Berkshire’s cost-free float, while carried on its books as a liability, has proven to be one of its greatest assets. Berkshire first entered the insurance industry in 1967 with the acquisition of National Indemnity and National Fire and Marine Insurance Company. Berkshire’s presence in the insurance industry has grown enormously over the years, especially with the acquisition of GEICO at the beginning of 1996 and General Re in 1998. All of the letters in the book and the examples above were written by Warren E. Buffett and are copyrighted and reprinted with his permission. These letters may not be reproduced, copied, sold or otherwise distributed without the permission of Warren E. Buffett. The best book ever written on investing, it conveys many really important messages on the subject with ease.

One, great businesses have “no interest in having anyone take them over,” says Buffett. And conglomerates then have to focus on mediocre companies that often lack competitive strengths. Berkshire had paid a small premium upon acquisition to account for the company’s subjective advantage over other candy stores, but just a couple years later, that advantage had increased and made See’s an even more robust and profitable business. And this was an advantage that Buffett was beginning to see was inflation-proof. But it gives us full ownership of a growing enterprise whose business remains exceptional for precisely the same reasons that prevailed in 1951,” Buffett wrote in his 1995 letter.

During inflation, the conventional wisdom has been that businesses with lots of tangible capital resources were the best bets. With their factories and machinery, the thinking went, they could better weather the market impact of widespread lower purchasing power and higher costs. When Berkshire first acquired See’s, they paid a small multiple to account for the fact that See’s was able to earn 25% of net tangible assets after tax — an impressive rate of return for a candy business. A few years later, however, See’s was earning 65% of its net tangible assets after tax.

  • Buffett’s warning was a prescient one for retail investors who decided to take it.
  • During inflation, the conventional wisdom has been that businesses with lots of tangible capital resources were the best bets.
  • These years-long investments are vital to ensure that electricity, produced by wind and solar sources in remote areas, can reach densely populated areas in the western US.
  • OMAHA, Neb. — Charlie Munger, who helped Warren Buffett build Berkshire Hathaway into an investment powerhouse, has died at a California hospital.
  • Following this discussion, Buffett spends the majority of each letter detailing the operations of Berkshire’s subsidiary companies as well as the results of its major non-controlling investments.

One might expect a figure like Buffett — simple, no nonsense, and focused on intrinsic value — to balk at the energetic spending of capital on stock repurchases. Instead, he was delighted, especially by the idea that his 5% stake in the company might be able to grow to 6% or 7% simply because the company chose to buy back some of its stock. When the car was first invented, a naïve investor might have thought that virtually every automobile stock was guaranteed to succeed.

Charlie Munger, who helped Warren Buffett build investment powerhouse Berkshire Hathaway, dies at 99

In addition to providing an amazing case study on Berkshire’s success, Buffett shows an incredible willingness to share his methods and act as a mentor to his many students. This book compiles the full, un-edited versions of 50 years of Warren Buffett’s letters to the shareholders of Berkshire Hathaway. In addition to providing an astounding case study on Berkshire’s success, Buffett shows an incredible willingness to share his methods and act as a teacher to his many students. Board directors are regularly paid more than $250,000 a year for the work of attending “six or so” annual meetings.

After 50 letters to shareholders, the same share was sold for $226,000, compounding the investor’s capital for the year just under 21% – a multiple of 12,556 times. Warren E. Buffett first took control of Berkshire Hathaway Inc., a small textile company, in April of 1965. Fifty letters to shareholders later, the same share traded for $226,000, compounding investor capital at just under 21% per year-a multiplier of 12,556 times. All across the business world, from big, corporate boardrooms to the offices of venture capitalists, managers employ the use of debt to juice returns.

  • Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.
  • Across the world, companies shuttered their doors and investors lost thousands or even millions on their holdings.
  • Buffett is a strong believer in this kind of “eat what you kill” philosophy of executive compensation.
  • Above all, readers see the “Oracle of Omaha” at work each year, shaping an investing career that may not ever be replicated.
  • Buffett, however, went on a personal buying spree, even penning an impassioned New York Times op-ed titled “Buy American” about the billions he had spent buying up marked-down stock.

In an essay on the company’s past and future, Berkshire Hathaway Chairman Warren Buffett, 84, said the company is likely to keep growing, but not as rapidly as in the past. Buffett said Berkshire might pay its first dividend sometime in the next 10 or 20 years. What we must do is provide a concert hall in which business artists of this class will wish to perform,” he writes. The point of this breakdown is not to show off Berkshire’s decentralized structure, which offsets most operational costs to the businesses under the Berkshire umbrella, but to explain Berkshire’s culture of cost-consciousness.

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Rather than getting too caught up in the price or recent movement of a stock, Buffett says, buy from companies that make great products, that have strong competitive advantages, and that can provide you with consistent returns over the long term. Today, the “Oracle of Omaha” has a net worth of around $85B — making him the fourth wealthiest person in the United States after Jeff Bezos (another CEO known for his shareholder letters), Bill Gates, and Mark Zuckerberg. Berkshire Hathaway, Buffett’s firm, has the most expensive share price of any company in history, with each Class A share costing upwards of $330,000.

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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. Debt also forces shareholders into a Russian roulette equation, according to Buffett in his 2018 letter. And “a Russian roulette equation — usually win, occasionally die — may make financial sense for someone who gets a piece of a company’s upside but does not share in its downside.

Berkshire Hathaway’s (BRK.A -0.64%) (BRK.B -0.81%) legendary performance is undeniable. Since CEO Warren Buffett took over the failing textile business in 1965, the stock has returned investors 20% compounded annually — doubling the S&P 500’s average annual return in the same period. Munger and Buffett began buying Berkshire Hathaway shares in 1962 for $7 and $8 per share, and they took control of the textile firm in 1965. Readers gain a framework for how to view risk, markets, and investing, as well as an understanding of how truly great businesses should operate. Buffett makes it clear that investing is far from a science and that there is much more to being a successful investor than being the smartest person in the room.

Book Review of Berkshire Hathaway Letters to Shareholders by Warren Buffett

In 1973, the country was still in the grips of a stock market crash that had begun in January. That slow-motion crash created a two-year-long bear market — the Dow Jones began 1973 at 1020 and was at 616 by the end of 1974. Shares of Coca-Cola, one of Buffett’s major stocks, plummeted from $149.75 to $44.50. Across the board, companies whose fundamentals had not changed were dramatically, in Buffett’s estimation, underpriced. Conglomerates, once hailed by analysts, journalists, and bankers as business miracles, fall apart, and investors lose their money.

Each year, Warren Buffett writes an open letter to Berkshire Hathaway shareholders. Over the last 40 years, these letters have become an annual required read across the investing world, providing insight into how Buffett and his team think about everything from investment strategy to stock ownership to company culture, and more. Buffett discusses the reasons for a strong financial condition to offset the risk of the cyclical nature of the textile business and to provide capital to look for acquisitions within and without the textile field. Although he doesn’t mention the word moat, it’s clear Buffett doesn’t fancy the industry structure, basically perfect competition, within the textile industry and is looking for ways to diversify Berkshire.

Berkshire Hathaway Letters to Shareholders (PDF)

Regardless, Progressive has been an excellent long-term performer for investors, and even if Berkshire isn’t buying it, it can make an excellent addition to your portfolio today. This track record of success is why investors eagerly await Berkshire Hathaway’s quarterly form 13-F, a required filing by the Securities and Exchange Commission (SEC) that discloses institutional investors’ investing activity during the period. However, a sizeable chunk of that amount is in a mystery stock on which Berkshire has requested berkshire hathaway letters to shareholders confidential treatment. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on, top-rated podcasts, and non-profit The Motley Fool Foundation. But Buffett always credited Munger with pushing him beyond his early value investing strategies to buy great businesses at good prices like See’s Candy.

Together, they form a compendium of the beliefs and advice of the man widely regarded to be the greatest investor in history. Since 1965, the price of Berkshire’s Class A stock has increased by more than 2,800,000%. That’s compared to a roughly 23,000% increase in the overall gain of the S&P 500 over the same period. Berkshire Hathaway’s fundamental strategy has been to identify valuable companies and then acquire increasingly large portions of them.

Buffett Calls 2012 ‘subpar’ In Letter To Shareholders

Along the way, Buffett shares with his stockholders great insight into the reasoning behind every acquisition and major investment made and provides a highly detailed historical account of Berkshire Hathaway’s growth. More importantly, from time to time Buffett will share his views on a number of different topics ranging from market fluctuations to accounting for intangible assets. In 1965, Warren Buffett penned his first annual letter to the shareholders of Berkshire Hathaway.

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