Mr. Buffett, my name is Hutch Vernon. I’m from Baltimore, Maryland. I know that you read lots and lots of annual reports. And I’m curious what you are reading for, if you would share that with us. But I’m more curious — because I think I know what you’re reading for — if there are any disclosures — any further disclosures — that you would like to see companies make in their financial reporting, or that the SEC require in financial reporting or proxies or other communications with their shareholders? And that would be for both you and for Mr. Munger. WARREN BUFFETT
Yeah. The main thing that they can’t mandate in annual reports: I really like to have — I like to know as much as I can about the person that’s running it and how they think about the business and what’s really going on in the business. In other words, I would like to have a report that would be identical to what — if I owned half of a company but was away for a year, and I had a partner who owned the other half — when I came back, that he would tell me about what had taken place during the past year and what he foresaw coming up and all of that. I — that is what I think the purpose of the report is. Now, the SEC mandates a lot of information, and — VOICE
— side on? WARREN BUFFETT
— some of that is helpful. But there’s an intent behind the report. I mean, if it’s a sales document I’m, you know, I’m less interested. I’m — and — I don’t see any way to mandate what I’m talking about. But that’s the kind of report I’m looking for. What I’m trying to do as I read reports, A, I like to understand just generally what’s going on in all kinds of businesses. If we own stock in a company and in an industry, and there are eight other companies that are in the same industry, I want to own or be on the mailing list for the reports for the other eight, because I can’t understand how my company is doing unless I understand what the other eight are doing. I want to have the perspective of, in terms of market share, what’s going on in the business or their margins or the trend of margins, all kinds of things that I can’t get unless I know — I can’t be an intelligent owner of a business unless I know what all the other businesses in that industry are doing. And so, I try to get that information out of a report. If I’m thinking about investing in a specific company, I try to size up their business and the people that are running it. And over the years, I have found reading a lot of reports to be quite useful in terms of making business decisions at Berkshire. If we own all of a business, I want to own shares in all of the competitors just to keep track of what’s going on. And I want to be able to intelligently evaluate how our managers are doing that. And I can’t do that unless I know the industry backdrop against which they’re working. It’s amazing, you know, what — how well you can do in investing, really, with what I would call outside information. I find inside information — I’m not sure how useful that is. But outside information — there’s all kinds of information around, as to businesses. And you don’t have to understand all of them. You just have to understand the ones that you’re thinking about getting in. And you can do it, if you just — nobody will do it for you. You can’t read — in my view — you can’t read Wall Street reports and get anything out of them. You have to do it yourself and get your arms around it. I don’t think we’ve ever gotten an idea, you know, in 40 years from a Wall Street report. But we’ve gotten a lot of ideas from annual reports. Charlie? CHARLIE MUNGER
What I find is that it takes a long time to read the annual report even if it’s a comparatively simple business, because if you really are trying to understand it, it’s not a bit easy. WARREN BUFFETT
Yeah. I would say that, on average, in a business we’re really interested in, even though we know what to skip, to some extent, and what to read, I mean, it’s going to be 45 minutes or an hour on a report.
And if there are six or eight companies in the industry, that’s going to be six or eight hours, perhaps, and then their quarterlies and a lot of other —
I mean, it — the way you learn about businesses is by absorbing information about them, thinking, deciding what counts and what doesn’t count, relating one thing to another. And, you know, that’s the job.
And you can’t get that by looking at a bunch of little numbers on a chart bobbing up and down about a — or reading, you know, market commentary and periodicals or anything of the sort. That just won’t do it. You’ve got to understand the businesses. That’s where it all begins and ends.
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The Ideal Annual Report:
"I like to know as much as I can about the person that’s running it and how they think about the business and what’s really going on in the business. In other words, I would like to have a report that would be identical to what — if I owned half of a company but was away for a year, and I had a partner who owned the other half — when I came back, that he would tell me about what had taken place during the past year and what he foresaw coming up and all of that." ~Warren Buffett