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Berkshire Hathaway Letters to Shareholders PDF @ PDF Room

It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone,” he wrote in 2014. Ultimately, Buffett’s distaste for cheap companies and their problems means that while some investors argue the merits of taking large positions in companies, Buffett and Berkshire Hathaway are comfortable taking relatively small positions in more expensive firms. Buffett’s long-standing belief is that companies that run high-margin operations, require minimal assets, and can expand sales volume with little-to-no extra capital yield the best results. When the car was first invented, a naïve investor might have thought that virtually every automobile stock was guaranteed to succeed. Over 2019, the value of Berkshire Hathaway’s “share” of earnings from those companies — including Apple, Coca-Cola, and American Express — amounted to more than $8.3B. Among those top 10 Berkshire Hathaway companies, the amount of earnings that are retained and reinvested is more than double the size of the earnings being paid out as dividends.

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes,” he wrote in his 1996 letter. At AOL, where shareholders had lost a total of 54.1%, CEO Steve Case came out with compensation totaling $164M. Again and again, at companies like Citigroup, Tyco, CMGI and others, CEOs made hundreds of millions while their shareholders faced heavy losses. H. Brown Shoe Company, at the time the leading manufacturer of work shoes in North America. In his shareholder letter that year, Buffett talked about a few of the reasons why. Berkshire Hathaway’s portfolio is also full of more obscure successes too, like See’s Candy, which Buffett calls his “dream business.” Buffett bought See’s Candy for $25M in 1972, and by 2019, it had brought in “well over” $2B — a nearly 8,000x return.

Stock Ideas, Trading Analysis and Investing Insight

Too often, for Buffett, executive compensation plans impotently reward managers for nothing more than their firm’s earnings increasing or a stock price rising — outcomes for which the conditions were often created by a previous manager. Each manager, in other words, received a portion of the company’s profits minus the amount that they spent, in terms of capital, to generate those profits. H. Brown had to “stand in the shoes of owners” and truly weigh whether the cost of a project was worth the potential results. He mocks himself for making mistakes, and sings the praises of Berkshire’s army of CEO-managers.

  • Munger gave an extended interview to CNBC earlier this month in preparation for his 100th birthday, and the business network showed clips from that Tuesday.
  • Effectively, some retained earnings are worth more than 100 cents on the dollar, while some are worth considerably less.
  • If investors can do that, they’ll naturally tend to go in the opposite direction of the herd — to “be fearful when others are greedy and greedy only when others are fearful,” as he wrote in 2004.
  • The approach of the more mature Buffett is to never invest in a company that can be a success if held for a short period of time.
  • Berkshire’s net earnings don’t include non-recurring losses on the disposal of assets due to permanent plant closures, which have been charged against a reserve previously set up for that purpose.

In this chapter, Graham characterizes the market as a manic-depressive who comes each day to offer prices at which he will buy from and sell to the investor, whichever one the investor chooses. On some days, Mr. Market will offer obscenely low prices to the investor and on others Mr. Market will offer him inexplicably high prices. Additionally, Berkshire owns over fifty non-insurance subsidiaries in a wide variety of industries including furniture, jewelry, bricks, and many more. Berkshire has a policy of acquiring companies and leaving the existing management in place, which allows Berkshire to be the “destination of choice” for owners who do not wish to see their company levered up and sold for a profit. Along the way, Buffett allows his shareholders tremendous insight not only into the internal affairs of Berkshire, but also into his thoughts on a vast array of material, ranging from corporate governance to dividend policy.

Back in California, he cofounded the law firm Munger, Tolles & Olson in 1962, where he worked as a real estate attorney.

In his mind, the best directors are those who have their interests best aligned with shareholders. In fact, being a major, long-term shareholder is one of the primary qualities that Buffett takes into account when searching for directors. Over these same 63 years, the average market return was just under 10%, including dividends. Over this period, an average market return would have grown a $1,000 investment to $405,000 if all income had been reinvested. The 20% average return produced by Buffett over this period would have grown a $1,000 original investment to $97 million.

Raising debt is like playing Russian roulette

Buffett only contemplates issuing additional shares of stock as part of an acquisition (and even in this instance, only grudgingly). In this event, the key question to Buffett is whether he can receive as much intrinsic business value as he gives. He views a stock-for-stock transaction to be a case in which both companies are making a partial sale of themselves. However, many managers follow a rigid dividend policy in which they can be forced to distribute earnings that could be reinvested at a high rate of return or retain earnings that should be distributed because they cannot be reinvested at a high enough rate of return. As a long term investor, the durability of a competitive advantage is a key concern to Buffett.

“Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” Buffett said in a statement. The famous investor also devoted part of his annual letter to Berkshire shareholders earlier this year to a tribute to Munger. He discusses this question both because Berkshire itself for the first time implemented a share buyback program in 2011, and because during 2011 Berkshire invested $11 billion  in IBM, which is in the midst of an aggressive buy back program. Buffett explained that the Berkshire’s buyback program is not intended to support the share price, but is merely a mechanism to take advantage of opportunities when the market has priced the shares below its intrinsic value.


It has been claimed by many that you will learn more from reading these letters than getting an MBA. These are his true words; “lesson plan” of his views on business and investment. You can find most of the fonts for free on Berkshire’s website, but this one compiles them into a well-designed, easy-to-read format. Much of Berkshire’s early success came down to the intelligent use of leverage on relatively cheap stocks, as a 2013 study from AQR Capital Management and Copenhagen Business School showed.

Comparatively, an $18 investment in the S&P 500 in 1965 would have compounded at an annual rate of 9.4% and been worth $1,343 in 2012. Readers of these letters are provided with an invaluable understanding of how to view markets and companies, which is exceedingly beneficial for passive investors and professionals alike. In 1965, Warren Buffett penned his first annual letter to the shareholders of Berkshire Hathaway. The letter was one page long and dealt with topics that included liquidating the assets of one textile mill and changes in Berkshire’s inventory. In 2012, forty-eight years later, Buffett discusses his 50% purchase of a holding company that will own 100% of H.J. Heinz, paying $4 billion for common stock and another $8 billion for additional preferred shares.

The letter contains numerous insights into the U.S. economy and the financial marketplace. Buffett’s letter also reflects his well-known penchant for homespun humor and telling anecdote, although in smaller rations than in years past. Buffett is a strong advocate of buying and holding equities for long periods of time, with minimal levels of activity (especially selling). In his 1983 letter, he states his distaste for highly active investing, saying, “One of the ironies of the stock market is the emphasis on activity. In his letters, Buffett often speaks of how investors should respond to fluctuations in market prices.

Getting the book version really allows you to study the Berkshire Hathaway Annual Shareholder Letters. Having the letters in front of you in print is much better than skimming them in PDF format on a screen. Plus, it really does make sense to start at the beginning and get the whole narrative. So, we can see, even at the very start of Buffett’s involvement with Berkshire Hathaway, he has a keen eye on industry dynamics and profitability, liquidity and capital allocation. Buffett noted that working capital on a per share basis had grown to $22.76 from $14.41 six years prior. Then he went on to earn a law degree from Harvard University in 1948 even though he hadn’t finished an undergraduate degree.

Warren Buffett’s Berkshire Hathaway Letters to Shareholders is exactly what it sounds like – a book compiled of all the shareholder letters Warren Buffet has written, since he took the helm at Berkshire Hathaway (then a small textile company) in 1965. Investor Whitney Tilson has attended the past 26 years of Berkshire Hathaway annual meetings for the chance to learn from Munger and Buffett, who doled out life lessons along with investing tips. Tilson said Munger advised that after achieving some success “your whole approach to life should be how not to screw it up, how not berkshire hathaway letters to shareholders to lose what you’ve got” because reputation and integrity are the most valuable assets, and both can be lost in a heartbeat. As a result of a number of acquisitions in recent years, Berkshire is also now a holding company of huge industrial operations. A large part of the letter is devoted to discussing the company’s five largest non-insurance operations (BNSF, Lubrizol, Marmon Group, Iscar and Mid American Energy), only one of which Berkshire has held for more than five years. In the aggregate these five companies had full-year pre-tax earnings of more than $9 billion.

Munger had been using a wheelchair to get around for several years but he had remained mentally sharp. That was on display while he fielded hours of questions at the annual meetings of Berkshire and the Daily Journal Corp. earlier this year, and in recent interviews on an investing podcast and also with The Wall Street Journal and CNBC. He employed a variety of different models borrowed from disciplines like psychology, physics and mathematics to evaluate potential investments.

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