Warren Buffett's Letter to Santa Claus

Although I haven't had the chance to ask Warren Buffett what he'd like for Christmas, I imagine his letter to Santa would look something like this:


Source: recitethis.com 

Dear Santa,

2013 has been a solid year for Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , and I'm thankful for that. We bought Heinz -- they make ketchup, which is red, just like your sleigh -- for a tidy $28 billion in partnership with 3G Capital, and I'm certain it was a great investment in a great company.

We also added a nice $3.4 billion position in ExxonMobil (NYSE: XOM  ) , which places it just behind Wal-Mart in our portfolio. I suspect your elves aren't the biggest fans of Wal-Mart, as it provides quite a bit of competition in the toy landscape, but I'm certain you all have a competitive edge. Exxon could likely help you out if you every run into any issues with heat in the North Pole -- they know a thing or two about energy. I also suspect they could make your coal production phenomenally more cost effective. I hear there have been some naughty CEOs this year.

As you know, I'm also a tremendous fan of Coca-Cola (NYSE: KO  ) , and based on what I've seen, it looks like you are too. I have a nice cold Cherry Coke with the See's Candies -- they're better than cookies -- next to the fireplace for a little nourishment for you before you journey out of Omaha.


Image Source: Flickr/Elliot Brown 

Speaking of your sleigh, did you know I also have managed to accumulate a $19.1 billion position in Wells Fargo (NYSE: WFC  ) ? I assume you did, as John Stumpf and his team are undoubtedly on your nice list. But the reason I ask is because their logo of the horse drawn carriage makes me wonder if you moonlight for them in the spring and summer months? Simply a thought.

Photo: Andy Rusch

It's also worth mentioning that if you're ever in the mood for a different way to travel, I'd highly recommend you consider a NetJet. It is a wonderful way to get largely anywhere in the world. Your sleigh is fast, but a private jet is tough to compete with. And if you're ever looking for a new set of boots, perhaps you should consider Brooks shoes, they're wildly comfortable. I image Mrs. Claus makes your suit, but if you need an extra layer, I'd suggest something our team at Fruit of the Loom came up with. In the interest of full disclosure, Berkshire Hathaway owns all of those as well.

But enough about that. I just have a few simple requests for Christmas. The first is about our good friends at IBM. I hope the whole "Big Blue" thing doesn't bother you, considering you're a fan of red and all. I first started buying their shares in the summer of 2011 -- when the price was right around $175 -- which is almost exactly what it stands at today. I don't need much, but I'd love it if you could give their engineers a new product to bring to market or something that'll get the stock price inching upwards.

A few Christmas's ago you also gave me ammunition for my "elephant gun" And while I've searched, I still can't find a company to use it on. Everything is mighty expensive in 2013, so a safari trip where I'm assured of spotting some big game would be great to unwrap on Christmas morning. That, or a brief moment of market panic. That's usually when I make my big bucks!

I know you're a busy man much like myself, so this is my last request, but I'd really appreciate it if you could get folks to stop asking me who will succeed me as chairman of Berkshire Hathaway. No one asks you who your successor will be, so I'm not sure why they're so compelled to do the same for me. Perhaps you'd leave me a bag of coal to send to any journalist who speculates on the subject. We've decided who it is; can't that be enough for them?

Thanks again for all the gifts over the years -- here's to hoping 2014 is as good a year as the last 83.

Sincerely,

Warren

The real words of Warren
While it's fun to speculate what Warren Buffett may say to Saint Nick, through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Consider that he has made billions through the years and he wants you to be able to invest just like him. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report. It's a free gift that will keep on giving.


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  • Report this Comment On December 24, 2013, at 5:44 AM, AnsgarJohn wrote:

    Warren wrote the exact opposite of "IBM...I'd love something that'll get the stock price inching upwards."

    Remember the Letter to Berkshire Hathaway shareholders:

    s. When Berkshire buys stock in a company that is repurchasing shares, we hope for two

    events: First, we have the normal hope that earnings of the business will increase at a good clip for a long time to

    come; and second, we also hope that the stock underperformsin the market for a long time as well. A corollary to

    this second point: “Talking our book” about a stock we own – were that to be effective – would actually be

    harmful to Berkshire, not helpful as commentators customarily assume.

    6Let’s use IBM as an example. As all business observers know, CEOs Lou Gerstner and Sam Palmisano

    did a superb job in moving IBM from near-bankruptcy twenty years ago to its prominence today. Their

    operational accomplishments were truly extraordinary.

    But their financial management was equally brilliant, particularly in recent years as the company’s

    financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a

    skill that has materially increased the gains enjoyed by IBM shareholders. The company has used debt wisely, made

    value-adding acquisitions almost exclusively for cash and aggressively repurchased its own stock.

    Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%.

    Naturally, what happens to the company’s earnings over the next five years is of enormous importance to us.

    Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. Our quiz for the

    day: What should a long-term shareholder, such as Berkshire, cheer for during that period?

    I won’t keep you in suspense. We should wish for IBM’s stock price to languish throughout the five years.

    Let’s do the math. If IBM’s stock price averages, say, $200 during the period, the company will acquire

    250 million shares for its $50 billion. There would consequently be 910 million shares outstanding, and we

    would own about 7% of the company. If the stock conversely sells for an average of $300 during the five-year

    period, IBM will acquire only 167 million shares. That would leave about 990 million shares outstanding after

    five years, of which we would own 6.5%.

    If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100

    million greater under the “disappointing” scenario of a lower stock price than they would have been at the higher

    price. At some later point our shares would be worth perhaps $11⁄2 billion more than if the “high-price”

    repurchase scenario had taken place.

    The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own

    money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks

    rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including

    those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble

    a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.

    Charlie and I don’t expect to win many of you over to our way of thinking – we’ve observed enough

    human behavior to know the futility of that – but we do want you to be aware of our personal calculus. And here

    a confession is in order: In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben

    Graham’s The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock

    prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one

    of the luckiest moments in my life.

    In the end, the success of our IBM investment will be determined primarily by its future earnings. But

    an important secondary factor will be how many shares the company purchases with the substantial sums it is

    likely to devote to this activity. And if repurchases ever reduce the IBM shares outstanding to 63.9 million, I will

    abandon my famed frugality and give Berkshire employees a paid holiday..

  • Report this Comment On December 24, 2013, at 8:42 AM, TMFMorris wrote:

    Thanks for the comment John. To that end, I'd say IBM's stock has "languished" since Berkshire began buying it in the summer/fall of 2011. We don't know his average purchase price of course, but I'd guess the company is down between 25-30% relative to the market. Certainly Buffett is no short term investor (I would consider 2.5 years form him short term), so I don't think he's concerned at all with that.

    I will say that thought "a new product to bring to market or something that'll get the stock price inching upwards." was written largely with intention that would thus lead to greater profitability to IBM, and thus, greater returns to its shareholders. The comments you cited from Buffett in the 2011 letter to shareholders are seemingly written with the implicit understanding that a company like IBM will continue delivering outstanding returns.

    Total cash returned to shareholders through dividends and repurchases stands at $11.1 billion in the first nine months of this year, versus $11.8 billion through the first nine months of last year. In 2011 that number stood at $14.1 billion.

    IBM's net income is down 4.4% comparing the first nine months of 2012 to 2013. But as a result of share repurchases -- the share count is down from 1.14 billion in Q3'12 to 1.09 billion Q3'13 -- EPS is flat. Revenues are down 4.2% year over year.

    All of this is to say I'm not sure if IBM is doing the first thing Buffett hopes for, when he notes, "When Berkshire buys stock in a company that is repurchasing shares, we hope for two events: First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come."

    Perhaps its "stock price inching upwards," was not the best way to gauge the underlying performance of IBM, but I would imagine Buffett is hoping to see foundational improvements in IBM's business performance which would likely result in a higher stock price.

  • Report this Comment On December 24, 2013, at 8:56 AM, AnsgarJohn wrote:

    Agreed

  • Report this Comment On December 24, 2013, at 10:22 AM, TMFKopp wrote:

    Hilarious Patrick!

    I really like Buffett's sales pitches for Berkshire companies in there. To anyone that's ever been to a Berkshire annual meeting, that'll sound awfully familiar. Buffett is a lot of things... a consummate salesman definitely among them.

    Merry Christmas Fools!

    Matt

  • Report this Comment On December 24, 2013, at 10:33 AM, snickerdoodle9 wrote:

    Merry Xmas Santa " Uncle Warren " and for a " continued " prosperous 2014 ;-) !

  • Report this Comment On December 27, 2013, at 2:58 PM, terryshead wrote:

    I am buying Berkshire B shares in the new year, also I like Suncor energy shares the only pity they are priced in dollars.

    Terry Shead

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