The New York Times reports that Berkshire Hathaway Inc. (NYSE: BRK.A) Warren Buffett’s annual letter includes some crucial observations about the state of the securities markets. The one I found most eye opening was that companies are using unrealistically high assumptions about pension fund returns to boost their reported earnings.

Here are three themes I found most interesting:

• 8% pension fund return assumptions. Buffett said that many companies assume their pension funds will earn 8% a year from investments, a return he deems unlikely given the low level of interest rates, but one that lets them report higher profits now. Buffett notes that by the instance those managers need to lower those assumptions to be more realistic, they’ll be distant gone from
  their jobs — along with their bonuses.
• Ending of Home Price Appreciation (HPA) exposes financial folly. Buffett coined a new acronym, HPA, to highlight a familiar point. public were willing to take on risky mortgages considering they assumed that their houses would rise in value. He famous that “As house prices fall, a huge amount of financial folly is being exposed. You only memorize who has been swimming bare when the tide goes out - and what we are witnessing at some of our largest financial institutions is an ugly sight.”

Continue reading Golden nuggets in Buffett’s annual letter

Original post by Peter Cohan

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