Always of great interest is the status of Berkshire's stock holdings. The most significant change here was the sale of approximately 97% of the long-standing Freddie Mac position. At the end of last year, Berkshire owned stocks in 29 companies, worth $31.6 billion, up from 24 companies, worth $30.2 billion, three months earlier (according to a February 13F filing, reported by Dow Jones).

Overall, however, Mr Buffett is not enthusiastic about current valuations: "Another negative — which has persisted for several years — is that we see our equity portfolio as only mildly attractive. We own stocks of some excellent businesses, but most of our holdings are fully priced and are unlikely to deliver more than moderate returns in the future. We’re not alone in facing this problem: The long-term prospect for equities in general is far from exciting."

Regarding his preference for buying businesses versus buying stocks, Mr Buffett highlighted two reasons: the personal advantages of working with people he admires and the tax advantages of owning an entire business rather than just a piece of one. As an owner, you pay taxes once; as a stockholder, you pay them twice (once when income is earned by the corporation and then again as dividends and/or capital gains).

In 2000, Berkshire acquired businesses involved in energy (76% of Mid-American), rental furniture (CORT Business Services), insurance (U.S. Liability), jewelry (Ben Bridge), bricks & boots (Justin Industries), carpets (87% of Shaw Industries), paints (Benjamin Moore) and insulation & roofing (Johns Manville). In a year when Internet stocks soared and crashed, you can see where this legendary investor and his partner, Charles Munger, found value.

In the Investments section, Mr Buffett also provides his take on speculation in general and the dot-com boom in particular: "...a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street 3/4 a community in which quality control is not prized 3/4 will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest."

Berkshire is also a major factor in the insurance industry, an intensely competitive business which is starting to recover from a cyclical slump. Even in the best of times, earnings in the industry are only as good as the estimates of future expenses ("And we warn you that there is nothing symmetrical about surprises in the insurance business: They almost always are unpleasant.")

Recently, the economics of auto insurance have been particularly hurt by aggressive pricing from the #1 company in the industry, State Farm. Since auto insurance is viewed as a commodity product, those who charge the least get the most. For this reason, the (lack of) profitability of the entire industry is largely determined by the most aggressive player. It's as if a businessman jumped off the top of a building and landed on his competitors.

At least, however, insurance has better economics than does the airline industry, in which Berkshire invested some years ago (eventually, the convertible preferred paid off, but it was a bumpy flight). While insurance companies generate cash, airlines burn it — and when they've burned enough to go bankrupt, they're still allowed to stay in business (only now they don't have to pay their debts, which reduce their costs and allow them to undercut the pricing of solvent airlines). Mr Buffett has noted in the past that if an investor had been present at Kitty Hawk, he would have shot down the plane.

This year's letter marks the 50th anniversary of Mr Buffett's enrollment in the security analysis class taught by Benjamin Graham at Columbia University. "Quite simply," he writes, "a few hours spent at the feet of the master proved far more valuable to me than had ten years of supposedly original thinking."

It's a worthwhile lesson for all investors. In addition to "The Intelligent Investor" by Mr Graham, there is nothing better to be found on investing than Berkshire's annual letters, which are available at www.berkshirehathaway.com, free of charge. Forget Wall Street for awhile; Mr Buffett's neighborhood is a place where the future is embraced slowly and gracefully — and always sensibly.

Suggestion: Go to transcript of the last Berkshire Hathaway Annual Meeting