Chairman's Letter - 1985 - Deepstash
Chairman's Letter - 1985

Chairman's Letter - 1985

Curated from: berkshirehathaway.com

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Our gain in net worth during the year was $613.6 million, or 48.2%. It is fitting that the visit of Halley’s Comet coincided with this percentage gain: neither will be seen again in my lifetime.

WARREN BUFFETT

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Some investors weight book value heavily in their stock-buying decisions. And some economists and academicians believe replacement values are of considerable importance in calculating an appropriate price level for the stock market as a whole. Both persuasions would have received an education at the auction we held in early 1986 to dispose of our textile machinery.

The equipment sold took up about 750,000 square feet of factory space. It originally cost us about $13 million, including $2 million spent in 1980-84, and had a current book value of $866,000 (after accelerated depreciation). 

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Gross proceeds from our sale of this equipment came to $163,122. Allowing for sale costs, our net was less than zero. Relatively modern looms that we bought for $5,000 apiece in 1981 found no takers at $50. We finally sold them for scrap at $26 each, a sum less than removal costs.

Ponder this: the economic goodwill attributable to two paper routes in Buffalo - or a single See’s candy store - considerably exceeds the proceeds we received from this massive collection of tangible assets that not too many years ago, under different competitive conditions, was able to employ over 1,000 people.

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While an increase in earnings from $8 million to $72 million sounds terrific - and usually is - you should not automatically assume that to be the case. You must first make sure that earnings were not severely depressed in the base year. If they were instead substantial in relation to capital employed, an even more important point must be examined: how much additional capital was required to produce the additional earnings?

WARREN BUFFETT

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My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad).

WARREN BUFFETT

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institutions were then under the spell of academics at prestigious business schools who were preaching a newly-fashioned theory: the stock market was totally efficient, and therefore calculations of business value - and even thought, itself - were of no importance in investment activities. (We are enormously indebted to those academics: what could be more advantageous in an intellectual contest - whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?)

WARREN BUFFETT

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