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

Buffett Shareholder Letters - 1991 Letter

17 pages, 18 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 1991 was $2.1 billion, or 39.6%. Over the last 27 years (that is, since present management took over) our per-share book value has grown from $19 to $6,437, or at a rate of 23.7% compounded annually. The size of our equity capital - which now totals $7.4 billion - makes it certain that we cannot maintain our past rate of gain or, for that matter, come close to doing so. As Berkshire grows, the universe of opportunities that can significantly influence the company's performance constantly shrinks. When we were working with capital of $20 million, an idea or business producing $1 million of profit added five percentage points to our return for the year. Now we need a $370 million idea (i.e., one contributing over $550 million of pre-tax profit) to achieve the same result. And there are many more ways to make $1 million than to make $370 million. Charlie Munger, Berkshire's Vice Chairman, and I have set a goal of attaining a 15% average annual increase in Berkshire's intrinsic value. If our growth in book value is to keep up with a 15% pace, we must earn $22 billion during the next decade. Wish us luck - we'll need it. Our outsized gain in book value in 1991 resulted from a phenomenon not apt to be repeated: a dramatic rise in the priceearnings ratios of Coca-Cola and Gillette. These two stocks accounted for nearly $1.6 billion of our $2.1 billion growth in net worth last year. When we loaded up on Coke three years ago, Berkshire's net worth was $3.4 billion; now our Coke stock alone is worth more than that. Coca-Cola and Gillette are two of the best companies in the world and we expect their earnings to grow at hefty rates in the years ahead. Over time, also, the value of our holdings in these stocks should grow in rough proportion. Last year, however, the valuations of these two companies rose far faster than their earnings. In effect, we got a double-dip benefit, delivered partly by the excellent earnings growth and even more so by the market's reappraisal of these stocks. We believe this reappraisal was warranted. But it can't recur annually: We'll have to settle for a single dip in the future. A Second Job In 1989 when I - a happy consumer of five cans of Cherry Coke daily - announced our purchase of $1 billion worth of CocaCola stock, I described the move as a rather extreme example of putting our money where my mouth was. On August 18 of last year, when I was elected Interim Chairman of Salomon Inc, it was a different story: I put my mouth where our money was. You've all read of the events that led to my appointment. My decision to take the job carried with it an implicit but important message: Berkshire's operating managers are so outstanding that I knew I could materially reduce the time I was spending at the company and yet remain confident that its economic progress would not skip a beat. The Blumkins, the Friedman family, Mike Goldberg, the Heldmans, Chuck Huggins, Stan Lipsey, Ralph Schey and Frank Rooney (CEO of H.H. Brown, our latest acquisition, which I will describe later) are all masters of their operations and need no help from me. My job is merely to treat them right and to allocate the capital they generate.

Related ResPapers
Buffett Shareholder Letters - 2011 Letter
by buffett_letters

Buffett Shareholder Letters - 1985 Letter
by buffett_letters

Buffett Shareholder Letters - 2004 Letter
by buffett_letters

Buffett Shareholder Letters - 1996 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: