Since Warren Buffett took over the management of Berkshire Hathaway in 1965, he has written an Annual Shareholder Letter outlining the progress of the company, setting goals, and discussing the culture and methodology of Berkshire Hathaway. And, while a good portion of each letter is devoted to a rundown of numbers for Berkshire Hathaway, scattered throughout each article is quite a bit of Buffett’s down-to-earth mentality and some fantastic financial advice.
In this series, I’m going to go through and highlight some of the best letters from 1965 through the present. There won’t really be that much of an order, and we won’t do every year, but inside you’ll find not only an interesting insight into Berkshire Hathaway, but also history and the mind of the Oracle of Omaha himself.
Today, we’re going to take a look at the Shareholder Letter from 1983. This letter has been lauded as one of the top five best letters written by Buffett. But first we’ll get some background on what was going on in Berkshire Hathaway that year.
Berkshire Hathaway in 1983
1983 was a big year for Berkshire Hathaway in more ways than one. That year, the company merged with Blue Chip Stamps which brought additional revenue to its bottom line. Warren Bufeftt also arranged the purchase of 90% of Nebraska Furniture Mart for $55 million. 1983 was also the second year of the company’s corporate philanthropy program, where shareholders could help direct the company’s charitable donations.
1983 Shareholder Letter Highlights
Because of the acquisitions that happened this year, Berkshire Hathaway’s registered shareholders increased from 1900 to 2900 and Buffett took a moment to outline the business principles and practices that Berkshire Hathaway adheres to. That part of the letter is simply a wealth of information and rather than cutting it short, we are going to dedicate an entire article to explaining those principles and look at the other interesting tidbits here.
One thing that is most interesting about Warren Buffett is that despite his wealth and success, he is very humble and very aware of his shortcomings. In fact, in this particular letter, he writes about several of his shortcomings, including he and Charlie Munger’s unwillingness to let go of companies they have invested in.
…Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns, and are very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations… And we react with great caution to suggestions that our poor businesses can be restored to satisfactory profitability by major capital expenditures.
While it might seem like a foolish stance at first, the idea is actually quite sound—after all, it’s hard to judge financial processes on simply one year’s numbers. Throughout the letter, Buffett repeatedly urges shareholders to take accounting numbers with a grain of salt.
We never take the one-year figure very seriously. After all, why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off? Instead, we recommend not less than a five-year test as a rough yardstick of economic performance.
That insistence on focusing on the long term is one of the things that sets Buffett apart from other businessmen. And, unlike many other corporations, he doesn’t engage in the petty gossip and politicking that many other corporations fall prey to.
we will discuss our activities in marketable securities only to the extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are. Therefore, we normally will not talk about our investment ideas. This ban extends even to securities we have sold (because we may purchase them again) and to stocks we are incorrectly rumored to be buying. If we deny those reports but say “no comment” on other occasions, the no-comments become confirmation.
There are plenty more tidbits in the letter, so if you’re interested, the full letter is definitely worth a read. You can find it here. All of the letters from 1977 to the present are archived on the Berkshire Hathaway website, but there was also a compilation published in book form. It is available on Amazon for around $35.