In my opinion, most of the time, the demand for the B will be such that it will trade at about 1/30th of the price of the A. However, from time to time, a different supply-demand situation will prevail and the B will sell at some discount. In my opinion, again, when the B is at a discount of more than say, 2%, it offers a better buy than the A. When the two are at parity, however, anyone wishing to buy 30 or more B should consider buying A instead.
Has Mr. Buffett Explained His plan for succession at Berkshire Hathaway?
"On my death, Berkshire's ownership picture will change but not in a disruptive way: Owner's Manual [CTRL-F] Key Word: Picture)
Does LOU SIMPSON (President And CEO Of Capital Operations For GEICO) Have An Investment Philosophy That Is Similar To Warren Buffett's?
"In the selection of common stocks, we continue to be guided by the same five criteria that we detailed in our 1986 Annual Report:
* Think independently
* Invest in high-return businesses run for the shareholders
* Pay only a reasonable price, even for an excellent business
* Invest for the long term
* Do not diversify excessively"
(Source: Lou Simpson - GEICO's 1994 Annual Report)
Where Can I Find Charlie Munger’s Wesco Financial Shareholder Letters?
Why Doesn’t Berkshire Split It’s Stock?
We often are asked why Berkshire does not split its stock. The assumption behind this question usually appears to be that a split would be a pro-shareholder action. We disagree. Let me tell you why. (1983 Chairman’s Letter [CTRL-F] Key Word: Split)
Our shareholders think and behave like rational long-term owners and view the business much as Charlie and I do. (1992 Chairman’s Letter [CTRL-F] Key Word: No-Split)
Why Doesn’t Berkshire Repurchase Shares?
Recently, a number of shareholders have suggested to us that Berkshire repurchase its shares. Usually the requests were rationally based, but a few leaned on spurious logic.
There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the company has available funds -- cash plus sensible borrowing capacity -- beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively-calculated. To this we add a caveat: Shareholders should have been supplied all the information they need for estimating that value. Otherwise, insiders could take advantage of their uninformed partners and buy out their interests at a fraction of true worth. (1999 Chairman’s Letter [CTRL-F] Key Word: Repurchases)
You should be aware that, at certain times in the past, I have erred in not making repurchases. (1999 Chairman’s Letter [CTRL-F] Key Word: Appraisal )
Recently, when the A shares fell below $45,000, we considered making repurchases. We decided, however, to delay buying, if indeed we elect to do any, until shareholders have had the chance to review this report. (1999 Chairman’s Letter [CTRL-F] Key Word: Milard)
Dividend Policy
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. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely." (Owner’s Manual [CTRL-F] Key Word: Wisdom)
Dividend policy is often reported to shareholders, but seldom explained. A company will say something like, “Our goal is to pay out 40% to 50% of earnings and to increase dividends at a rate at least equal to the rise in the CPI”. And that’s it - no analysis will be supplied as to why that particular policy is best for the owners of the business. Yet, allocation of capital is crucial to business and investment management. Because it is, we believe managers and owners should think hard about the circumstances under which earnings should be retained and under which they should be distributed. (1984 Chairman’s Letter [CTRL-F] Key Word: CPI)
When returns on capital are ordinary, an earn-more-by-putting-up-more record is no great managerial achievement. (1985 Chairman’s Letter [CTRL-F] Key Word: Earn-more)
Berkshire has not declared a cash dividend since 1967.
Why Did Berkshire Offer The “B” Shares?
At the Annual Meeting you will be asked to approve a recapitalization of Berkshire, creating two classes of stock. If the plan is adopted, our existing common stock will be designated as Class A Common Stock and a new Class B Common Stock will be authorized. (1995 Chairman’s Letter [CTRL-F] Key Word: Class B)
At The Time The “B” Shares Were Offered, Did Warren Buffett Say That Berkshire Was Overvalued?
In last year's letter, with Berkshire shares selling at $36,000, I told you: (1) Berkshire's gain in market value in recent years had outstripped its gain in intrinsic value, even though the latter gain had been highly satisfactory; (2) that kind of overperformance could not continue indefinitely; (3) Charlie and I did not at that moment consider Berkshire to be undervalued. (1996 Chairman’s Letter [CTRL-F] Key Word: 36,000)
Does Warren Buffett Ever Comment On Berkshire’s Intrinsic Value?
Let's start with intrinsic value, an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life. (Owner’s Manual [CTRL-F] Key Word: Logical)
We need to mention one further item in the investment equation that could affect recent purchasers of our stock. Historically, Berkshire shares have sold modestly below intrinsic business value. With the price there, purchasers could be certain (as long as they did not experience a widening of this discount) that their personal investment experience would at least equal the financial experience of the business. But recently the discount has disappeared, and occasionally a modest premium has prevailed. (1985 Chairman’s Letter [CTRL-F] Key Word: Historically)
An interesting accounting irony overlays a comparison of the reported financial results of our controlled companies with those of the permanent minority holdings listed above. As you can see, those three stocks have a market value of over $2 billion. Yet they produced only $11 million in reported after-tax earnings for Berkshire in 1987. (1987 Chairman’s Letter [CTRL-F] Key Word: Overlays)
In last year's letter, with Berkshire shares selling at $36,000, I told you: (1) Berkshire's gain in market value in recent years had outstripped its gain in intrinsic value, even though the latter gain had been highly satisfactory; (2) that kind of overperformance could not continue indefinitely; (3) Charlie and I did not at that moment consider Berkshire to be undervalued. (1996 Chairman's Letter [CTRL-F] Key Word: 36,000)
Buffett: I don't think you can go from year to year and trace intrinsic value precisely by tracing changes in book value. We use changes in book value as a very rough guide as to movement [in intrinsic value]. And there have been certain annual reports where I've said that our intrinsic value has moved more than the proportional move in book value and others where I've said I thought it was roughly the same.
So I don't think you can stick some multiplier on it and come up with a precise number. However, I do think that it's a guide to movement in value. (1996 Annual Meeting)
In our last four reports, we have furnished you a table that we regard as useful in estimating Berkshire's intrinsic value. In the updated version of that table, which follows, we trace two key components of value. (1999 Chairman’s Letter [CTRL-F] Key Word: Guides)
Recently, when the A shares fell below $45,000, we considered making repurchases. We decided, however, to delay buying, if indeed we elect to do any, until shareholders have had the chance to review this report. (1999 Chairman’s Letter [CTRL-F] Key Word: Milard)
Coca-Cola & Gillette Purchase
This Coca-Cola investment provides yet another example of the incredible speed with which your Chairman responds to investment opportunities, no matter how obscure or well-disguised they may be. (1989 Chairman’s Letter [CTRL-F] Key Word: 1935)
GEICO Purchase
I've had a 45-year association with GEICO, and though the story has been told before, it's worth a short recap here. (1995 Chairman’s Letter [CTRL-F] Key Word: 45-Year)
General Re Purchase
On December 21, we completed our $22 billion acquisition of General Re Corp. (1998 Chairman’s Letter [CTRL-F] Key Word: December 21)
Mistakes of the First Twenty-five Years (A Condensed Version)
(1989 Chairman’s Letter [CTRL-F] Key Word: Mistakes)
Mistake De Jour (Omission, rather than the Commission)
In the 1989 annual report I wrote about "Mistakes of the First 25 Years" and promised you an update in 2015. (1991 Chairman’s Letter [CTRL-F] Key Word: Du Jour)
Does Berkshire Have A Policy Concerning The Issuance Of Common Stock?
We will issue common stock only when we receive as much in business value as we give. This rule applies to all forms of issuance not only mergers or public stock offerings, but stock-for-debt swaps, stock options, and convertible securities as well. We will not sell small portions of your company and that is what the issuance of shares amounts to on a basis inconsistent with the value of the entire enterprise. (Owner's Manual [CTRL-F] Key Word: Rule)
We have a firm policy about issuing shares of Berkshire, doing so only when we receive as much value as we give. Equal value, however, has not been easy to obtain, since we have always valued our shares highly. So be it: We wish to increase Berkshire's size only when doing that also increases the wealth of its owners. (1992 Chairman’s Letter [CTRL-F] Key Word: Equal)
How Does Berkshire Attract The “Right” Type Investor?
In some ways, our shareholder group is a rather unusual one, and this affects our manner of reporting to you. For example, at the end of each year about 98% of the shares outstanding are held by people who also were shareholders at the beginning of the year. Therefore, in our annual report we build upon what we have told you in previous years instead of restating a lot of material. You get more useful information this way, and we don’t get bored. (1979 Chairman’s Letter [CTRL-F] Key Word: 98%)
In two respects our goals probably differ somewhat from those of most listed companies. First, we do not want to maximize the price at which Berkshire shares trade. We wish instead for them to trade in a narrow range centered at intrinsic business value (which we hope increases at a reasonable - or, better yet, unreasonable - rate). Charlie and I are bothered as much by significant overvaluation as significant undervaluation. Both extremes will inevitably produce results for many shareholders that will differ sharply from Berkshire’s business results. If our stock price instead consistently mirrors business value, each of our shareholders will receive an investment result that roughly parallels the business results of Berkshire during his holding period. (1988 Chairman’s Letter [CTRL-F] Key Word: Goals)
Our shareholders think and behave like rational long-term owners and view the business much as Charlie and I do. (1992 Chairman’s Letter [CTRL-F] Key Word: No-Split)
Can I expect Berkshire To Achieve Smooth Earnings Growth?
We will continue to experience considerable volatility in our annual results. That's assured by the general volatility of the stock market, by the concentration of our equity holdings in just a few companies, and by certain business decisions we have made, most especially our move to commit large resources to super-catastrophe insurance. We not only accept this volatility but welcome it: A tolerance for short-term swings improves our long-term prospects. In baseball lingo, our performance yardstick is slugging percentage, not batting average. (1992 Chairman’s Letter [CTRL-F] Key Word: Volatility)
Does Berkshire provide earnings guidance?
"At Berkshire, we have no investor relations department and don't use financial analysts as a channel for disseminating information, earnings "guidance," or the like. Instead, we prefer direct manager-to-owner communication and believe that the Annual Meeting is the ideal place for this interchange of ideas. Talking to you there is efficient for us and also democratic in that all present simultaneously hear what we have to say." (1995 Chairman's Letter [CTRL-F] Key Word: Guidance)
"At Berkshire, we regard the holder of one share of B stock as the equal of our large institutional investors. We, of course, warmly welcome institutions as owners and have gained a number of them through the General Re merger. We hope also that these new holders find that our owner's manual and annual reports offer them more insights and information about Berkshire than they garner about other companies from the investor relations departments that these corporations typically maintain. But if it is "earnings guidance" or the like that shareholders or analysts seek, we will simply guide them to our public documents." (1998 Chairman's Letter [CTRL-F] Key Word: Guidance)
"In all of our communications, we try to make sure that no single shareholder gets an edge: We do not follow the usual practice of giving earnings "guidance" or other information of value to analysts or large shareholders. Our goal is to have all of our owners updated at the same time." (Owner's Manual [CTRL-F] Key Word: Guidance)
Charlie and I think it is both deceptive and dangerous for CEOs to predict growth rates for their companies. They are, of course, frequently egged on to do so by both analysts and their own investor relations departments. They should resist, however, because too often these predictions lead to trouble.
It's fine for a CEO to have his own internal goals and, in our view, it's even appropriate for the CEO to publicly express some hopes about the future, if these expectations are accompanied by sensible caveats. But for a major corporation to predict that its per-share earnings will grow over the long term at, say, 15% annually is to court trouble.
That's true because a growth rate of that magnitude can only be maintained by a very small percentage of large businesses. Here's a test: Examine the record of, say, the 200 highest earning companies from 1970 or 1980 and tabulate how many have increased per-share earnings by 15% annually since those dates. You will find that only a handful have. I would wager you a very significant sum that fewer than 10 of the 200 most profitable companies in 2000 will attain 15% annual growth in earnings-per-share over the next 20 years.
The problem arising from lofty predictions is not just that they spread unwarranted optimism. Even more troublesome is the fact that they corrode CEO behavior. Over the years, Charlie and I have observed many instances in which CEOs engaged in uneconomic operating maneuvers so that they could meet earnings targets they had announced. Worse still, after exhausting all that operating acrobatics would do, they sometimes played a wide variety of accounting games to "make the numbers." These accounting shenanigans have a way of snowballing: Once a company moves earnings from one period to another, operating shortfalls that occur thereafter require it to engage in further accounting maneuvers that must be even more "heroic." These can turn fudging into fraud. (More money, it has been noted, has been stolen with the point of a pen than at the point of a gun.)
"Charlie and I tend to be leery of companies run by CEOs who woo investors with fancy predictions. A few of these managers will prove prophetic - but others will turn out to be congenital optimists, or even charlatans. Unfortunately, it's not easy for investors to know in advance which species they are dealing with." (2000 Chairman' Letter [CTRL-F] Key Word: Soapbox)
Berkshire Versus The S&P?
Despite our poor showing last year, Charlie Munger, Berkshire's Vice Chairman and my partner, and I expect that the gain in Berkshire's intrinsic value over the next decade will modestly exceed the gain from owning the S&P. (1999 Chairman’s Letter [CTRL-F] Key Word: Despite)
What Is Berkshire's Corporate Performance Versus The S&P 500?
Is Berkshire Hathaway a mutual fund?
Berkshire Hathaway is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these is the property and casualty insurance business conducted on both a direct and reinsurance basis through a number of subsidiaries. (1997 Berkshire Hathaway Annual Report, inside front cover)
What Is Berkshire’s “Acquisition Criteria”?
We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:
Our share issuances follow a simple basic rule: we will not issue shares unless we receive as much intrinsic business value as we give. Such a policy might seem axiomatic. Why, you might ask, would anyone issue dollar bills in exchange for fifty-cent pieces? Unfortunately, many corporate managers have been willing to do just that. (1982 Chairman’s Letter [CTRL-F] Key Word: Axiomatic)
I've mentioned that we strongly prefer to use cash rather than Berkshire stock in acquisitions. A study of the record will tell you why: If you aggregate all of our stock-only mergers (excluding those we did with two affiliated companies, Diversified Retailing and Blue Chip Stamps), you will find that our shareholders are slightly worse off than they would have been had I not done the transactions. Though it hurts me to say it, when I've issued stock, I've cost you money.
Be clear about one thing: This cost has not occurred because we were misled in any way by sellers or because they thereafter failed to manage with diligence and skill. On the contrary, the sellers were completely candid when we were negotiating our deals and have been energetic and effective ever since.
Instead, our problem has been that we own a truly marvelous collection of businesses, which means that trading away a portion of them for something new almost never makes sense. When we issue shares in a merger, we reduce your ownership in all of our businesses -- partly-owned companies such as Coca-Cola, Gillette and American Express, and all of our terrific operating companies as well. An example from sports will illustrate the difficulty we face: For a baseball team, acquiring a player who can be expected to bat .350 is almost always a wonderful event -- except when the team must trade a .380 hitter to make the deal. (1997 Chairman’s Letter [CTRL-F] Key Word: Confession)
Some Thoughts on Selling Your Business
This is an edited version of a letter I sent some years ago to a man who had indicated that he might want to sell his family business. (1990 Chairman's Letter [CTRL-F] Key Word: Dear)
Where Can I Find A List Of Berkshire’s Subsidiary Companies?
Can I Get A Hard Copy Of The Chairman’s Letter From Previous Years?
A three volume set of compilations of letters (1977 through 1999) is available upon written request accompanied by a payment of $35.00 to cover production, postage and handling costs. Requests should be submitted to the Company at 3555 Farnam St., Suite 1440, Omaha, NE 68131.
Where Can I Find Berkshire’s “Owner-Related Business Principles”? (Owner’s Manual)
When Is The Scheduled Release Date For The Next Quarterly Report?
Letters from Annual Reports (1977 through 2000), quarterly reports, press releases and other information about Berkshire may be obtained on the Internet at Berkshirehathaway.com. Berkshire's 2001 quarterly reports are scheduled to be posted on the Internet on May 12, August 11 and November 10. Berkshire's 2001 Annual Report is scheduled to be posted on the Internet on Saturday March 9, 2002.
When Is The Annual Meeting?
The 2004 Annual Meeting will be held Saturday, May 1
at The New Omaha Convention Center
Historical Prices: BRKA BRKB
RULE 62 (MINIMUM PRICE VARIATIONS) The Securities and Exchange Commission has approved an amendment to Rule 62 to provide that the minimum price variation for stocks trading at price of $100,000 or greater will be ten cents which will be shown as .1. For securities below that price, the current minimum price variation of one ($.01) will continue to be in effect.
