So many things have changed since 1984: President Reagan is no longer in office, gas costs much more than one dollar per gallon and Apple computers look a lot different than they did back then. In over 30 years, one thing hasn’t changed though. Buffett is still writing his letters to Berkshire Hathaway shareholders.
Each year, the shareholder letter is filled with witty commentary and insights about investing. Let’s take a look at eight of Buffett’s funniest lines from 30 years ago.
1. “This sounds pretty good, but actually it’s mediocre.”
Back in 1984, Berkshire Hathaway made a gain of $152.6 million. This is equivalent to $133 per share of net worth. A 14% gain in book value is tremendous by the standards of most companies. Buffett could have easily explained this to be true.
But in typical Buffett fashion, he told shareholders that it’s nice to have a 14% book value gain, but it’s not as great or impressive when you compare it to the 22% compounded annual gain over the last 20 years for Berkshire Hathaway.
As of 2012, any investor that rode out Buffett’s “mediocre” year would have been aptly rewarded with a book value growth of over 20% compounded annually.
2. “Our experience has been [big ideas] pop up occasionally. (How’s that for a strategic plan?)”
Buffett went on to explain, “To earn even 15% annually over the next decade […] we would need profits aggregating about $3.9 billion. Accomplishing this will require a few big ideas – small ones just won’t do.”
Berkshire Hathaway shareholders remember some of the company’s biggest acquisitions including Heinz, Dairy Queen and Fruit of the Loom. It’s safe to say that big ideas do pop up from time to time.
3. “How much would you pay to be a minority shareholder of a company controlled by Robert Wesco?”
Wesco Financial is one of the Berkshire Hathaway subsidiaries. Robert Vesco, on the other hand, fled to Cuba as a fugitive financier in order to avoid prosecution just a short while after Buffett’s letter was published.
Buffett was telling his investors that they have to buy companies that are friendly to shareholders. He provided a simple formula, and suggested that the company will earn more for its money by reinvesting. If not, then it should distribute the money instead.
Finding the opportunities is the problem. But when it comes to hunting down the best deals, Buffett and Munger always have their elephant gun ready to fire away.
4. “I heard a story recently.”
Buffett didn’t actually hear a story, and I’m not joking when I say that it’s a joke. Instead of trying to summarize it – and not doing it any justice – you can enjoy it in full below.
A man was traveling abroad when he received a call from his sister informing him that their father had died unexpectedly. It was physically impossible for the brother to get back home for the funeral, but he told his sister to take care of the funeral arrangements and to send the bill to him. After returning home he received a bill for several thousand dollars, which he promptly paid. The following month another bill came along for $15, and he paid that, too. Another month followed, with a similar bill. When, in the next month, a third bill for $15 was presented, he called his sister to ask what was going on. “Oh,” she said, “I forgot to tell you. We buried Dad in a rented suit.”
5. “Well, it may be all right in practice, but it will never work in theory.”
One of the big components of Berkshire Hathaway is that they buy whole businesses. So when it comes to purchasing stocks – buying pieces of businesses – Buffett follows similar principles. His principles – even though they have been extremely successful – are not considered widely accepted right now, nor were they even back then, by industry professionals and academics.
Buffett then goes on to finish his soapbox commentary stating, “Nevertheless, it has served its followers well.”
6. “[L]emmings may have a rotten image, but no individual lemming has ever received bad press.”
The questionable image at hand is the tendency of rodents to migrate in large packs – and in most cases – they will unfortunately follow their leader to death.
Buffett then explains that many managers and CEOs do things by the books because it’s a lot harder to get fired this way. The meaning is simple – the benefits that go along with being unconventional are not typically worth being wrong or unconventional based on the punishment.
Berkshire Hathaway shareholders are lucky, since Warren Buffett is the owner, and he can be as unconventional as he feels is necessary or warranted.
7. “If you have a harem of 40 women, you never get to know any of them very well” – Warren Buffett quoting Billy Rose
One of the biggest stock moves made by Berkshire Hathaway during 2013 was purchasing 9 million shares of Exxon Mobil. This was a huge surprise to many. Back in 1984, Exxon was one of the 10 largest stock holdings in the Berkshire Hathaway portfolio.
That’s the excellent thing about really knowing and understanding just a few companies, as opposed to jumping in and out of dozens of stocks. The more you understand a particular business model, the better you will be equipped when it comes to buying, holding, jumping back in or jumping out of the stock.
8. “Both parties have followed Charlie Brown’s advice: No problem is so big that it can’t be run away from.”
When Buffett made this comment, he was talking about the United States deficit. This is a problem that he did not believe the government was handling very well.
He even went on to say that runaway inflation was a possibility. In other words, he said that inflation was rising a lot faster than its normal pace. And at a time like this, “a diversified stock portfolio would almost surely suffer an enormous loss in real value. But bonds already outstanding would suffer far more.”
This is actually one of the biggest reasons why Berkshire Hathaway and Warren Buffett choose stocks over bonds in most circumstances.