"Though the company's financial statements were unaudited, I had no worries. Mrs. B simply told me what was what, and her word was good enough for me," Buffett said. "Mrs. B was 89 at the time and worked until 103 -- definitely my kind of woman."

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Pension Problems

Buffett predicts that many cities and states will experience financial problems in the years ahead because they promised too much in their pension plans.

"Citizens and public officials typically underappreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans." He added that investment policies play an important role in these problems as well.

Buffett has been predicting pension problems since 1975, when he wrote a memo to the Washington Post's publisher after Berkshire invested in that newspaper.

"During the next decade, you will read a lot of news -- bad news -- about public pension plans."

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Buffett's Record

When reviewing the performance of Berkshire's manufacturing, service and retail businesses, Buffett acknowledged making mistakes in the past. Buffett said some of Berkshire's businesses deliver very poor returns.

"I was not misled: I simply was wrong in my evaluation of the economic dynamics of the company or the industry in which it operated," he said.

"Fortunately, my blunders usually involved relatively small acquisitions. Our large buys have generally worked out well and, in a few cases, more than well. I have not, however, made my last mistake in purchasing either businesses or stocks. Not everything works out as planned."

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