Buffett's letter also includes a warning about not expecting too much from Berkshire's insurance business. While it had an "excellent" year, helped by "the second year in a row free of major insured catastrophes," Buffett proclaims, "That party is over."
He says it is a "certainty" profit margins will fall "significantly" in 2008 as prices fall and exposures "inexorably rise." The result: lower insurance earnings over the next few years.
Berkshire's fourth quarter profitfell 18 percent. Operating profit, which excludes investments, fell to $2.35 billion, about $1518 a share, below analysts' consensus forecast.
Just as Buffett warns against expecting very large returns on stocks in the future, he also says Berkshire Hathaway won't "duplicate or even approach" its compounded annual gain of 17.8 percent since 1965. "Our base of assets and earnings is now far too large for us to make outsized gains in the future."
Berkshire Hathaway current price:
WHO'S NEXT AT BERKSHIRE HELM?
Buffett briefly addresses the vexing question of who will take over the top job at Berkshire Hathaway when the time finally comes. He says the company is "well-prepared" for CEO succession with three "oustanding internal candidates." And he assures us that the board knows "exactly" whom it would select should he suddenly become "unavailable."
Buffett goes on to say that during the past year, Berkshire identified four people who could take over the separate job of managing Berkshire's investments.
He says all four:
- "Manage substantial sums currently"
- "Indicated a strong interest in coming to Berkshire if called"
- Are "young to middle-aged"
- Are "well-to-do to rich"
- "Wish to work for Berkshire for reasons that go beyond compensation"
Buffett notes that he has "reluctantly" dropped the idea of managing the portfolio after he dies, "abandoning my hope to give new meaning to the term 'thinking outside the box.'"
Unless I missed it, there no discussion of Buffett's recent move into the bond insurance businessand not one word about playing bridge in the presence of undressed women.
More bullet points from the letter follow in the continuation....