The annual meeting of Berkshire Hathaway is being held this weekend in Omaha (cnn article). Recently the 2004 Berkshire Hathaway Annual Report (by Warren Buffett) was published. The report is excellent reading for anyone interested in investing. Some quotes from the annual report:

• In one respect, 2004 was a remarkable year for the stock market, a fact buried in the maze of numbers on page 2. If you examine the 35 years since the 1960s ended, you will find that an investor’s return, including dividends, from owning the S&P has averaged 11.2% annually (well above what we expect future returns to be - [bold added]). But if you look for years with returns anywhere close to that 11.2% – say, between 8% and 14% – you will find only one before 2004. - page 3
• If only one variable is key to a decision, and the variable has a 90% chance of going your way, the chance for a successful outcome is obviously 90%. But if ten independent variables need to break favorably for a successful result, and each has a 90% probability of success, the likelihood of having a winner is only 35%. In our zinc venture, we solved most of the problems. But one proved intractable, and that was one too many. Since a chain is no stronger than its weakest link, it makes sense to look for – if you’ll excuse an oxymoron – mono-linked chains. - page 5
• Finally, there is a fear factor at work, in that a shrinking business usually leads to layoffs. To avoid pink slips, employees will rationalize inadequate pricing, telling themselves that poorly-priced business must be tolerated in order to keep the organization intact and the distribution system happy…
  To combat employees’ natural tendency to save their own skins, we have always promised
  NICO’s workforce that no one will be fired because of declining volume, however severe the contraction…
  Naturally, a business that follows a no-layoff policy must be especially careful to avoid
  overstaffing when times are good. - page 8
• Like Hell, derivative trading is easy to enter but difficult to leave. - page 11
• Should we continue to run current account deficits comparable to those now prevailing, the net ownership of the U.S. by other countries and their citizens a decade from now will amount to roughly $11 trillion. And, if foreign investors were to earn only 5% on that net holding, we would need to send a net of $.55 trillion of goods and services abroad every year merely to service the U.S. investments then held by foreigners. At that date, a decade out, our GDP would probably total about $18 trillion (assuming low inflation, which is far from a sure thing). Therefore, our U.S. “family” would then be delivering 3% of its
  annual output to the rest of the world simply as tribute for the overindulgences of the past. In this case, unlike that involving budget deficits, the sons would truly pay for the sins of their fathers. - page 20

Comments by Warren Buffet and Charlie Munger and the Annual Meeting (cnn article):

• Munger: “You have a real asset-price bubble in places like parts of California and the suburbs of Washington, DC. “
• On whether pharmaceutical stocks have become bargains

  Buffett: “That industry is in a state of flux right now. It’s historically earned very good returns on invested capital, but it could be well be that the world will unfold differently in the future than in the past. I’m not sure I can give you a good answer on that.”

  Munger: “We just throw some decisions into the “too hard” file and go onto others.”