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Buffett speaks
Berkshire chairman's annual letter attacks CEOs, funds, Bush tax policies, and the trade deficit.
March 8, 2004: 6:38 PM EST
By Gordon T. Anderson, CNN/Money staff writer

NEW YORK (CNN/Money) - In his annual letter to Berkshire Hathaway shareholders, released Saturday, Warren Buffett sounded a number of familiar themes.

The closely watched Berkshire chairman praised his company's managers, accepted personal blame for some miscues, and proudly noted his firm's remarkable 39-year compounded annual gain in book value of 22.2 percent.

On the political-economic front, he attacked Bush administration policies on taxes and the dollar, and complained again about wayward CEOs and board members (adding mutual fund companies to his list of offenders).

And, borrowing a note from his friend Oprah Winfrey, the Sage of Omaha even made some book recommendations.

Buffett on taxes and the trade deficit

Buffett, who has been a vocal critic of a number of Bush administration tax policies, used the letter to voice his opposition again.

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Buffett letter (on Berkshire site)

"Tax breaks for corporations (and their investors, particularly large ones) were a major part of the Administration's 2002 and 2003 initiatives," he wrote. "If class warfare is being waged in America, my class is clearly winning."

Nevertheless, Berkshire's own tax bill has risen dramatically. In 2002, Buffett noted, the company paid $1.75 billion in federal taxes. This year, it expects to pay $3.3 billion, a sum Buffett estimates to equal 2.5 percent of total taxes to be paid by all U.S. corporations.

Corporate governance

The letter returned to previous themes on the inadequacy of corporate governance structures among U.S. companies and mutual funds.

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"[If] Corporate America is serious about reforming itself, CEO pay remains the acid test," Buffett said. "The results aren't encouraging."

Buffett criticized lavish pay packages and the "lapdog behavior" of directors, calling the situation an "epidemic of greed." Some of his harshest words were reserved for mutual fund companies.

In 2003, "the world began to learn that many fund-management companies had followed policies that hurt the owners of the funds they managed, while simultaneously boosting the fees of the managers," he wrote. "Yet to swell profits further, they trampled on the interests of fund shareholders in an appalling manner."

The declining dollar and the trade deficit

"During 2002 we entered the foreign currency market for the first time in my life," Buffett wrote. "In 2003, we enlarged our position, as I became increasingly bearish on the dollar."

Buffett made clear that he's not entirely comfortable -- personally or professionally -- making currency bets. "The cemetery for seers has a huge section set aside for macro forecasters," he quipped.

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He explained that the trade deficit has him spooked. "In recent years our country's trade deficit has been force-feeding huge amounts of claims on, and ownership in, America to the rest of the world," he said. "Late in 2002, however, the world started choking on this diet, and the dollar's value began to slide against major currencies."

He noted that at yearend, Berkshire held approximately $12 billion in foreign exchange contracts, within five (unspecified) currencies. He also said Berkshire owns about $1 billion worth of high-yield bonds denominated in euros.

No Berkshire Hathaway letter would be complete without Buffett's trademark folksy asides and user-friendly advice. This year's piece is no different, and readers will benefit from the clear style in which he explains his investment philosophy and its results.

Buffett also, as noted, offers up a few ideas for outside reading.

On this year's list of book recommendations from the world's greatest investor: A new edition of the Benjamin Graham classic, "The Intelligent Investor." (MONEY magazine's Jason Zweig is praised for "a first-class job in revising" the book.)

Other titles on Buffett's shelf include the Enron overview, "The Smartest Guys in the Room" by Fortune magazine's Bethany McLean and Peter Elkind; "In an Uncertain World," by former Clinton cabinet official Robert Rubin; and "Bull!" by Maggie Mahar.

The letter was published on Saturday morning on the Berkshire Hathaway Web site, available by clicking here.  Top of page

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