Investing

The Top 7 Lessons in Warren Buffett's Annual Letter to Shareholders

Berkshire Hathaway Inc. (NYSE: BRK-A) has released its annual letter, showing that earnings and book value rose in 2014 over 2013. While there are many points to evaluate on earnings, Warren Buffett himself has told shareholders for years now to evaluate the company based on its book value performance rather than its actual earnings report.

24/7 Wall St. has given a very brief earnings synopsis, but the reality is that what investors should care about are the hidden gems that come out in this annual communication. We have identified the seven most important lessons we think shareholders with a long-term focus on this company should lock into memory.

On annual earnings, the operating earnings rose to $16.551 billion in 2014 from $15.139 billion in 2013. The operating earnings per share attributable to the A-share class of common stock rose to $10,071 in 2014, versus $9,211 per share in 2013. The big kicker was that Berkshire Hathaway’s book value per common A-share rose to $146,186 in 2014, which represents a gain of 8.3% from the $134,973 book value per share at the end of 2013. This compares to a closing price on Friday of $221,180 and a 2014 year-end share price of $226,000.

So, what are the hidden gems and top seven points we see that Buffett has for long-term investors in his 50th annual letter to shareholders?

Who Succeeds Buffett as CEO?

First and foremost, no successor is being named, though Buffett did directly say that the right person to be heir to the company’s throne as chief executive has been found. Buffett said that board and he both believe they have the right person to succeed him as CEO. This successor is said to be a ready to assume the job the day after Buffett dies or steps down.

The 84-year-old tycoon also said that, in certain important respects, this person will do a better job than he is doing at running the Berkshire Hathaway empire now. Buffett’s son Howard has been set as the likely chairman, but as a non-executive chairman. This leaves Ajit Jain and Greg Abel both in the running to succeed Buffett as CEO.

ALSO READ: Meet the 2015 Warren Buffett and Berkshire Hathaway Stocks

Dividends and Buybacks

A second long-term issue is that Berkshire Hathaway has been rigidly against paying a dividend to its shareholders. To date, all gains have been kept inside of the company, allowing unfettered growth over the past 50 years, without investors having to pay taxes on capital gains (if they held this long) and without having to pay taxes on dividends. Still, Buffett did signal that a dividend might be paid — maybe in 10 to 20 years. Buffett also left the door open to more flexibility in time to repurchase more of its own common stock.