A letter a day!

A letter a day!

Letter # 57 2003

Key learnings:

1. In this letter, Buffett has continued his discussion on corporate governance. He has stated the situation of mutual fund managers in corporate America as well the board of directors.
   He writes:

In addition to being independent, directors should have business savvy, a shareholder orientation, and a genuine interest in the company. The rarest of these qualities is business savvy – and if it is lacking,the other two are of little help. Many people who are smart, articulate and admired have no real understanding of business. That’s no sin; they may shine elsewhere. But they don’t belong on corporate boards. Similarly, I would be useless on a medical or scientific board (though I would likely be welcomed by a chairman who wanted to run things his way). My name would dress up the list of directors, but I wouldn’t know enough to critically evaluate proposals. Moreover, to cloak my ignorance, I would keep my mouth shut (if you can imagine that). In effect, I could be replaced, without loss, by a potted plant.

2. For the insurance business, the float is wonderful,if it doesn’t come at a higher price. The cost of float is determined by the underwriting results, meaning how losses and expenses are paid in comparison to the premium received.

3. 2002 was the very first time Berkshire Hathaway started focusing on other foreign currency markets. In the year 2003, they have increased the same.

“We have – and will continue to have – the bulk of Berkshire’s net worth in U.S. assets. But in recent years our country’s trade deficit has been force-feeding huge amounts of claims on, and ownership in, America to the rest of the world. For a time, foreign appetite for these assets readily absorbed the supply. Late in 2002, however, the world started choking on this diet, and the dollar’s value began to slide against major currencies. Even so, prevailing exchange rates will not lead to a material letup in our trade deficit. So whether foreign investors like it or not, they will continue to be flooded with dollars. The consequences of this are anybody’s guess. They could, however, be troublesome – and reach, in fact, well beyond currency markets.”