(May 4, 2002) Eight months after September 11, 2001, Buffett explains how Berkshire and other insurers have begun to protect themselves financially from catastrophic terrorist attacks that could destroy the industry. He also has advice on how to pick friends and business partners, reveals how to stay in your "circle of competence," and answers a very young shareholder who wants to know if he has on underwear from newly-acquired Fruit of the Loom.
Berkshire's per-share book value dropped 6.2 percent in 2001, but the S&P 500 did even worse, falling 11.9 percent. In his annual letter, Buffett took some of the blame for letting General Re compete on price by selling insurance policies that didn't account for the small possibility of large-scale terrorism losses. Claims after the 9/11 attacks revealed the magnitude of the error, and Buffett promised to keep control of Berkshire's total exposure from then on, "no matter what the competition does."READ 2001 LETTER (DATED FEB. 28, 2002)