was Berkshire Hathaway. As part of an option to his company liquidation, he offered the investing partners the choice of owning pro rata shares of both of these companies.

Warren Buffett’s tremendous personal wealth is evidence to the success of those who stuck with him. Plus, he is the antithesis to the typical greed you hear about on Wall Street, and he has pledged to the Bill and Melinda Gates Foundation a total of $30 billion.

Over the next 50 years, Warren Buffett has been a major powerhouse in the investing world. He is obviously the most famous investor the world has known, and certainly the most successful in the eyes of many. When the technology boom came along, he backed away because he didn’t understand this business model. Luckily or strategically, he was capable of avoiding the dot com bust altogether.

You know Warren Buffett owns stocks, he doesn’t invest in them. When he invests, he does so in the companies and the value that they bring. He’s also known to ignore the emotions and attention of the marketplace.

Warren Buffett has been buying newspapers as of late. It’s funny because this medium is looked at as yesterday’s media. But he has a specific way of investing in newspapers. He only buys small-market, hometown newspapers with a loyal following. Does he know something that the rest of us do not?

In the year 1986, Bill Kovach was hired by the Atlanta Journal-Constitution, and became their new editor. He was previously the Washington bureau chief of the New York Times.

This new appointment brought about a turbulent two years, and the investigative journalism brought two Pulitzer prizes and many more nominations. That’s not a normal occurrence for a newspaper like the Atlanta Journal-Constitution.

They proceeded to ramp up their reporting, and decided to cover more international and national news stories. They also covered critical business stories that revolve around the city of Atlanta. They even picked a fight with the mighty Coca-Cola. This resulted in a proud community, who enjoyed their vastly improve newspaper.

But like all good things, they must come to an end. And Bill Kovach was fired in November 1988.

The city was in an uproar, and they were very upset over this decision. There was even a protest march that went all away down Marietta Street, and went past the front of the newspaper’s office. Such important intellectual leaders like Pat Conroy and Morehouse professor Michael Lomax even participated in this event.

This situation became national news, and the newspaper owners, Cox Enterprises, were vilified in the media. The event gained a lot of attention, and all of it was overwhelmingly in favor of Bill Kovach.

But Cox wanted to return to its regular style of journalism. They weren’t interested in becoming a competitor of USA Today or the New York Times. So Bill Kovach was out. That’s just the way it goes sometimes.

Fuhrman Bisher, a sports reporter for the newspaper during that time, said: “Maybe now we can get back to covering Dixie like the dew” – the tagline of the newspaper.

The message in that saying is quite simple: the local news is still important and it still sells, and the local newspaper has to completely serve the market if it’s going to survive.

As a newspaper editor, you need to realize that a person could get their national and international news from so many different media sources at this point. But there aren’t many ways to get the local news, except for the local newspaper in many cases. There will always be a tremendous demand for comprehensive coverage of local business, local sports, local festivities and the local lifestyle.

It’s fairly straightforward at the empirical level: the life force of a newspaper is always going to be the advertising revenue. If you plan to give advertisers their money’s worth, you have to get in touch with their target audience. If the target audience is local readers, then you have to provide local information. It’s that simple.

According to the way Warren Buffett thinks, this is always going to be a profitable business model.

The media is saying that print newspapers are dying, and national newspapers and news magazines are having a tough time surviving at this point because of the Internet.

At the time of this writing, Time Warner has done something practically unthinkable. They have spun off Time Inc., the company’s magazine portfolio, and turned it into its own standalone company.

In the meantime, Warren Buffett has shrewdly found value in a largely ignored investment that the rest of Wall Street seems to have overlooked. At the time of this writing, Berkshire Hathaway currently owns 28 newspapers. It wouldn’t be surprising if other people seem to recognize this opportunity and eventually follow suit.

With Berkshire Hathaway recently releasing their annual report, Warren Buffett mentions that their performance in 2012 was “subpar” even though they have a growing book value of $24.1 billion and a stock portfolio consisting of 41 companies worth $75.3 billion.

In the most recent letter to Berkshire Hathaway shareholders, Warren Buffett said that ownership interest in the top four companies American Express, Coca-Cola, IBM and Wells Fargo will likely increase at some point in the future. At the end of the year, the total unrealized gain was worth $26.7 billion. From all of these shares mentioned, Berkshire Hathaway gained a total of $1.1 billion in dividends. Here’s a link to the complete Berkshire Hathaway shareholder letter.

Since they are heavily investing in DaVita Healthcare Partner, the behavior of Berkshire Hathaway shows investors they believe that the healthcare provider of kidney dialysis services will continue to grow in Europe and the United States throughout 2013. The company has recently added many shares of DVA to the Berkshire Hathaway portfolio – and as of February 27, 2013, they currently hold 14,808,959 shares.

Here’s a brief review of the top four companies mentioned in the annual letter to shareholders written by Warren Buffett: AXP, KO, IBM and WFC.

Wells Fargo & Co. is Warren Buffett and Berkshire Hathaway’s number one holding. They consist of about 20% of their overall portfolio, and they currently have 439,857,861 shares of the financial institution.

The large banking institution Wells Fargo & Company is in service to one out of every 3 households in the United States of America, as well as 35 other countries. Buffett often speaks very highly of the fantastic management of this bank. It is ranked fourth in assets out of all the banks, but it currently ranks first in market value of its common stock out of all banks in the United States. This is one of the fastest recovering banks during the industry implosion that took place a few years back. The management of Wells Fargo was responsible for turning around the bank just several years ago.

During the past, Warren Buffett has mentioned the bank’s low cost of funding, which is a powerful advantage when it comes to lending. Wells Fargo & Co. is a company incorporated under the laws of Delaware. They are a financial holding company, as well as a bank holding company and they are registered under the Bank Holding Company Act of 1956. The market cap of Wells Fargo & Co. is $187.38 billion. Its shares currently trade near $35.50, they have a P/E ratio of 10.6, and their P/S ratio is 2.2. The dividend yield of the company’s stock is 2.6%. They also possess an annual average earnings growth of 1.5% over the last 10 years.

In a previous annual letter, Warren Buffett commented, “the banking industry is back on its feet, and Wells Fargo is prospering. It’s earnings are strong, its assets solid and its capital at record levels.”

Coca-Cola is Warren Buffett and Berkshire Hathaway’s number two holding at the time of this writing. They consist of about 19.3% of the Berkshire Hathaway portfolio, and the company currently owns 400 million shares.

Coca-Cola is a worldwide brand and a company that is known for its carbonated beverages, and also known for its juices and tea drinks. Seventy five percent of the revenue generated by this company is from countries outside of the United States. The Coca-Cola brand is famous in almost every country in the world, and this includes Africa.

The company is considered to be very healthy, and it is consistently growing. The annual Coca-Cola earnings over the last 10 years have been 9.6% consistently. The soda manufacturer has a market cap of $172.16 billion. At the time of this writing, the shares traded at $38.63. The current P/E ratio is 19.6, and the P/S ratio is 3.7. Coca-Cola’s current dividend yield is 2.6%. They received a business predictability rank of five stars from GuruFocus. Buffett said that he was late to the Coca-Cola party, and he commented on the longevity of the brand at one time. He bought his shares in 1988 along with shares of Freddie Mac. At the time, Buffett said this in regards to his new purchases:

“In 1988 we made major purchases of Federal Home Loan Mortgage Pfd. (“Freddie Mac”) and Coca-Cola. We expect to hold the securities for a long time. In fact, when we own portions of outstanding businesses with outstanding management, our favorite holding period is forever. We are just opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang onto businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.”

International Business Machines Corp. (IBM) is the number three Berkshire Hathaway holding. They currently consist of 17.3% of the Berkshire Hathaway portfolio, and number 68,115,484 shares.

It is widely known that Warren Buffett has praised the leadership of IBM. They rescued this company from the brink of bankruptcy 20 years ago and turned it into the successful company that it is today. In the last annual letter written by Warren Buffett, he mentioned that IBM management has created extraordinary operational accomplishments, saying, “Their financial management was equally brilliant, particularly in recent years as the company’s financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders.”

IBM was incorporated in New York on June 16, 1911 under the name Computing–Tabulating–Recording Co. International Business Machines Corp. has a market capitalization of $227.92 billion. At the time of this writing, the shares traded at $204.5 per share. The current P/E ratio is 14.1, and the P/S ratio is 2.2. The IBM dividend yield for company stock is 1.7%. Over the last 10 years, International Business Machines Corp. has had an annual average earnings growth of 12.1%. GuruFocus has rated IBM with the business predictability rank of five stars.

American Express Co. (AXP) is the number four holding in the Berkshire Hathaway portfolio. They currently make up 11.6% of the portfolio, and Berkshire Hathaway owns 151,610,700 shares.

American Express Company is another Warren Buffett favorite. In an effort to create an entire value chain, the company segmented its credit card lending business into three separate businesses: international card and global commercial services, US card services and global network and merchant services. As the owner of the entire chain of value, AXP has created a very profitable niche for itself throughout the financial service market. This presents a tremendous potential for profits. Being it has a very closed loop of its own related services and products, as well as marketing, the pricing of American Express has a competitive advantage already built-in.

American Express Company was originally founded in 1850 as a joint stock association. They incorporated in 1965 as a New York Corporation. The American Express market cap is $69.06 billion. It shares currently trade at $62.5. The P/E ratio is 16, and the P/S ratio is 2.3. The stocks dividend yield is 1.3%, and the American Express Company has seen an average earnings growth of 5% over the last 10 years. GuruFocus has given American Express a business predictability rank of 3.5 stars.

Berkshire Hathaway is drawn to the fair value computation of American Express, and they are a stock currently undervalued with lots of room to grow. In addition, they have a nice dividend. American Express presents a nice opportunity for many investors and according to the recent shareholder letter from Warren Buffett, he will probably be adding to this position in the near future.

Warren Buffett, the most famous investor in America, really holds himself to a much higher standard than most. That’s why he describes the business year of 2012 as “subpar” even though Berkshire Hathaway made a total of $24.1 billion for its shareholders. Buffett pointed out that only for the ninth time in Berkshire Hathaway’s 48 years, their book value of 14.4% was actually less than the S&P’s gain of 16%. This is basically how Buffett kicks off his annual letter, which he released on Friday, March 1. If you are interested in investing, then this document is a must read for you and anyone else interested in this field. It’s filled with plenty of Warren Buffett’s homespun, wry style.

Putting aside the “subpar” performance of Berkshire Hathaway, Buffett’s other major regret was the “inability” to achieve a major accomplishment during 2012. “I pursued a couple of elephants, but came up empty handed,” wrote Buffett. He did find his mojo again during the early part of 2013, being part of a blockbuster 23.3 billion-dollar acquisition of H.J. Heinz Co., the ketchup giant. Berkshire Hathaway is putting up $12 billion to purchase half of the company, along with another group of investors led by Brazilian businessman Jorge Paulo, who is buying the other half of the company.

Buffett wrote that now that this deal is done, it’s time for more big game hunting. “Charlie and I have again donned our safari outfits and resumed our search for elephants.” (Charlie Munger is long-time partner to Warren Buffett and friend of many years.)

Without question, the Buffett annual letter to shareholders is quite educational in regards to his philosophy of value investing, which he learned from Benjamin Graham, his mentor and author of The Intelligent Investor, a classic business tome.

Buffett’s investing philosophy is quite simple: Invest in easy to understand companies, for the long-term, with managers who love their business, and the businesses are currently undervalued. Always disregard all flavor of the month trends.

Buffett personally loves to invest in large, extremely reliable American businesses. This explains why the four biggest Berkshire Hathaway investments are in Wells Fargo, Coca-Cola, IBM and American Express. He increased Berkshire Hathaway’s ownership stake in all of these companies during 2012. The Omaha, Nebraska-based investment firm now owns 8.9% of Coca-Cola, 6% of IBM, 13.7% of American Express and 8.7% of Wells Fargo. “Berkshire’s ownership interest in all four companies is likely to increase in the future,” wrote Buffett. “Mae West had it right: ‘Too much of a good thing can be wonderful.’”

Let’s now take a look at some of the major highlights of the Berkshire Hathaway annual letter:

Guessing about Succession: The question asked most frequently in American capitalism is this: Who is going to finally replace the 82-year-old Warren Buffett? Buffett has made it quite clear that his duties are going to be divided among an investment manager – who is responsible for the allocation of Berkshire’s money – and a CEO, ultimately in charge of running the entire $170 billion empire that is Berkshire Hathaway. Warren Buffett confirmed last year that Ted Weschler and Todd Combs, two relatively unknown hedge fund managers, will be replacing him on the investment side. Buffett was very pleased with their performance during 2012.

Weschler and Combs “have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect fit,” wrote Buffett. “We hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins.” Buffett then added mischievously, in a very tiny font: “They left me in the dust as well.” As a result of this excellent performance, Buffett and Berkshire Hathaway have decided to increase their investment funds to around $5 billion. “Todd and Ted are young and will be around to manage Berkshire’s massive portfolio long after Charlie and I have left the scene. You can rest easy when they take over,” wrote Buffett.

On the side of management, Warren Buffett didn’t provide any clues, but he did heavily praise Ajit Jain, a longtime favorite of Buffett who manages the reinsurance group of Berkshire Hathaway worth in the multi-billions. He is widely looked upon as one of the top candidates to take over the CEO position at Berkshire. “From a standing start in 1985, Ajit has created an insurance business with float of $35 billion and a significant cumulative underwriting profit, a feat that no other insurance CEO has come close to matching,” wrote Buffett. “He has thus added a great many billions of dollars to the value of Berkshire. If you meet Ajit at the annual meeting, bow deeply.”

Newspapers: We all know that Buffett loves newspapers, “and if the economics make sense, [Berkshire] will buy them even when they fall far short of the size threshold we would require for purchase of, say, a widget company.” Over the last 15 months, Berkshire Hathaway has acquired 28 daily newspapers and paid $344 million for the privilege, he wrote, even with his long-standing prediction that “the circulation, advertising and profits of the newspaper industry overall are certain to decline.”

Here’s Warren Buffett’s logic: “News, to put it simply, is what people don’t know that they want to know,” wrote Buffett. “And people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost.” Buffett will readily admit that the Internet has been a disruption on the traditional newspaper business model, causing a drastic decline in revenues and readership. But there’s one particular area in this industry where Buffett sees an opportunity:

Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in your town – whether the news is about the mayor or taxes or high school football – there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents. [...]

Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.

Uncertainty: In one of the more surprising parts of the annual Berkshire letter, Warren Buffett called out a few of his fellow US CEOs who have “cried ‘uncertainty’ when faced with capital allocation decisions (despite many of their businesses having enjoyed record levels of both earnings and cash).” Buffett is an optimist for America, who wrote that he is not in agreement with their concerns. “If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you,” wrote Buffett.

American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor. (The Dow Jones Industrials advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions. And don’t forget that shareholders received substantial dividends throughout the century as well.)

Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it. My own history provides a dramatic example: I made my first stock purchase in the spring of 1942 when the U.S. was suffering major losses throughout the Pacific war zone. Each day’s headlines told of more setbacks. Even so, there was no talk about uncertainty; every American I knew believed we would prevail.

The country’s success since that perilous time boggles the mind: On an inflation-adjusted basis, GDP per capita more than quadrupled between 1941 and 2012. Throughout that period, every tomorrow has been uncertain. America’s destiny, however, has always been clear: ever-increasing abundance.

Omaha, Nebraska, Next Stop: The Berkshire Hathaway annual shareholders meeting is known as the Woodstock of capitalism – and for very good reason. Each year, tens of thousands of the Berkshire Hathaway faithful make a pilgrimage to the annual meeting of the company, which takes place in Omaha, Nebraska on May 4 this year. It is quite the spectacle: imagine for a moment a Grateful Dead concert populated by hard-core, and in certain cases, the very wealthy, true believers in capitalism. Everyone is always in a great mood. Among this year’s highlights are:

• Berkshire Hathaway’s second annual international newspaper tossing challenge. “Last year I successfully fought off all challengers,” wrote Buffett. “But now Berkshire has acquired a large number of newspapers and with them came much tossing talent (or so the thrower’s claim). Come see whether their talent matches their talk.”
• The “Berkshire 5K” race will start at CenturyLink Center, the arena that holds 19,000 seats and is also the location of the annual meeting. “We will have plenty of categories for competition, including one for the media,” wrote Buffett. “Regretfully, I will forgo running; someone has to man the starting gun.”
• On Sunday, May 5, they hold the Borsheims Fine Jewelry gala. (Berkshire has owned Borsheims, the Omaha-based company, since 1989.) “Around 1 PM on Sunday, I will begin clerking at Borsheims,” wrote Buffett. “Last year my sales totaled 1.5 million. This year I won’t quit until I hit the $2 million. Because I need to leave well before sundown, I will be desperate to do business. Come take advantage of me. Ask for my ‘Crazy Warren’ price.”

The annual Berkshire Hathaway meeting is always a very memorable experience. Buffett can seem like he’s ageless at times, but unfortunately, that just isn’t the case. So if you happen to be a Berkshire Hathaway shareholder in the area of Omaha during the first weekend of May, you never know who you’re going to run into at Piccolo’s or Gorat’s. “These restaurants are my favorites, and I will eat at both of them on Sunday evening,” wrote Buffett. If you decide to go to Piccolo’s, “order a giant root beer float for dessert,” advises Buffett. “Only sissies get the small one. (I once saw Bill Gates polish off two of the giant variety after a full course dinner; that’s when I knew he would make a great director.)”

Warren Buffett once told us that avoiding dividends during the early years of Berkshire Hathaway gave him the ability to refocus the company’s money on better businesses, just like a person would overcome “a misspent youth.”

The billionaire Warren Buffett, now 82 years old, is focusing on his legacy as he prepares Berkshire Hathaway for new management as his time with the company winds down to a close. Using the annual letter being published on March 1 as a way to outline a dividend plan could show shareholders a way for the next leaders of the company to look at the challenge of allocating profits.

“It may ease the burden on the successors” if they have the ability to pay a dividend, Richard Cook tells us, co manager of the Cook & Bynum Fund, which has Berkshire Hathaway as one of its largest holdings. Berkshire and its subsidiaries “generate a lot of cash.”

Buffett’s annual letter is there to teach Berkshire Hathaway shareholders about corporate governance, investing and business, as well as the annual meetings in Omaha, Nebraska, where the company is located. As Berkshire grew through acquisitions and investment gains, so did its rather large pile of cash, which by the end of September 2012 amounted $47.8 billion. This large sum has made it very difficult to allocate the funds, since it is often difficult to find large investments that are worthwhile, we learned from Buffett himself.

The CEO and Chairman started buying back Berkshire shares in 2011 and used part of the most recent annual letter to explain when share repurchasing made sense. Last May, while on CNBC, he said that he would probably discuss the makings of a logical dividend policy in the upcoming annual letter.

Buffett’s Blessing

“It’s a very sensible move” to discuss when the company should begin paying a dividend, so the next CEO of Berkshire Hathaway will appear to have a Buffett’s blessing, we learned from Tom Russo, currently a partner at Gardner Russo & Gardener, overseer of more than US$5 billion, and that includes Berkshire Hathaway shares. After Warren Buffett is gone, many will have “a tendency to second-guess,” said Russo.

In 1965, Warren Buffett took over Berkshire Hathaway and changed it from a company that made men’s suit linings and textiles, and turned it into a $251 billion company that currently has retail businesses, lots of manufacturing companies, subsidiaries that generate electricity, they sell insurance and haul freight among many other things. His opinions about investments, due to his excellent record of accomplishment, make his annual letters a must read on Wall Street.

In his 1985 letter, Warren Buffett said that dividends make sense when a company’s managers cannot generate adequate returns when keeping the money inside the business. Berkshire Hathaway never paid a dividend because it’s always been able to earn better rates on retained profits, he told us at the time.

Averting Disaster

Buffett once wrote that paying a significant amount of money to his investors could have actually been “disastrous” in the beginning because the three businesses that he and Charlie Munger oversaw in the beginning had very little money. They also incurred losses and were only a fraction of their original size just 20 years later.

“It’s been like overcoming a misspent youth,” said Buffett of the Berkshire Hathaway effort to expand their chocolate making, newspaper publishing and insurance businesses. “Clearly, diversification has served us well.”

Buffett continually finds the best ways to invest the extra cash that Berkshire Hathaway has on hand. Over the last 30 years, he’s amassed tremendous stakes in large companies including IBM, Coca-Cola and Wells Fargo & Co. He even buys whole companies such as General Re reinsurer and Burlington Northern Santa Fe railroad.

Just this month, he teamed up with Jorge Paulo Lehman’s 3G Capital in a deal worth $23 billion to purchase H.J. Heinz Co. and make it a private company. The deal will provide Berkshire Hathaway with $4.1 billion worth of equity and $8 billion in preferred stock that pays a dividend of 9%, we learned from the regulatory filing.

Charles Munger’s Wish

Warren Buffett points out his own mistakes in his annual letters, and he also uses them to praise his managers like Ajit Jain, his reinsurance chief, and the CEO of Burlington Northern Santa Fe Matt Rose. Warren Buffett relies heavily upon the subsidiary heads to oversee the day-to-day operations of these businesses. This leaves him and Charlie Munger the time they need to allocate the profits properly.

I believe that some of the people reading this article will live to see the day when Berkshire Hathaway pays a dividend. But hopefully it isn’t in the very near future.

The enormous size of Berkshire Hathaway could very well make a dividend a necessity at some point in the future since they may not have a better way to invest the accumulated funds, we heard from Munger at a meeting during 2011 in Pasadena, California.

“I think that some of you will live to see Berkshire pay a dividend, but I hope I don’t,” said Munger, 87 years old at the time, responding to the question of a member of the audience. “You’re saying, ‘Do you predict failure?’ And I suppose I do.”

During last year’s annual letter, Warren Buffett told us that the board chose a manager to take over as the next CEO, but they chose not to identify this individual. For a while now, Mr. Buffett has been allowing his investment managers Ted Weschler and Todd Combs to oversee more of the company’s $88 billion worth of stock.

Stock Rally

As of this morning, Berkshire Class A shares gained 0.5% to reach the amount of $152,650 at the opening around 9:35 AM in New York. Over the last 12 months, Berkshire has rallied for a 29% gain due to the gains in their operating units, a buy back in stock and Bank of America Corp. investment. In the same period of time, the S&P 500 index only gained 10%.

One roadblock to potentially paying a dividend now is that Warren Buffett, as the largest shareholder of Berkshire Hathaway, would have to do something with the payments he earns, said Russo. You probably know that he has pledged the majority of his wealth to charity, but he still has stock in Berkshire Hathaway worth more than $50 billion.

“Warren doesn’t want cash. He doesn’t need it. He doesn’t want the burden of investing it,” said Russo.

Paying a dividend could certainly makes sense once Buffett is no longer leading the firm, and more of the current shares he has passed over to the Bill & Melinda Gates Foundation as well as his children’s philanthropic endeavors, Russo said. These charitable organizations are obligated to spend the money generated by a dividend, Russo also said.

The mutual fund manager, Cook, said he’d rather Berkshire skip paying a dividend and hold onto the cash for the time being.

“You’ve got a 50 year track record of being the best capital allocator in the world,” said Cook of Buffett. “As long as he’s alive, we think we’re generally better off with him” handling the money.

In recent years, Warren Buffett has had an incredible appetite for buying shares of the San Francisco-based bank Wells Fargo. It is now the biggest public investment in the Berkshire Hathaway portfolio.

Wells Fargo recently pushed aside the long-standing Coca-Cola, which Berkshire Hathaway began purchasing in late 1987, and finally stopped in 1995. He believed that the true value of Coca-Cola will was not reflected in the share price at the time. Considering the fact that Coke remained the largest holding for Berkshire Hathaway for many years lets us know how well it performed for Buffett and company.

Warren Buffett has been adding to his will far goes holdings for quite a few years. The consistent purchases has prompted it to become Berkshire Hathaway’s largest holding.

Berkshire Hathaway’s last regulatory filing shows us that they added another 17.3 million shares of Wells Fargo during the last quarter. That brings the total holding to 439.8 million shares. Warren Buffett has been the largest shareholder of Wells Fargo for quite some time.

Berkshire Hathaway stake in Wells Fargo is roughly worth around $15.5 billion. The Coca-Cola stake is currently valued at $14.7 billion.

There is no question that Warren Buffett is going to spend some of his time writing about Wells Fargo in the upcoming letter to Berkshire Hathaway shareholders. The letter will be distributed after the market closes on March 1.

Warren Buffett has talked about Wells Fargo being his favorite bank in the past, and regularly mentions the banks low cost of funding. This is a powerful business advantage when the lending money. The chairman and CEO of Wells Fargo, John Strumpf, says he begins his day by reviewing the deposit figures of the bank.

Wells Fargo is currently the fourth largest bank in the United States according to assets. They recently had to relinquish their title of being the most valuable bank back to J.P. Morgan Chase.

Many people still believe that Wells Fargo will eventually be the largest bank in the United States one day.

They made a large step in that direction during 2008 when they purchased walkover you. There were a lot of mortgage woes when they made this deal, but the deal also turned Wells Fargo into a true national bank.

It was surprising to read that an analyst criticized the walkover you purchase as one of Wells Fargo’s recent mistakes. I wouldn’t be surprised if Buffett decides to pick up another few million shares because of the news.

There is no question that Warren Buffett is actually the best investor the world has ever known. He started out with only a few hundred dollars in the year 1956, yet he managed to transform that money into $20 million in 1969 when he liquidated Buffett Partnership Limited. By this point in time, his entire net worth was tied up in Berkshire Hathaway stock, which was a small textile mill that he transformed into a diversified business conglomerate.

After reading many SEC filings and checking out the letters to shareholders, we have noticed an interesting trend in Berkshire Hathaway’s long-term investments. It is most notable that Warren Buffett has focused his investing in companies that can grow their income without having to invest additional capital. This is very possible if the company you invest and has strong pricing power, because the consumers are currently addicted to the brand name product or the company possesses another strong type of competitive advantage. Purchasing See’s Candies in 1972 is an excellent example. Warren Buffett mentioned the following in his 2007 letter to his shareholders:

“We bought See’s for $25 million when its sales were $30 million and pre-tax earnings were less than $5 million. The capital then required to conduct the business was $8 million.

Last year See’s sales were $383 million, and pre-tax profits were $82 million. The capital now required to run the business is $40 million. This means we have had to reinvest only $32 million since 1972 to handle the modest physical growth – and somewhat immodest financial growth – of the business. In the meantime pre-tax earnings have totaled $1.35 billion. All of that, except for the $32 million, has been sent to Berkshire (or, in the early years, to Blue Chip). After paying corporate taxes on the profits, we have used the rest to buy other attractive businesses.”

It is quite evident that Warren Buffett likes to invest in companies that need minimal capital, and they utilize their profits in order to purchase other businesses. This is very similar to what a typical dividend investor does – they accumulate distributions and then reinvest them in other high quality long-term opportunities.

In reality, the See’s Candies investment in 1972 is producing incredible yields on cost at this time. The same holds true for American Express, Coca-Cola and the Washington Post, which have all resulted in double and sometimes triple digit yields on cost.

During the year 1973, Warren Buffett opened a position in the Washington Post in the amount of $10,628 million. The effective cost basis of those shares are $6.15 per share. Since they are currently at an annual dividend of $9.80 per share, Berkshire Hathaway enjoys a 159% yield on cost.

Between the years 1991 and 1994, Warren Buffett picked up over 151,670, 700 million shares of the company American Express for a total cost of $1.287 billion. This amount, when translated, is $7.96 per share. When he initially invested in the company, it was by purchasing preferred shares which he could convert into ordinary shares at a fixed price, plus additions to his holdings. With the current annual dividend of $.80 per share, his yield on cost is over 10%.

Between the years 1988 and 1994, Berkshire Hathaway picked up over 400 million split-adjusted shares of Coca-Cola four $1.30 billion. The average cost per share of this purchase is in the neighborhood of approximately $3.25 per share.

If you base this on an annual dividend of $1.02 per share, Berkshire Hathaway has a stunning yield on cost of 31.40% per year. This simply means that by accumulating the dividends for over three years, Berkshire Hathaway is capable of accumulating its entire investment and fully recovering the total amount. But the beauty is they still retain the ownership of their Coca-Cola shares, and can gather future dividend distributions. This is what Warren Buffett said in his 2010 letter to shareholders:

“Coca-Cola paid us $88 million in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend. In 2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within ten years, I would expect that $376 million to double. By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful business.”

As Berkshire Hathaway group bigger and had to allocate their billions of dollars on a monthly basis, it’s unfortunate that Warren Buffett had to focus mostly on large-cap elephant sized acquisitions. A prime example is the 2010 acquisition made by Berkshire Hathaway when purchasing Burlington Northern Santa Fe railroad.

It’s interesting to note that the majority of the businesses purchase by Warren Buffett, such as FlightSafety International, Geico, and Wesco Financial also achieved either dividend champions or dividend achiever status. He likes to purchase wide moat companies of quality that are growing in earnings, that they large and rising dividends.

These dividend payments are often reinvested into other businesses, which expand Berkshire Hathaway’s cash flow availability to dramatically reinvest. This is a very good strategy, and it’s one used by many dividend growth investors to this very day.

Insurance is a big reason why Berkshire Hathaway’s risk-adjusted investment return has been able to beat every mutual fund since the year 1976.

We learn this according to a new research paper from New York University and AQR Capital Management, told by The Economist.

The insurance and reinsurance companies that are part of Berkshire Hathaway lend money to the Berkshire Hathaway parent company, and they actually provide more than one third of the company funding. Buffett is then able to use this leverage as a way to purchase large quantities of stocks as an investment.

“This would be an expensive strategy if the [insurance] company undercharged for the risks it was taking,” states The Economist.

“But thanks to the probability of its insurance operations, Berkshire’s borrowing costs from this source have averaged 2.2%, more than three percentage points below the average short-term financing cost of the American government over the same period.

The insurance company also gives Warren Buffett a way to borrow money during both good times and bad times. “The long-term nature of the insurance funding has protected Mister Buffett during periods (such as the late 1990s) when Berkshire shares have underperformed the market,” states the magazine.

“Without leverage… Mister Buffett’s return would have been unspectacular,” says The Economist.

By having the insurance company leverage available to him, Warren Buffett is able to tap into this resource and by stock shares in high-quality companies that are struggling and going through hard times. He did this with Coca-Cola during the 1980s, and he was also able to gobble up shares of General Electric during the most recent financial crisis, we also learned from The Economist.

The magazine quotes Warren Buffett as saying, “It’s far better to buy a wonderful company had a fair price then a fair company at a wonderful price.”

Buffett has also “steered largely clear of more volatile sectors, such as technology, where he cannot be sure that a company has a suitable advantage,” notes The Economist.

All in all, not everything touched by Warren Buffett turns to gold. Berkshire Hathaway is the biggest shareholder of Moody’s rating company, and they lost roughly $340 million when the stock plummeted 22% last week.

This drop happened because the government is considering suing Standard & Poor’s, a rival of Moody’s, because of ratings practices that they implemented prior to the financial crisis taking place.