Annual letter from Warren Buffett

Here is the link to:

Berkshire Hathaway Annual Report 2012

In the letter, Warren provided a list of books. Below is the list with Amazon link:

Warren Buffett’s recommendations

The Outsiders by William Thorndike Jr.

- Publication Date: October 23, 2012 (Capital Allocation)

”It is impossible to produce superior performance unless you do something different.” — John Templeton

Tap Dancing to Work: Warren Buffett on Practically Everything by Carol Loomis

- Release date: November 21, 2012 (on WB)

Warren Buffett built Berkshire Hathaway into something remarkable— and Fortune journalist Carol Loomis had a front-row seat for it all.

The Clash of Cultures: Investment vs Speculation by Jack Bogle

- Publication Date: August 7, 2012 (how certain things have altered the concept of long-term investing)

How speculation has come to dominate investment—a hard-hitting look from the creator of the first index fund.

Investing Between the Lines: How to Make Smarter Decisions By Decoding CEO Communications by Laura Rittenhouse

 - Publication Date: December 18, 2012 (read between lines)

The essential guide to making smarter decisions by decoding CEO Communications

Recommended reading in Warren Buffet’s 2013 Shareholder Letter

trade decision

I decide to close all my long position and park everything in bond. I will take the trade tomorrow.
There are lots of reasons I am doing that. Among everything else, the most direct one is I will not be able to access the market from Thursday for a while. I believe it's time to cash out and wait for the next opportunity. I cannot see anything big. Maybe a small correction to 1530 area. Me is going to check back when I get chance.

some readings.

Yes, We’re Confident, but Who Knows Why

by Dr Shiller, of Shiller and Case Index.

Collective Intelligence! From MLCO: "As of close on 8 Mar 2013, the S&P 500 front-month (15 Mar 2013) option contracts have a$211.0 billion delta (exercise probability) weighted open interest towards calls. This is the largest call imbalance we have seen one week prior to a triple witching option expiration since our data began in September 1997. Large call imbalances have historically produced positive returns for the S&P 500 over the option expiry week."

An account just bought to close the Mar 1500 calls to sell the May 1550 calls 8k times. This created approx $600m notional deltas to buy, helping to push us higher here. Recall that 11 of the past 14 expiration weeks have finished the week higher, mainly attributed to overwriting flow providing a bid to the market - posted at (12:42CT) 1249.50 high in the SPM.

“Market Wizards” Marty Schwartz aka Pit Bull: Trading rule, look for a low the Thursday/Friday the week before the expiration. This week's scheduled economic/events calendar should be the quietest week in 2013 so far. However, we do have the mid-month asset reallocation and the March expiration on tap.

Economy Outlook for 2013

I am a little bit absent, I know I know. Well I guess I need to put on my economist hat and do some analysis.
Warning: This is a long series from a huge plan. (The catch, I may not be able to finish the entire thing.)

Economy Updates (based on readings from q4 2012):

1. Real GDP Expanding for 3 straight years, but at sub-par rate
1. 3% historical average; usually 4% to 6% after recession; but grew at 2% in recent expansion

2. Total nonfarm payroll improving but will not fully recover all the jobs lost till at least 2014
1. 8 million job losses during the downturn vs. 5 million job creation during expansion

3. Real personal consumption expenditures rising at roughly 2%
1. Housing wealth recovery helping consumer spending expansion

4. Private nonresidential fixed investment is larger than corporate profits because of borrowing
1. Now companies have more profit and well exceeding spending

5. Real private residential investment increased 27% in value and 9% in volume in 2012
1. Housing recovery helping GDP growth

6. Owner-occupied real estate values rising over the past two years
1. results in $1.5 trillion housing equity accumulation 

7. Nonresidential fixed investment - turned negative because of uncertainty

8. Mixed bag Real state and local government consumption expenditures and gross investment
1. GDP drag coming from downsizing of state and local governments is coming to an end
2. Federal government downsizing via sequestration in March

9. Average hourly earnings
1. No cost-push inflationary pressure from wages
2. But low wage growth can mean persistent low retail sales growth

10. Core inflation rate: All items less food and energy
1. Contained for now at Fed‘s preferred rate of 2%
2.  But rising apartment rents will push up inflation rate in 2014 and beyond

End of Feb

NO CHANGE to my portfolio holding.


The Exit criteria didn't meet. It doesn't matter how uncomfortable I am as a holder at this moment, I am still holding all my investments, to follow the investment rules I created.

How bad it is? I have no idea. Again I see a break between econ news and market reaction. I hear tons of craps from capitol hill. I, as an average investor seeking early retirement, am clueless. So far I think the time of index dash is over. I will be more focus on assets allocation. I am going to post my research later this week.