The 2002 Letter to the Shareholders of Berkshire Hathaway was published on the Internet a couple of weeks ago, but I just got a chance to read it now. I urge every investor to study all of Buffett's Letters since they are full of wit, wisdom, clear-thinking, and straight-talking. Buffett is one of a kind, his investment record is astounding, and everyone should treasure the chance to examine his thoughts.

The whole Letter is only 22 pages long, and every word of it is worth reading closely, so I'm not going to excerpt from it at length. On the state of the stock market he writes: "We continue to do little in equities... we don't believe... shares are undervalued. Despite three years of falling prices... we still find very few that even mildly interest us. Unless... we see a very high probability of at least 10% pre-tax returns, we will sit on the sidelines... occasionally successful investing requires inactivity."

Buffett writes at length about the dangers of derivatives, and coins the amusing phrase "mark-to-myth" accounting. This section of the Letter was published in Fortune magazine and has been widely commented on.

What the popular press did not report on was Buffett's lengthy and scathing criticism of incompetent directors and "greedy managers" in the section on Corporate Governance starting on page 16. Buffett writes: "[Most] directors simply [do] not know enough about business and/or care about shareholders to question foolish acquisitions or egregious compensation."

And later on he writes: "CEOs have often amassed riches while their shareholders have experienced financial disasters. Directors should stop such piracy." It's no surprise that Fortune magazine, an AOL/Time Warner property, did not choose to publish that section of the Letter for popular consumption.

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