
	Trending ▼ ICSE CBSE 10th ISC CBSE 12th CTET GATE UGC NET Vestibulares ResFinder

Buffett Shareholder Letters - 1988 Letter

22 pages, 23 questions, 0 questions with responses, 0 total responses,

	Buffett Letters	+Fave Message
	Profile Timeline Uploads

Home > buffett_letters >

Formatting page ...

BERKSHIRE HATHAWAY INC. To the Shareholders of Berkshire Hathaway Inc.: Our gain in net worth during 1988 was $569 million, or 20.0%. Over the last 24 years (that is, since present management took over), our per-share book value has grown from $19.46 to $2,974.52, or at a rate of 23.0% compounded annually. We ? ve emphasized in past reports that what counts, however, is intrinsic business value - the figure, necessarily an estimate, indicating what all of our constituent businesses are worth. By our calculations, Berkshire ? s intrinsic business value significantly exceeds its book value. Over the 24 years, business value has grown somewhat faster than book value; in 1988, however, book value grew the faster, by a bit. Berkshire ? s past rates of gain in both book value and business value were achieved under circumstances far different from those that now exist. Anyone ignoring these differences makes the same mistake that a baseball manager would were he to judge the future prospects of a 42-year-old center fielder on the basis of his lifetime batting average. Important negatives affecting our prospects today are: (1) a less attractive stock market than generally existed over the past 24 years; (2) higher corporate tax rates on most forms of investment income; (3) a far more richly-priced market for the acquisition of businesses; and (4) industry conditions for Capital Cities/ABC, Inc., GEICO Corporation, and The Washington Post Company - Berkshire ? s three permanent investments, constituting about one-half of our net worth - that range from slightly to materially less favorable than those existing five to ten years ago. All of these companies have superb management and strong properties. But, at current prices, their upside potential looks considerably less exciting to us today than it did some years ago. The major problem we face, however, is a growing capital base. You ? ve heard that from us before, but this problem, like age, grows in significance each year. (And also, just as with age, it ? s better to have this problem continue to grow rather than to have it ? solved.?) Four years ago I told you that we needed profits of $3.9 billion to achieve a 15% annual return over the decade then ahead. Today, for the next decade, a 15% return demands profits of $10.3 billion. That seems like a very big number to me and to Charlie Munger, Berkshire ? s Vice Chairman and my partner. (Should that number indeed prove too big, Charlie will find himself, in future reports, retrospectively identified as the senior partner.) As a partial offset to the drag that our growing capital base exerts upon returns, we have a very important advantage now that we lacked 24 years ago. Then, all our capital was tied up in a textile business with inescapably poor economic characteristics. Today part of our capital is invested in some really exceptional businesses. Last year we dubbed these operations the Sainted Seven: Buffalo News, Fechheimer, Kirby, Nebraska Furniture Mart, Scott Fetzer Manufacturing Group, See ? s, and World Book. In 1988 the Saints came marching in. You can see just how extraordinary their returns on capital were by examining the historical-cost financial statements on page 45, which combine the figures of the

Related ResPapers
Buffett Shareholder Letters - 2015 Letter
by buffett_letters

Buffett Shareholder Letters - 1992 Letter
by buffett_letters

Buffett Shareholder Letters - 2008 Letter
by buffett_letters

Buffett Shareholder Letters - 2011 Letter
by buffett_letters

Formatting page ...

Tags : Finance, investment help, value investing, stock market, s&p 500, dow jones

buffett_letters chat

Horizontal lines at:
Guest Horizontal lines at:
AutoRM Data:
Box geometries: