Chairman's Letter - 1983 - Deepstash
Chairman's Letter - 1983

Chairman's Letter - 1983

Curated from: berkshirehathaway.com

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13 ideas

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WARREN BUFFETT

A good business is not always a good purchase – although it’s a good place to look for one.

WARREN BUFFETT

4

95 reads

Accounting consequences do not influence our operating or

capital-allocation decisions. When acquisition costs are

similar, we much prefer to purchase $2 of earnings that is not

reportable by us under standard accounting principles than to

purchase $1 of earnings that is reportable.

WARREN BUFFETT

4

80 reads

In aggregate and over time, we expect the unreported earnings to be fully reflected in our intrinsic business value through capital gains.

WARREN BUFFETT

4

63 reads

We rarely use much debt and, when we do, we attempt to structure it on a long-term fixed rate basis. We will reject interesting opportunities rather than over-leverage our balance sheet. This conservatism has penalized our results but it is the only behavior that leaves us comfortable, considering our fiduciary obligations to policyholders, depositors, lenders and the many equity holders who have committed unusually large portions of their net worth to our care.

WARREN BUFFETT

5

42 reads

We will not diversify by purchasing entire businesses at control prices that ignore long-term economic consequences to our shareholders. We will only do with your money what we would do with our own, weighing fully the values you can obtain by diversifying your own portfolios through direct purchases in the stock market.

WARREN BUFFETT

4

33 reads

We feel noble intentions should be checked periodically

against results. We test the wisdom of retaining earnings by

assessing whether retention, over time, delivers shareholders at

least $1 of market value for each $1 retained.

WARREN BUFFETT

4

24 reads

...we react with great caution to suggestions that our poor businesses can be restored to satisfactory profitability by major capital expenditures. (The projections will be dazzling - the advocates will be sincere - but, in the end, major additional investment in a terrible industry usually is about as rewarding as struggling in quicksand.)

WARREN BUFFETT

4

22 reads

We will be candid in our reporting to you, emphasizing the

pluses and minuses important in appraising business value. Our

guideline is to tell you the business facts that we would want to

know if our positions were reversed. We owe you no less.

WARREN BUFFETT

4

22 reads

Despite our policy of candor, we will discuss our activities in marketable securities only to the extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are.

WARREN BUFFETT

4

20 reads

During 1983 our book value increased from $737.43 per share to $975.83 per share, or by 32%. We never take the one-year figure very seriously. After all, why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off? 

WARREN BUFFETT

5

21 reads

Instead, we recommend not less than a five-year test as a rough yardstick of economic performance. Red lights should start flashing if the five-year average annual gain falls much below the return on equity earned over the period by American industry in aggregate.

WARREN BUFFETT

4

17 reads

Book value is an accounting concept, recording the accumulated financial input from both contributed capital and retained earnings. Intrinsic business value is an economic concept, estimating future cash output discounted to present value. Book value tells you what has been put in; intrinsic business value estimates what can be taken out.

WARREN BUFFETT

4

15 reads

One of the ironies of the stock market is the emphasis on activity. Brokers, using terms such as “marketability” and “liquidity”, sing the praises of companies with high share turnover (those who cannot fill your pocket will confidently fill your ear). But investors should understand that what is good for the croupier is not good for the customer. A hyperactive stock market is the pickpocket of enterprise.

WARREN BUFFETT

4

13 reads

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