Sunday, November 6, 2011

Smallcap Screen Part II - Lotus. Jiangbo and Huifeng

Ok, so maybe I should call this a microcap screen, but for now lets ignore the semantics.
I finally got around to checking into Lotus Pharmaceuticals. They use essentially the same corporate structure as Skystar, controlling a china-based entity through "contractual arrangements." They also executed a reverse split in 2010, yet the shares still trade for less than a dollar. I'm going to rule this one out as well. (If you want to know why, refer to my previous analysis.)

The final 2 similar-looking pharmas that show up on the list are Jiangbo Pharma and Huifeng Bio-Phar. I am going to save myself some work and assume that these companies also have a similar corporate structure as Skystar. To repeat: I'm not saying these are necessarily bad structures, I'm just saying they don't offer me enough certainty to invest my hard-earned money. You are free to make your own determination.

Saturday, October 29, 2011

Smallcap Stock Screen - Investment Ideas

Although I don't recommend most people invest in individual stocks, I do keep a (very) small portion of my investable funds in an account I actively manage. My results have been decent. I have a few stocks I track regularly and have been in and out of them a few times over the years. I've also done some experimenting with options (failure), shorting (great success), and various other securities. At the moment, I'm about 50% cash in the account and have kept my eyes open for potential ideas.

(Note: almost everything (except for a long term holding or 2) in this account and every company mentioned below falls into the category of speculation, not investment. An investment, upon thorough analysis, promises security safety of principal and a satisfactory return.)

Though I try to stay away from the smaller end of the spectrum due to the higher risk I associate with tiny companies, I figured I might run a screen on the small end of the market to see what popped up. To that end, I did a screen of microcap stocks with market caps below $20 million, P/Es below 12x, 5 year average ROEs above 15%, trailing 12 months EPS above zero, and 5 year revenue growth above 10%.

The result was a list of 24 stocks for further investigation.

One thing that immediately stood out to me on the list was the pharmaceuticals. There were four of them on the list with similar sounding names: Huifeng Bio-Pharm (HFGB), Jiangbo Pharma (JGBO), Lotus Pharma (LTUS), and Skystar Bio-Pharm (SKBI). They all had P/E ratios of 1.13 or below and also made me immediately skeptical.

Starting at the beginning, I pulled up a yahoo finance quote on Skystar. The stock trades for $2.15 per share and had a 52 week high/low of $1.39 and $10.58, respectively. All else equal, I'd rather buy a stock at its high than its low, so this was a positive sign. I did a quick calculation and if I bought this stock today at $2.15 a share, then sold it for $10.58, I would make a 392% return. (conversely, the people who bought it at $10.58 and sold it today are looking at an 80% loss).

I also noticed it traded only 580 shares last friday, or about $1,200 of total volume, showing that the stock is very illiquid. If I owned shares of this company and needed to sell for any reason, the lack of potential buyers in the market could mean I would have to take a discount on the prevailing market price to sell them. Though this is a risk, you can also see this as a positive. If a lot of people aren't buying the stock, chances are very few people follow the company and you might notice something others have missed. If the stock ends up being a true winner, people will eventually come around to realize the value of the company

I have no idea what the company does, so I decided to pull up its most recent 10-K. They might as well paint a bird on this thing and fly it above Busch Stadium because it looks like one giant red flag to me. The first page was enough to turn me off, and this rarely happens to me:

"We were incorporated in Nevada on September 24, 1998. We are a holding company that, through our wholly owned subsidiaries in China, Skystar Bio Technology Co.(Skystar Jingzhou) and variable interest entity (“VIE”), Xi’an Tianxing Bio-Pharmaceutical Co., Ltd. (“Xi’an Tianxing”), researches, develops, manufactures, and distributes veterinary health care and medical care products in the People’s Republic of China (“PRC”).

All of our operations are carried out by our subsidiaries in China and Xi’an Tianxing, which the Company controls through contractual arrangements between Xi’an Tianxing and Sida Biotechnology (Xi’an) Co., Ltd. (“Sida”), the wholly owned subsidiary of Fortunate Time International Limited, the wholly-owned subsidiary of Skystar Bio-Pharmaceutical (Cayman) Holdings Co., Ltd. (“Skystar Cayman”), which became our wholly owned subsidiary in 2005.

Such contractual arrangements are necessary to comply with PRC laws limiting foreign ownership of certain companies.

Through these contractual arrangements, we have the ability to substantially influence Xi’an Tianxing’s daily operations and financial affairs, appoint its senior executives, and approve all matters requiring shareholder approval. As a result of these contractual arrangements, which enable us to control Xi’an Tianxing, we are considered the primary beneficiary of Xi’an Tianxing.

On August 21, 2007, Xi’an Tianxing invested $68,550 (RMB 500,000) to establish Shanghai Siqiang Biotechnological Company Limited (‘Shanghai Siqiang’). Xi’an Tianxing is the 100% shareholder. Shanghai Siqiang serves as a research and development center for Xi’an Tianxing to engage in research, development, production and sales of feed additives and veterinary disease diagnosis equipments."

In addition to Xi’an Tianxing, Skystar Jingzhou also manufactures and distributes veterinary medicines including aquaculture medicines in China."

So Skystar is an Arizona-based holding company that set up a complicated ownership structure to comply with (ie, get around) Chinese restrictions on foreign ownership of companies. The company's main line of business is selling veterinary health care and medical care products in China.
As a general rule, anything involving a Special Purpose Vehicle (SPV) or a Variable Interest Entity (VIE) makes me nervous. VIEs, as Bloomberg puts it, are a "post-Enron version of Special Purpose Vehicles." The fact that Xi'an is a VIE means that Skystar stands to benefit the most from the company, but it does not own more than 50% of the company. Only being able to "substantially influence" rather than "completely control" the company's main subsidiary is a huge red flag for me.

The page also referenced a Cayman Islands based corporation used as part of the ownership scheme.

All of this shit might be on the up-and-up, but the number of huge risks on page 1 of the 10-k are enough to make my head spin, and I haven't even gotten into the specific kinds of products the company sells yet. There's the risk of being tiny, the risk of doing business in China, the risk of not controlling your main source of income, etc. etc. After doing a little further research on the internet, I came across a publication about "Investing and Operating in Restricted Industries in China" It looks like this type of ownership structure has been put in place a number of times and as far as I can tell, it looks like a way for Chinese firms to raise capital from American and other investors.

A few other great tidbits from the 10-k: The company leases a building in China that the chairman owns for about $24,000 a year. The company also had accounting issues: "On December 17, 2010, the Company filed an 8K with the SEC disclosing the termination of Frazer Frost, LLP (“Frazer Frost”) as our independent auditors effective as of December 13, 2010." They replaced their auditors. They identified material weaknesses in their accounting and internal audit functions and finally, they disclosed this:

"Conflicts of interests between the duties of our officers and directors who are also management members of Xi’an Tianxing to our company and  Xi’an Tianxing may arise. As our directors and/or executive officer (in the case of Mr. Lu), they have a duty of loyalty and care to us under U.S.and Cayman Islands law when there are any potential conflicts of interests between our company and Xi’an Tianxing. We cannot assure you, however, that when conflicts of interest arise, these individuals will act completely in our interests or that conflicts of interests will be resolved in our favor. In addition, they could violate their legal duties by diverting business opportunities from us to others. If we cannot resolve any conflicts of interest between us and them, we would have to rely on legal proceedings, which could result in the disruption of our business."

I work at least 11 hours a day, 5 days a week. There is no way I am risking my hard earned money on an equity ownership interest in a setup like this. Even if the China operation does make enough money to one day pay some back to shareholders in the US, who knows if they will ever even be able to get the funds out of China without the government intervening? I'm passing on this one. Though the stock quote might go higher in the next few years, to me the risk is not worth the potential reward.

One thing I definitely do give the company credit for being straightforward and disclosing risks in its filing.

I think I've had enough smallcap action for one day. I assume the other pharma companies on this list are similar to Skystar and plan to report back any findings when I get the chance to look into them. Hopefully this gives you a sense for the kinds of things I look for in an investment/speculation. There will be many other pitches to swing at, so I dont mind letting this one go by. In this case, the ownership structure was so risky in my opinion that it didn't even matter what the financials looked like.

Saturday, October 1, 2011

The most useful things I've ever purchased

Time and time again I've gotten household/automotive appliances (eg: george foreman grill or a $20 paper shredder) that have either broken or I've stopped using. Below are a few items I've gotten off of Amazon over the years that I have found to be well made and gotten a lot of use out of and I have no hesitation recommending.

1) Giant, Powerful Scissors.

Ok well maybe they refer to them as "Tin Snips" but these things are awesome, and amazingly useful. According to Amazon: "Super sharp blades easily cut through sheet metal, aluminum sliding and more ." I've used these to cut through so many things I can hardly keep count. In particular, they are good on packaging. The hard plastic packaging that most electronics seem to come in most days can be easily disposed of with this thing. It also eats right through whatever plastic ring in a package may be securing the item inside. Do yourself a favor and get the twelve inch ones. Whenever you need scissors on steroids, keep these handy.

2) Tire Inflator

I've had this Slime compressor for about a year and it is great. Throw it in your trunk and you will never have to pay a dollar at the gas station each time you want to inflate your tires. This particular model is pretty heavy duty and feels like it will last a long time. Plus, when you get that inevidable flat tire only to find out your spare needs 40 pounds of pressure, this thing will be there to help you out. It will also get you to the gas station if you discover a nail has slow-leaked your tire flat overnight. As a bonus, it also comes with attachments to inflate things like bicycle tires, basketballs and other inflatables.

3) Aeropress

If you need single serving coffee, forget about the tasteless pods that everybody seems to be buying these days. The Aeropress is the way to go. The reviews on Amazon speak for themselves. I've had mine for over three years now and it is the only thing I use to make coffee at home. This is especially good for people who (like me) enjoy strong coffee. Read all of the Amazon reviews if you don't believe me.
Being a finance person, I'm not a big fan of buying crap you don't need or can't use, but this stuff is either incredibly useful and built to last forever (the snips), saves you money and gives you peace of mind (the tire inflator), or saves you money and gives you delicious life-giving coffee (the AeroPress) and I'm willing to go out on a limb and recommend all of the items above. As long as you can comfortably afford them, you won't regret buying them.

Saturday, August 6, 2011

S&P Downgrades US Government Rating from AAA

Late this evening, S&P announced it is downgrading the US Government's credit rating to AA+ with a negative outlook.
If we learned anything from the financial crisis of 2008, it is that investors should do their own credit analysis and not rely on what the rating agencies say. That is why, to me, the downgrade itself is a non-event.

I'm not saying there won't be reaction in the the markets. There may be a reaction, but in my opinion, if people react to S&P's release, they are reacting to the wrong thing because all it does is state some things we already know about the country.

The only reason I see this as an event is the headline value. People who have never even heard of S&P are going to be treated to plenty of headlines about this downgrade (and chances are all they are going to read are the headlines). This could put fear into the markets. Political talking heads will blame both parties (Republicans: see what happened on the Democrats and Obama's watch?? Democrats: see what the GOP brinkmanship did to the country??) but it is the fault of both parties that we are in this current position.

It has been apparent for some time now that the US government is in an unsustainable financial position. We spend too much money. We spend more than we earn, so we have to take out loans. It is a basic problem that every person reading this blog can easily understand: if you spend more than you earn for a long period of time and borrow heavily to keep up your lifestyle, you end up with an ever-growing pile of debt.

Did you really need S&P to tell you that?

I don't see the S&P announcement as a bad thing. Maybe it will cause more people to investigate our government's finances and figure out how to fix them. We can do it the right way (cut spending/entitlements, IMHO) or the wrong way (increasing revenues, A.K.A. tax increases), but if we do nothing, it puts the future status of the USA at risk and as a US citizen, that is my least preferred outcome.

I'm not going to turn on the TV or read a financial news article this weekend and suggest you do the same. If you want, go to the us government website and read about what government expenditures look like and where the money comes from.

Sunday, July 24, 2011

A few good reads

I came across a post by Jason Cohen called Rich vs. King in the Real World: Why I Sold my Company for the second time in the past few months today and highly recommend you check it out.

He talks about the way cash in the bank affects your lifestyle and makes the point that the relationship is not linear.

I'm now as jealous of Jason as I am of Scott Adams and his Dilbert Money, but I don't begrudge either of them their well earned financial freedom.

By the way, you are correct- I haven't posted anything in a long time. I'm still keeping up with the markets though. One blog I started reading regularly over the past few years is called Zero Hedge. I recommend you check it out if you're looking for some good reading. They write a lot more than I do and take an interesting, alternate view you won't see on a lot of the big financial news websites.

My comments on the current state of the market are as follows: I haven't seen a truly positive headline in years, gold is shooting through all time highs, interest rates are practically nothing, the dollar continues its decline, the US may default on its treasury debt, yet the equity markets have seen a strong rally since they recently bottomed out in 2009.

I'm most of the way through a pretty good book called More Money Than God: Hedge Funds and the Making of a New Elite (Council on Foreign Relations Books (Penguin Press)). It is a history of hedge funds, tracing managers and styles from the early days of the industry to today. In my opinion, the author has a pretty strong agenda - pushing his viewpoint that hedge funds are good for the economy and shouldn't be strongly regulated - but aside from the few opinion sections, the book is a great read sofar.

Saturday, April 9, 2011

The Best Vacuum I Could Find

SEBO X4 - the best vacuum I could find.
A while back, I wrote a post about the best medium-duty shredder I could find. The moral of that story was that I was tired of burning out the motors on cheap shredders or sitting in front of them feeding one sheet at a time, so I spent a little more on a better quality shredder. I ended up with a powerful little machine that destroys junk mail like a savage, shreds 12 sheets at a time and has been doing an incredible job of protecting me from ID theft for over four years now. By paying more for a quality applicance, I actually saved myself money in the long run and it really cemented my philosophy that you should be prepared to pay up for a quality appliance. Buying one well-made (and likely costlier) product that you don't have to replace is ultimately cheaper than buying five cheap ones, and it is also so much more satisfying to use.

At the end of that post, I mentioned that the next appliance I had on my radar for an upgrade was my vacuum. There are few appliances as basic and essential to a clean, hygenic dwelling place than a vacuum.

My old vacuum was a piece of junk bagless upright. I threw it out a while back and I don't remember the exact model name or number, but it was a sub-$100 model similar to the Dirt Devil UD40285 Featherlite Bagless Upright.

It was great at first. Nice suction, always worked, had shiny new parts and attachments. But after a few months, it started getting on my nerves. It seemed to have a weak motor and wouldn't pick up the little stray pieces of lint and string I could see in my carpet. I felt like I was following my vacuum around picking up whatever it missed.

It was also a major pain to clean. When I bought my previous vacuum, I didn't give it too much thought. I figured it would be great to get a vacuum without bags because I'd save on the price of buying new ones when the old ones filled up. I figured when the dirt container got full, I would just dump it in the garbage, put it back in the vacuum, and get back to cleaning up. Right?


The dirt reservoir was an incredible pain in the neck. Cleaning it made me feel like Mike Rowe in an episode of "dirty jobs." After you've tired yourself out by vaccuming (in my case moving furniture out of the way to get under tables and chairs), you bring this container chock full of dust over to the garbage can, turn it upside down, and watch as a mushroom cloud of dust rises from the can, putting the stuff you just took out of the carpet back into the air in tiny, microscopic particles. I tried everything to keep the dust down when cleaning out the container- putting it inside its own plastic bag, emptying it really slowly, covering the garbage can as quickly as possible... but nothing I did got rid of the fact that cleaning the vacuum put the dust back into the air.

Not to mention the fact that it was impossible to get the entire container clean. Dust stuck EVERYWHERE inside the vacuum, on the sides of the reservoir, in the little mesh cover at the bottom of the intake, on the underside of the lid... it was dust city inside that thing and the problem only got worse over time.

The vacuum also had a cheap belt which started slipping after about 6 months of normal use. For those of you who have had a vaccum with a slipping belt you'll know what that meant- burnt rubber smell every time you use the vacuum.

I began to dread vacuuming and I cursed that machine every time I laid eyes on it.

I finally gave up and began looking for a replacement. I wanted something like my shredder- a quality workhorse. I was willing to pay whatever it took (within reason) to get an animal of a vacuum. I figured if I had to replace a $100 vacuum every year, I could pay $800 to $1000 for a quality machine that would last me 8-10 years, and I would have a cleaner house and less stress in the meantime.

After doing a lot of research online, I realized a few things. The first is blasphemous because I'm writing this post on Google's excellent blogger platform and I think the company does amazing things, but I realized that when you are trying to research a consumer product, google search results are becoming pretty bad. I'm not going to get into it, but I think that link sums up the problem pretty well.

Once I got around that issue, one name keep coming up again and again when I looked for a quality vacuum. Yes, it was expensive, but it seemed like everyone who touched it raved about it.

That vacuum? The SEBO Automatic X4.

You can check this vacuum out elsewhere on the web. I've found a targeted search for the Automatic X4 brings up a lot more useable results than just looking up "vacuum cleaner reviews," due to the issue with the google mentioned above.

I've used this vacuum for over a year now and I have to say it has been awesome. In no particular order, I'll tell you what I like about it:
  1. The bags- gone are the days of fighting with my wife over who has to clean out the vacuum. The bags are great, they hold a lot of dirt, and I havent found the need to replace them very often. (I used 2 this year).
  2. The power- this vacuum sucks up everything my old vacuum missed, partly due to the motor and partly due to....
  3. The automatic height adjustment- when you turn on the X4, a little green light goes on that says it is either raising or lowering the height of the vacuum according to the floor it is sitting on. This ensures that the rotating brush is at the ideal height to agitate the carpet and knock loose any dust, dirt, paper, pet hair etc... so it gets sucked out of the carpet and into the bag.
  4. The engineering- there are so many little design elements of this German made vacuum that show you someone put a lot of thought into it. For starters, the entire brush comes out with the click of one button. This makes it incredibly easy to clear off all of the hair and string that accumulate on a vacuum roller brush over time. There is also something called the "instant use wand" that I've found very convenient for getting into tight spots without messing around with external attachments. You just grab a handle on the vacuum and pull it out, then when you're finished with the space behind the computer or on your baseboards, you put it right back in to reactivate the main unit.
  5. It lays completely flat- I've never had a vacuum that went completely flat before and it has been handy in a number of situations, particularly when vacuuming under furniture.
  6. It works great on carpets as well as hard floors- I think this is because of the automatic adjustment. It goes from my livingroom to my kitchen without a hitch.
  7. The belt has a lifetime warranty- the belt, the part that transfers twisting power from the motor to the brush, is guaranteed for life. If it ever slips, smells, or breaks, I know I can get it fixed for free from a Sebo dealer (and surprisingly enough there is a dealer pretty close to me. I'd never heard of SEBO before so I figured it would't be easy to find.) I think part of the reason they are able to offer this warranty on the belt is because it has an automatic shutoff feature. For example, if you suck up the power cord from your computer and it jams up the roller, the sebo will detect this and shut it down. I think that other (ie cheap) vacuums would overheat or strip the belt when this happened. 
  8. Overall durability- this is not the prettiest vacuum on the market. In fact, I have the blue model and it looks almost antiquated. It doesn't look like a spaceship with the Dyson ball inside of a clear, futuristic-looking case, but it is extremely well made and I think it is going to last for a long time.
  9. It works- even though I've devoted a lot of words to this review, vacuuming isn't something I like to think about very much. When you have a vacuum that doesn't pick up all of the dirt, or smells funny, or is hard to push around, or takes a lot of time to adjust on the fly, it becomes a small, but unnecessary source of stress. I don't have to fight with this vacuum. Plain and simple, it does the job and creates a clean home for me and my family.
I've been trying to think of some negatives about this vacuum and I'm not coming up with much. However, here is what I dislike about it sofar:
  1. Looks- as mentioned above, the X4 is not the most attractive appliance I've ever owned, but I really don't care how it looks. It sits in the closet when not in use.
  2. Replacing bags- this will cost money over time, but as I discussed at length above, I think the cost is minimal and vastly preferable to fighting with a bagless.
  3. Takes time for the height to adjust-  if you go from a hard floor to a carpet, you will have to wait a bit before you start vacuuming. Not a big issue, but something to keep in mind.
  4. The price- Make no mistake, this is an expensive vacuum. However I think in the long run it costs less to buy a high quality appliance like this than a bunch of cheap ones that will have to be replaced over time.
Overall, I've been very happy with this purchase, and even though I've only had it for a bit over a year, I'd highly recommend you consider it the next time you want to buy a vacuum. I'll post updates over time to let you know how it has been holding up. If you have any other comments (good or bad) please feel free to leave a comment.

Happy vacuuming.

Sunday, February 27, 2011

Warren Buffett's 2010 Letter to Berkshire Shareholders

So as of a couple of weeks ago, the market was up almost 100% since the 12 year low reached in March 2009. It was also up 7% since the beginning of this year. I have to agree with the headline in the linked article though- this feels like "the unhappiest bull market ever."

Maybe it is just what I focus on, but despite the numbers on the big board, all of the other news seems pretty negative for the average US investor. In fact, it's downright depressing if you think about it. For example, some of the major themes that have pounded into our skulls for the past couple of years are:

1) The FED has been printing money and flooding it into circulation, devaluing the US dollar
2) China's economy is going to overtake the US economy by 2018
3) We are entering a "New Normal" era of low stock returns, low GDP growth, deleveraging, etc. I think this view is most convincingly espoused by Bill Gross and his colleagues at PIMCO
4) The US government has bailed out shareholders at the expense of taxpayers, (more about that here and here, here (it bailed out people who couldnt pay for their mortgages also)). It also put other costly programs into place,
5) Based on pundit's views, state governments are headed for bankruptcy also
6) Stocks are overvalued  - note this is a more recent trend
7) Unemployment is high in the US. We are losing manufacturing jobs hand over fist. We no longer make stuff in the US, we are a "knowledge economy"
8) The rich are getting richer, at the expense of the poor

Oh, not to mention the social security crisis starting now as the baby boomer generation reaches retirement age and global warming (to anyone on either side of the debate, im not taking a stance on global warming, merely saying it is often in the news). These are all off the top of my head.

Combine these with the myriad personal financial problems each of us might be having - job security, sickness, disability, disease, divorce, credit card debt, foreclosure, car repairs, taxes, home maintenance, rent (which is too damn high by the way)- and it seems like the situation is pretty hopeless.

However, among this host of negative news, Warren Buffett's 2010 letter to shareholders arrived this weekend as a beacon of hope.

I suggest you read the letter yourself, but I just wanted to give you my $0.02 and call out some of the more interesting/informative parts of the letter.

Almost right off the bat, Buffett wrote something that you won't hear very often from the talking heads on CNBC in the current unhappy environment:

I agree with Warren and I don't share what seems to be the prevailing sentiment that the US is doomed to failure. This is why I invest the biggest portion of my retirement savings in US equity index funds. Put simply, I believe in the American system.

"Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders
for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

...We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead."

The next part of his letter that I liked (and anyone who has studied Buffett will be familiar with) is the section entitled "Intrinsic Value - Today and Tomorrow." In it, Warren talks about the three components of intrinsic value (which is the only value you should care about), specifically as it relates to Berkshire. You're better off getting the details from his letter, but I'd summarize the components as 1) Investments (stocks, bonds, cash equivalents) 2) earnings from sources other than investments and insurance underwriting and 3) (the most subjective category) "the efficacy with which retained earnings will be deployed in the future." I recommend you check that section out.

The highlight of the letter came near the end, however, in a section entitled "Life and Debt." Buffett reprinted a letter from his grandfather Ernest to his uncle Fred. In the letter, Ernest tells Fred that he has saved him $1,000 cash and is giving it to Fred on his 10th wedding anniversary. Ernest recommends Fred keep this money as a reserve in a safe deposit box so he can easily get at it. He writes "You might feel that this should be invested and bring you an income. Forget it -- the mental satisfaction of having $1,000.00 laid away where you can put your hands on it, is worth more than what interest it might bring..."

I checked an inflation calculator, and $1,000 back in 1939 would be the equivalent of about $15,425 today.

Buffett says they take a similar philosophy at Berkshire and will always keep $10 billion of liquid funds on their balance sheet in extremely safe but low yielding investments such as treasuries and other short term securities. He quoted investment advisor Ray DeVoe who said "More money has been lost reaching for yield than at the point of a gun."

Truer words have never been spoken, and although you hear it from most financial advisors, I'll say it again- build up your own reserve fund and put it somewhere you know you will be able to get at it. You will earn basically nothing for investing in treasuries or in your typical FDIC insured savings account right now, but you will sleep safely at night knowing that a financial setback won't knock you off your feet.

The rest of the letter hit on a number of the usual Berkshire areas: the difficulty of continuing to grow given Berkshire's huge size, the story of how he met Lorimer Davidson at GEICO, reviews of all of Berkshire's businesses, the often meaningless figure known as GAAP net income, Berkshire's culture, repeated requests to spend money at the annual meeting etc...

All in all, another great letter from the Oracle and well worth your time. I like to say that if I was only allowed to read one investment newsletter a year, it would be Buffett's shareholder letter. If you care about investing or saving, do yourself a favor and head over to and read this year's letter.

If you haven't read the previous years' letters, do that too.