Warren Buffett’s annual letter offers insight into Berkshire Hathaway for new shareholders

Buffett letter gives Berkshire Hathaway 101 course

OMAHA, Neb. — Billionaire Warren Buffett devoted much of his annual letter Saturday to educating new Berkshire Hathaway shareholders about the company and the successes as well as shortcomings of its subsidiaries.

The letter details Berkshire’s performance and what was behind the company’s 2009 net income of $8.055 billion, or $5,193 per Class A share. That’s up 61 percent from last year’s earnings of $4.994 billion, or $3,224 per share.

Berkshire added about 65,000 new shareholders in February as part of its $26.7 billion acquisition of Burlington Northern Santa Fe Corp. So those new investors may not be familiar with Buffett’s hands-off approach to managing its roughly 80 subsidiaries or just what’s included in the Omaha-based company.

Buffett said he is “hoping to provide both a freshman orientation session for our BNSF newcomers and a refresher course for Berkshire veterans.”

Much of the reason for the big swing in profit has to do with the value of Berkshire’s investments and derivative contracts, some of which are tied to equity indexes. Berkshire recorded a largely unrealized $787 million gain in investments in 2009, compared with the $7.5 billion loss it recorded in 2008.

Berkshire’s annual profit exceeded what analysts expected, but the company fell short of matching the growth in the Standard & Poor’s 500 index, which is Buffett’s preferred measure of performance. The three analysts surveyed by Thomson Reuters had expected full-year earnings per share of $4,712.47.

Buffett said Berkshire’s book value — assets minus liabilities — grew 19.8 percent to $84,487 in 2009. The S&P 500, which Berkshire recently joined, gained 26.5 percent last year when dividends are factored in. The three analysts had estimated that Berkshire’s book value per share at the end of 2009 would be $83,391.44.

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Berkshire Hathaway Inc.: www.berkshirehathaway.com