Some annual reports are worth reading

Is there anything more dreadful to read than an annual report? Most are nothing but endless pages of meaningless numbers, hokey photos, and mindless marketing blather. Well, the Berkshire Hathaway annual report stands in sharp contrast to the norm, particularly in Warren Buffett's annual "Chairman's Letter." Not only is the writing clear and informative, but Buffett's folksy, disarming style makes it a downright entertaining read. The following are excerpts from the 1998 report and Buffett's Owner's Manual (both available online at, with Joe Mansueto's take on how specific policies and practices at Morningstar are attributable to Buffett's business philosophy.


"Most of our directors have a major portion of their net worth invested in the company. We eat our own cooking. (My partner) Charlie (Munger's) family has 90% or more of its net worth in Berkshire shares. ... My wife, Susie, and I have more than 99%. ... Charlie and I cannot promise you results. But we can guarantee that your financial fortunes will move in lockstep with ours."

Mansueto: It shouldn't be a surprise that I have 99% of my net worth in Morningstar. But the way I get everyone else here to share in the risk is through stock options, which everyone is eligible for after two years. This promotes the idea that we're all on the same side of the table, that our motivations are the same.


"Remember Wagner, whose music has been described as better than it sounds? Well, Berkshire's progress in 1998 ... was not as good as it looks. ... Several of the public companies in which we have major investments experienced significant operating shortfalls. ... Consequently, our equity portfolio did not perform nearly as well as did the S& P 500."

Mansueto: I see this as a model for communicating with your various business partners. It goes 360 degrees, from employees to shareholders to customers. We don't fiddle with our financials to make our business seem better than reality. We don't "manage" our earnings. We just portray our business performance as accurately as possible.


"In 1998 ... we wrote a $30 million check to the government to pay an SEC fee tied to the new shares created by (one acquisition). We understand that this payment set an SEC record. Charlie and I are enormous admirers of what the Commission has accomplished for American investors. We would rather, however, have found another way to show our admiration."

Mansueto: Buffett here is so engaging. That's part of why people are really drawn to him. He tends to relax people. I'm not nearly as funny as Buffett, but one thing I am is casual. So the culture at Morningstar is an extension of my personality, and it's very relaxed.


"Charlie and I have two simple goals in reporting: 1) We want to give you the information that we would wish you to give us if our positions were reversed, and 2) we want to make Berkshire's information accessible to all of you simultaneously. ... Today, many companies ... favor Wall Street analysts and institutional investors in ... ways that often skirt or cross the line of unfairness."

Mansueto: Morningstar is a very egalitarian place. My cube is the same size as the one where the guy who started yesterday sits. But, more meaningfully, we also publish all our financials on our intranet, from the P& L to the balance sheet. Hiding company information fosters resentment and creates two classes: us versus them.