The next Buffett

NEW YORK (Fortune) -- Retirement doesn't appear to be a priority for Berkshire Hathaway's 77-year-old chief executive, Warren Buffett.

Berkshire said Friday in its annual report that the company posted an 11% gain in net worth for 2007. Over the course of 44 years at the helm of the Omaha-based company, Buffett has overseen an annual compound increase of 21% in the firm's per-share book value.

Given that track record, it's no wonder Buffett plans to continue steering Berkshire (BRKA, Fortune 500) for the foreseeable future.

Yet even Buffett has made a few wrong turns, as he is quick to admit. Once, he writes in Friday's annual report, he turned down an opportunity to buy a Dallas television station for $35 million. Since then, the station has churned out $1 billion in earnings and has seen its value rise to some $800 million. Why did Buffett say no to what he now views as a can't-miss investment? "The only explanation is that my brain had gone on vacation and forgot to notify me," he writes.

The report goes on to discuss a few other investment opportunities that didn't work out as he planned. "To date, Dexter is the worst deal that I've made," he writes of Berkshire's 1993 purchase of the shoe company for $433 million in stock. "But I'll make more mistakes in the future - you can bet on that."

One mistake Berkshire won't make is failing to design a succession plan for Buffett, who is both CEO and investment chief. He told shareholders the company has for some time had three "outstanding internal candidates" lined up to succeed him as CEO. And following up on last year's announcement that Berkshire would seek an investment manager understudy for him, Buffett said the company has now identified four candidates who could succeed him.

"All manage substantial sums currently, and all have indicated a strong interest in coming to Berkshire if called," Buffett writes. "The board knows the strengths of the four and would expect to hire one or more if the need arises. The candidates are young to middle-aged, well-to-do to rich, and all wish to work for Berkshire for reasons that go beyond compensation."

Succession planning aside, it's clear Buffett has no plans to be anywhere but Berkshire if he can help it. But he jokes that he is gradually coming to see that even he has mortal limitations that can't be overcome.

"I've reluctantly discarded the notion of continuing to manage the portfolio after my death - abandoning my hope to give new meaning to the term 'thinking outside the box,'" he writes.

(A member of FORTUNE's staff, senior editor at large Carol Loomis, edits the chairman's letter in Berkshire's annual report.)