Buffett’s annual letter to shareholders, 2003: highlights and analysis

November 15th, 2003

Berkshire Hathaway Annual Report 2003

Berkshire Hathaway has just published its annual report for the year ending 31 December 2003 and it can be viewed in full on the Berkeshire Hathaway website here.

Highlights from Warren Buffett’s Annual Letter to Shareholders

 Berkshire Financial Results

The gain in total net worth for Berkshire Hathaway during the year was 13.6 billion dollars, decease up 21 per cent, here giving an annualized compound return for the 39-year period under present management of 22.2 per cent.

In his letter, Warren Buffett responded to criticism of him by a US Treasury official by pointing out that Berkshire’s tax payment for the taxation year was about 2.5 per cent of that paid by US corporations, but that the value of Berkshire in that group was only about 1 per cent.

The implication of course is that Berkshire is paying its fair share but that many US companies are not. Buffett said that he looked forward to paying more tax in future years because this would indicate increasing profits but he hoped that other companies would do the same.


There did not appear to be many whole company acquisitions during the year. Two companies bought were Clayton Homes, which builds and finances residences and McLane, which distributes groceries and non-food items to smaller retail outlets. This was bought from Walmart, a company Buffett obviously trusts in view of the quick, no due diligence, settlement of the purchase.

Incidentally, Buffett said that he gave his vote to Walmart in the annual most admired company contest.

Corporate Governance

Buffett was very critical of funds management companies that extracted high management fees from mutual funds, irrespective of their success or not in making profits for investors. He suggested that mutual funds should be more pro-active in selecting funds managers and negotiating fees.

In respect of Berkshire Hathaway, Buffett pointed out that all current directors had been substantial shareholders for years, and had each over 4 million dollars in Berkshire stock, all bought on the market without the benefit of stock options or other preferential schemes.

He had previously invited shareholders to nominate for board positions, and apparently over 20 did so. Four shareholders were appointed as directors but not from those who had nominated.

Insurance operations

The problems associated with General RE in underwriting were in the process of being resolved satisfactorily. GEICO had a good year, making a profit of 1718 million dollars as compared to last year’s loss of 398 million dollars.

Mid American Energy

This holding group of a number of disparate energy investments increased its profits from 380 million dollars to 416 million dollars.


Apparently, GE Securities was inherited from the previous acquisition and the company is winding down its activities. Buffett was again critical of the derivatives industry, saying that:

‘The more you know about derivatives, the less you will feel you can learn from [disclosure documents of a derivative intensive company]’.

 Manufacturing, Service and Retail

Buffett gave the following profit figures (in millions)


Sector 2003 2002
Building products 559 516
Shaw Industries 436 424
Apparel 289 229
Retail 224 219
Flight Services 72 225
McLane 150 -
Others 427 328
Total 2157 1941




Record years were enjoyed by Acme Bricks, Benjamin Moore, Mitek and Shaw Industries. The new Nebraska Furniture Mart that opened in Kansas City has been a big success.

Common stock holdings

Buffett disclosed the following common stock holdings


Company Per cent held Cost millions Market value millions
American Express 11.8 1470 7312
Coca Cola 8.2 1299 10150
Gillette 9.5 600 3526
H and R Block 8.2 227 809
HCA Inc 3.1 492 665
M and T Bank 5.6 103 659
Moody’s 16.1 499 1453
PetroChina 1.3 488 1340
Washington Post 18.1 11 1367
Wells Fargo 3.3 463 3324
Others 2863 4682
Total 8515 35287

We wish we had bought into the Washington Post.

Buffett said that they had added to their Wells Fargo holdings during the year and had done fairly well out of junk bonds but that market no longer looked good.

‘Yesterdays weeds are today being priced as flowers’.

Economic Outlook

Buffett was bearish about the US dollar, which was the result of continuing trade deficits. He did however express faith in the dynamism and resilience of the US economy.

Book recommendations

Warren Buffett gave some book recommendations this year and commended them to shareholders. They are:

He also warmly recommended the recent edition of his ‘favorite book’ – The Intelligent Investor by Benjamin Graham, revised edition by Jason Zweig. Purchase from Amazon.com, or read our review.

The full letter can be viewed here.

Posted by Julian Livy on November 15th, 2003 | Posted in Berkshire Hathaway |