2006 Shareholder Letter
Buffett's 2006 letter discusses GEICO's 47% productivity gain, explains why Berkshire is 'a big business' not by design, and notes that only 1 of 10 largest 1965 companies remains in 2006 list.
2006 Shareholder Letter
Date: February 28, 2007 Author: Warren Buffett Company: Berkshire Hathaway
Overview
2006 net worth increased $16.9 billion or 18.4% (S&P 15.8%), a record one-year gain. Per-share book value reached $70,281 — a 21.4% compound annual return over 42 years.
Key Points
Record Gain — But Lucky
"We believe that $16.9 billion is a record for a one-year gain in net worth -- more than has ever been booked by any American business."
However, insurance benefited from a "large dose of luck" — no hurricanes after 2004-2005 devastation.
GEICO's Extraordinary Productivity
From 2003 to 2006:
- Policies: 5.7M → 8.1M (42% increase)
- Employees: decreased 3.5%
- Productivity: improved 47%
"GEICO didn't start fat" — maintained low-cost producer position while dramatically increasing advertising ($631M in 2006 vs $31M in 1995).
Berkshire Is "A Big Business Not By Design"
Charlie was a lawyer; Buffett was a security analyst. Both "grew skeptical about the ability of big entities of any type to function well."
"Size seems to make many organizations slow-thinking, resistant to change and smug."
Corporate Survival Statistic
Of the ten non-oil companies with largest market cap in 1965 (GM, Sears, DuPont, Eastman Kodak), only ONE made the 2006 list.
Famous Quotes
"Of the ten non-oil companies having the largest market capitalization in 1965... only one made the 2006 list."
Related
- letter-2005 — Previous year
- letter-2007 — Following year
- warren-buffett
- compounding