"For investors as a whole, returns decrease as motion increases". Another frank statement from the Oracle of Omaha, Warren Buffet, in his letter to shareholders reporting on the performance of Berkshire Hathaway for the year 2005. Done up, if you can call it that, in plain white paper, the 22-page letter is presented in the same way that he talks and lives, humorous, unassuming, incredibly intelligent, and easy to read. With Mr. Buffet, what you see is what you get. Sure, there is that rigorously devoted capitalistic mind hiding behind that modest exterior, but overall, even if you have not met him, you feel a sense, wisdom, trust and familiarity, someone just like the patriarch of your family. www.berkshirehathaway.com

At times educational and motivational, the letter is always a trove of information on the operations of Berkshire Hathaway Inc. (BRK/A) along with insightful comments on the state of the economy, the world, and our environment.

Mr. Buffet has always demonstrated his personal commitment to his shareholders, still earning one of the lowest chief executive officer salaries on the planet (around $100,000 per year).

He has held all of his Berkshire shares since inception of the company.

At his demise, they will be passed in total to charity. In his writings, he never passes up a chance to skewer irresponsible (and downright crooked) CEOs, heaping particular scorn on those who have compensated themselves liberally by plundering the very companies that they were hired to bring back to profitability.

Unlike an audited financial statement, the Mr. Buffet's letter reads well, divided into specific sections of commentary on the various subsidiaries that make up the parent holding company. We are treated to words of wisdom on almost every page that ? given the 40-year BRK/A success story should be read ? very carefully.

Sometimes called the cheapest diversified mutual fund in the investment universe, Berkshire Hathaway Inc. is comprised of approximately 70 separately managed companies from property and casualty, auto insurers, reinsurers, manufacturing for the construction industry, apparel, shoes, groceries, aviation fractional ownership, home furnishings, fine jewellery, financial products, commercial and consumer lending, utilities, transportation, confectioner products, the Dairy Queen, the Pampered Chef, leisure and recreational vehicles and more.

Performance: Holding both himself and his company managers to high standards, it is clear that long-term consistent performance is rewarded while mediocrity amongst the industry is equally derided. And what a performance it is!

Even though General Re and Berkshire Hathaway Reinsurance Group, two of the largest global reinsurers (mega-cat specialists) had estimated losses of $3.4 billion due to the hurricane trio last year, GEICO and other lines of insurance carried the day.

The total return for the year was 6.4 percent on an after tax basis as compared to the S&P 500 4.9 percent on a before tax basis. Much more compelling is the 17.2 percent compound growth rate per year from 1965-2005, a staggering gain of 305,134 percent versus the S&P 500 of 5,583 percent!

Acquisitions: With free cash of more than $40 billion available last year, Berkshire purchased a medical malpractice insurer, an RV manufacturer (just for all us baby boomers to boogy around the world in), a workers compensation insurer, and another major electric utility. Mr. Buffet likes insurance because of cash float; the ultimate game is to have the float, which is really pre-paid insurance premiums, work overtime for the company but cost nothing to carry.

The company under his guidance are brilliant stock pickers. Berkshire's strategy is to buy a company outright (as opposed to holding a major stock position) if meets their intrinsic value criteria and is known for quick deal closings. Thus it was that in 2004, Clayton Homes was bought lock, stock and barrel away from another superb Bermuda-based company, Orbis Investment Management (BVI) Limited.

Debt: Mr. Buffet abhors debt, preferring to internally finance any leverage for its subsidiaries. To look at the holding company balance sheet is to view a classic textbook example of an excellent debt- to- equity ratio. Compared to the crippling debt of General Motors, the Berkshire Hathaway Inc short and long-term debt liability is miniscule. It would certainly appear that if Mr, Buffet had a preference, he would carry no debt on the books except for prepaid premiums which in a good year can more than carry themselves (cash float).

Currency and derivatives: The United States trade imbalance came in for another dissertation based on his concern over the extent that foreigners have increased their ownership of US assets.

As he said, 'these (foreign) investors will begin to earn more on their holdings that we do on ours.' Berkshire entered into the currency markets several years ago, when Mr. Buffet stated then that he expected the US dollar to weaken. Proving that he is also adept at currency hedging, Berkshire, to date, is two billion US dollars in the black from the effect of those transactions.

Five years on, inherited derivative contracts from the purchase of General Re are still being unwound at a loss. In his 'the buck stops here' section, Mr. Buffet has taken full blame every year for not fully understanding General Re's trading operations and its subsequent impact on acquisition.

Needless to say, he is not overly fond of this esoteric market, warning of singing canaries in cold mines.

Management succession: Mr. Buffet is getting on in physical years, but shows absolutely no lessening of intellectual capacity. While it appears that he (or the board) have chosen his successor, he will keep us all guessing for another year, as to the identity of that individual.

Buy and hold: Unlike many business buyers, Mr. Buffet states that Berkshire has no exit strategy. They buy to keep. But they do have an entrance strategy, looking for businesses here and abroad to spend that $40 billion on. That's really the way I like to think of Warren Buffet, too. No exit strategy, just continuing to grow the business exponentially. After all, a corporation is a separate legal entity with an indefinite life. He has prepared this business so well for the future that it will live on as his legacy, long after he departs for his greater reward. I wish there were more visionaries and individuals of character like him.

Martha Harris Myron CPA CFP? specialises in providing comprehensive financial solutions for individuals and their families. Confidential e-mail can be sent to: marthamyron@northrock.bm

The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of The Royal Gazette has final right of approval over headlines, content, and length/brevity of article.