The Sage of Omaha's Secret

Don't you just love curling up with a good shareholder letter? Berkshire Hathaway's are actually not too painful. Warren Buffett discusses the previous year's acquisitions and developments in language that is only occasionally over my head, sprinkled with some slightly off-color jokes including one about Mitt Romney. Not only does he use a surprisingly readable tone to describe both his own holdings and macroeconomic trends, Buffett also discusses his missteps and successes with equal frankness. I think this excerpt gives an interesting overview of his investment strategy. The 2008 letter will certainly be worth a look.

"I should emphasize that we do not measure the progress of our investments by what their market prices do during any given year. Rather, we evaluate their performance by the two methods we apply to the businesses we own. The first test is improvement in earnings, with our making due allowance for industry conditions. The second test, more subjective, is whether their “moats” – a metaphor for the superiorities they possess that make life difficult for their competitors – have widened during the year. "

Also interesting:
"A footnote: We paid the IRS tax of $1.2 billion on our PetroChina gain. This sum paid all costs of the U.S. government – defense, social security, you name it – for about four hours."

Berkshire Hathaway 2007 Shareholder Letter
Berkshire Hathaway Shareholder Letters 1977-2007