Warren Buffett's annual 2007 letter

Here is the link to Warren Buffett's annual report letter to Berkshire Hathaway shareholders.

http://www.berkshirehathaway.com/letters/2007ltr.pdf

Interesting reading and find the answer to the following riddle:

Via CNBC.com, "Warren Asks: What do you think the Dow Jones Industrial Average will be on December 31, 2099"

100,000
1 million
10 million
100 million

And...

"the answer will be in the Berkshire Hathaway annual report...sort of..."

 

A great quote from the report:

'During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually. An investor who owned the Dow throughout the century would also have received generous dividends for much of the period, but only about 2% or so in the final years. It was a wonderful century.

Think now about this century. For investors to merely match that 5.3% market-value gain, the Dow – recently below 13,000 – would need to close at about 2,000,000 on December 31, 2099. We are now eight years into this century, and we have racked up less than 2,000 of the 1,988,000 Dow points the market needed to travel in this hundred years to equal the 5.3% of the last.'

ML

 

What was the most interesting for me were the derivative contracts BH were writing, if I remember correctly they were puts on the S&P for 20 years out, essentially if the index is higher then than now they expire worthless as I understood.

I'm trying to work out who would be on the other end of those things? Sort of wonder about the scenario that would have you winning on that bet and still able to collect on it

 

http://www.invested.com.au/56216-post118.html

Am I right in thinking that at 8% Growth and even at low levels of say 5,400 today for AXJO (S&P ASX 200) then in twenty years (2028) it should be 25,169.17