[Book Summary] Annual Report Berkshire Hathaway 1997

Hello Readers!

I hope you will not get bored because in this year may be you will often see summary about Berkshire Hathaway Annual Report. Because I never get so excited to read annual report. Usually, annual report from other company Indonesia or other country have so many color on it. Instead, Berkshire Hathaway (BRK) only have text and simple table that were started on 1995.

The purpose of this learning I want to know what Buffett think in his investment activity and I want to know more about what kind of company that Buffett want to invest.

Okay, let's summary what I had read in Annual Report BRK 1997

Unconventional Commitment - these are transaction which not buying business as usual. Buffett did this unconventional commitment by buying some marketable securities in short-term (around 1 yrs to 2  yrs). This is the list of what kind of transaction he did:

1. Derivative contract for 14 million barrel (oil), become 45,7 million barrel on period 1994-1995

2. Contract for $31,7 million barrels, and give profit for $61,9 million before tax and still have contract left in 1998-1999 with unrealized gain $11.6 million in end of the year.

3. Buffett demonstrate how he did buying a silver 30 years ago. Charlie and Buffett concluded in the past last years, bullion inventories has fallen on materials and believe that need to increase the price to reach equilibrium between supply and demand.

4. The last big transaction did and very unconventional is buying long-term zero-coupon obligation of the U.S treasury. where this marketable securities not giving an interest but given discount-purchase price which have characteristic the price will move rapidly if interest rate changes.

If the interest rates up Buffett will loss so many zero. But because interest rate going down BRK have unrealized gain for $598.8 million.

Look-through earning - Buffett explained that look-through earning is on method that how to measure true value of Berkshire Hathaway.  can be calculated by:

Operating earning + unrealized earning - tax that would be baid

the operating earrning reported in the previous section + shares of retained operating earning of major investees that under GAAP accounting, arc not reflected in our profits. An allowance for the tax that would be paid by it there retained earning, of investee had instead been distributed to us.

How Buffett buy company that He unfamilliar with the industry.

Buffett said in annual report 1997,

"Whenever we buy into an industry whose leading participants aren't known to me, I always as our new parnters "are there any more at home like you?"

* I think Buffett want to test the managers knows their company position in it's industry are there any competitive advantage that the company have and there any company compare to them.

And also in this annual report Charlie and Buffett state that they did not consider the market overvalued if:

1. Interest rates retained where they were or fell;

2. American business confirmed to earn the remarkable return on equity that it had recently recorded.

So I think only that I can share to you. In this January I want to read about analysis of financial statement by Bambang and Biography of Alibaba Jack Ma. I hope i can finish it on time. So. I can summary it for you. See you next month!