Start with the basics, this is on the Annual Report, not just the shareholder letter.? I may have a second report out after the 10K is released.

1) One thing that was fascinating was the large number of low level acquisitions happening in the subsidiaries, and the desire for more of them.? There is interest at Lubrizol, McLane, TTI, CTB, Marmon, etc.

2) With BRK and IBM, Buffett hopes that public buyers and sellers will be stupid, and sell their shares at levels far below what the eventual prices will be, allowing the remaining shareholders to do better, as management buys in shares at a bargain, benefiting the persisting shareholders.

3) Buffett makes it clear, though that no matter how much cash has has, if prices are dropping rapidly, he won’t put a floor under the stock.? He’ll let the stock fall, and buy bit-by-bit through the whole process.? Indeed, it might be to his advantage to let the price fall below the 110% of Book level for a time to unnerve those that may be gaming the situation.

4) BRK does not talk its book as a result.? They would rather have the stock cheap for buybacks.? (Eeenh… but wouldn’t they rather have the stock higher to aid acquisitions?)

5) And if they firmly know what the value will be in the long run, they would love it if other investors would be scaredy cats and sell out to management at cheap levels so that they could have more of the value as they do not sell.? (Buffett does not phrase it that way, but this is a zero-sum game as far as trading goes.)

6) Buffett talked a lot about goodwill this year, much more than in prior years.? Goodwill makes up about 30% of BRKs book value.? I appreciated his argument regarding goodwill at the insurance companies — if your underwriting profits over nine years exceed goodwill the goodwill is most secure.

7) That said, partly due to lower interest rates, underwriting profitability has been higher for the P&C industry as a whole.? BRK may be better in aggregate, but some of Buffett’s industry comments are not warranted.? BRK is better in degree, not kind.

8 ) Buffett has the key of good P&C underwriting/management when he says ?be willing to walk away if the appropriate premium can?t be obtained.?? That’s the only way to do it, with the price that your company will shrink when the rest of the industry is nuts.

9) All that said, the insurance lines did not do well this year, particularly not BH Reinsurance Group, which is Ajit Jain’s baby.? Part of that was the large catastrophes this year, some of it seems to come from not knowing how to run a life reinsurer.

10) Retroactive reinsurance showed gains, because losses on Swiss Re’s P&C experience was better than expected.? However, that was wiped out by?Swiss Re Life & Health America’s business doing much worse than expected.

In one sense, a big question for BRK is whether they will spend the money to get the expertise necessary to run a big life reinsurer profitably.? So far, the answer seems to be no.? In my opinion, they need to hire experts, or buy out RGA.? Why buy the line from Sun Life when you could have RGA?

11) On principle 11 — BRK distinguishes itself among private equity buyers by leaving distinctive corporate cultures in place , and not interfering with them.? That may not help the present, but it helps the future, as wealthy people selling out take less, because they know their friends in the business will be left intact.

That won’t attract all sellers, but it will attract some.

And note that BRK will cut their losses on hopeless subsidiaries, or those beset by labor woes.

12) As usual, BRK’s reserve development is good, with releases coming from prior years.

More in the next part on Monday.

Full disclosure: long RGA