笔记：
- 芒格跟我视伯克希尔的股东为合伙人，而我们两个人则为执行合伙人（而也因为我们持有股份比例的关系，也算是具有控制权的合伙人）我们并不把公司视为企业资产的最终拥有人，实际上公司只是股东拥有资产的一个媒介而已
- 对应前述所有权人导向，我们所有的董事都是伯克希尔的大股东，五个董事中的四个，其家族财产有超过一半是伯克希尔持股，简言之，我们自给自足。
- 我们之所以选择账面价值（虽然不是所有情况皆如此）是因为它是衡量内在价值成长（这是真正重要的）的一种保守但合理的替代方式，它的好处是很容易去计算且不牵涉主观去衡量内在价值，但仍需强调这两者事实上具有截然不同的意义
- 账面价值是会计名词，系记录资本与累计盈余的财务投入，内在价值则是经济名词，是估计未来现金流入的折现值，账面价值能告诉你已经投入的，内在价值则是预计你能从中所获得的
- 从商的经历，直接或间接地让我对拥有商誉而仅须运用少量实质资产的公司大有好感
- 股票分割会增加交易成本，降低股东素质并鼓励公司股价与其内在价值背离，我们想不到有任何一点好处
- https://xueqiu.com/6217262310/132053357
- https://archive.ph/Kwgpl
www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism 巴菲特致股东的信 1983 年
去年登记为波克夏的股东人数由 1,900 人增加到 2,900 人，主要是由于我 们与 Blue Chip 的合并案，但也有一部份是因为自然增加的速度，就像几年前我 们一举成长突破 1,000 大关一样。有了这么多新股东，有必要将有关经营者与 所有者间关系方面的主要企业原则加以汇整说明:
尽管我们的组织登记为公司，但我们是以合伙的心态来经营(Although our form is corporate, our attitude is partnership.) 查理孟格跟我视波克夏的股 东为合伙人，而我们两个人则为执行合伙人(而也由于我们持有股份比例的关系， 也算是具控制权的合伙人)我们并不把公司视为企业资产的最终拥有人，实际上 公司只要股东拥有资产的一个媒介而已。
对应前述所有权人导向，我们所有的董事都是波克夏的大股东，五个董事中 的四个，其家族财产有超过一半是波克夏持股，简言之，我们自给自足(We eat our own cooking) 。
我们长远的经济目标(附带后面所述的几个标准)是将每年平均每股内含价 值的成长率极大化，我们不以波克夏规模来作为衡量公司的重要性或表现，由于 资本大幅提高，我们确定每股价值的年增率一定会下滑，但至少不能低于一般美 国大企业平均数。
我们最希望能透过直接拥有会产生现金且具有稳定的高资本报酬率的各类 公司来达到上述目的，否则退而求其次，是由我们的保险子公司在公开市场买进 类似公司的部份股权，购并对象的价格与机会，保险公司资金的需求会决定年度 资金的配置。
由于这种取得企业所有权的双向手法，及传统会计原则的限制，合并报告盈 余无法完全反映公司的实际经济状况，查理跟我同时身为公司股东与经营者，实 际上并不太理会这些数字，然而我们依旧会向大家报告公司每个主要经营行业的 获利状况，那些我们认为重要的，这些数字再加上我们会提供个别企业的其它信 息将有助于你对它们下判断。(1983)
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www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism
会计数字并不会影响我们经营或资金配置的决策，当购并成本接近时，我们 宁愿去买依会计原则不列示在帐面的两块钱盈余，而非那种完全列示在帐面的一 块钱盈余，这也是我们当要购买整家企业(盈余可完全列示)的价格要比购买部份 股权(盈余不可列示)贵上一倍而常常所须面临的选择一样类似，但就长期而言， 我们却可期望这些不可列示的盈余透过长期资本利得反映在公司帐面之上。
我们很少大幅举债，而当我们真得如此做时，我们倾向把它们定在长期固定 利率的基础之上，我们宁愿避免资产负债表过度融资而放弃许多吸引人的投资机 会，虽然如此保守的作法有时使我们的绩效打了点折扣，但考量到对保户、存款 人、借款人与全体股东将大部份财产托付给我们的责任时，这也是惟一令我们感 到安心的作法。
管理当局的心愿不会靠股东的花费来实现，我们不会因为要任意的多角化而 随便买下整家公司却忽略了股东长期的经济利益，我们会把你的钱当作就好象在 用自己的钱一般地谨慎，就宛如你直接透过股票市场分散买进股票具备一样的价 值。
我们认为应该定期检验结果，我们测试的标准是衡量保留下来的每一块钱是 否能发挥至少一块钱的市场价值，而到目前为止，尚能达到标准，我们会以每五 年一个循环，而随着净值的成长，这项目标将愈来愈难达成。
惟有在当收到跟付出一样多的经济价值时，我们才有考虑发行库藏股，这项 原则适用于各种情况，不管是购并或公开市场收购，另外债务转股权、选择权与 转换权都一样，我们绝不会违背股东权益的情况下，把公司的一部份卖掉(这正 是发行新股背后代表的意义) 。
你必须完全明了有一种查理跟我可能会损及绩效表现的态度，那就是:不论 价格高低，我们绝不会出售波克夏所拥有的好公司，只要我们预期它们能够产生 一些现金流入，而我们也对该公司的经营阶层、劳资关系感到安心。我们希望不 要重复犯下资金配置错误导致我们投入次级的产业，同时也对于那些只要投入大 量资本支出便能改善获利状况的建议(预测通常很亮丽，支持的人也很诚恳，但 到最后，额外的重大投资得到的结果就好象是在流沙上挣扎一般)，尽管如此，
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www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism 打牌似的管理行为(每轮都把最好的牌丢出)并非我们行事风格，我们宁可整体的
结果逊色一点也不愿意花大把银子处理它。
我们会以绝对真诚的态度对待大家，尤其是有关评估企业价值的各种利与弊 方面。我们的原则是假设今天的位置对调时，我们希望你应该告知我们的所有事 实，这是我们应该给你的，此外，由于波克夏是一家具有媒体事业的集团，我们 责无旁贷地须以同样客观正确的标准要求自己，就像是我们要求新闻同仁一般， 我们深信坦白对身为经营者的我们来说是有益的，因为一个在对外欺骗别人的人 最后一定会把自己也给骗了。
但坦白的原则也有限度，那就是我们仅在法令规定范围内讨论我们在股票上 的进出，就像一件好产品或商业购并案一样，好的投资机会不多所以珍贵，且很 容易被盗用，所以通常我们不会详细说明投资细节，这甚至包括已经出售的部份 (因为我们很有可能会在买回来)与传言我们要买进的，若我们否认相关报导但说: “不予置评”，有时反而会被认为已经证实。(1983)
终于结束教条式的说明，接下来进行到 1983 年的重点，购并 Nebraska Furniture 主要股权以及我们与 Rose Blumkin 一家的交往过程
去年在提到许多经理人如何前扑后继追求一些愚蠢的购并案时，我们引用 Pascal 的话: “它使我想到所有的不幸皆归究于大家无法安静的待在一个房间
内”，但今年我要说: “Pascal 也会为了 Blumkin 太太离开那个房间”大约 67 年前，当 Blumkin 太太 23 岁时，靠她一张嘴说服边界警卫逃离俄国来到美国， 从未接受过正式教育(连小学也没有)，也不懂英文，许多年后靠着她的女儿每晚 教她复习白天在学校所学的每一个字，她学会了英文，而后在卖了许多年二手衣 后，在 1937 年靠着省吃简用存下的 500 美金她实现梦想开了一家家具店，参酌
当时全美最大家具交易中心-芝加哥 American Furniture Mart，她将之命名为 Nebraska Furniture Mart，尔后她遭遇到你所能预期的各种困难(也包括你想 不到的)，以 500 美金起家没有任何产品或地缘优势地去对抗资金雄厚、经营已
久的同业竞争，在早期当她有限的资源损耗怠尽时，B 太太(这个个人商标在大 3
www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism
Omaha 地区与可口可乐齐名)甚至把家中所有值钱的东西变卖一空以维持信誉。 Omaha 的零售商在发现到 B 太太可以给顾客更低的价格时，便联手向家具
及地毯工厂施压不要供货给 B 太太，但靠着各种不同的方法，她还是取得货源
并大幅降价，甚至因而被告到法院违反公平交易法，但最后不但赢得所有官司更 大大打开了知名度，其中有一个案件，在法庭中为了证明即使以现行市价打一个 大折扣后，她仍有所获利，结果她卖了一条地毯给法官。
今天 Nebraska Furniture 一家 20 万平方呎的店面，年销售额却高达一亿 美金，全美没有任何一家零售家具店可以比得上，它所卖的家具、地毯与家电用 品比 Omaha 所有其它业者加起来还多。
当我们在评断一家公司的企业价值时，我常常会问自己一个问题: “假设我
有足够的资金与人才时，我愿不愿意和这家公司竞争”，我宁愿和大灰熊摔角也
不愿和 B 太太家族竞争，他们采购有一套，经营费用低到其竞争对手想都想不
到的程度，然后再将所省下的每一分钱回馈给客人，这是一家理想中的企业，建 立在为客户创造价值并转化为对所有者的经济利益的基础上。
B 太太凭借其高瞻远瞩与家族因素考量终于决定于去年出售公司给我们，我 对这个家族与其事业已欣赏了数十年，所以整个交易很快便敲定，但 B 太太并
没有马上回家休息如同她所说的失去斗志，相反的她仍持续担任公司的负责人， 在每周七天都待在卖场，其中销售地毯更是她的擅长，一个人的业绩便足以打败 所有其它零售业者。我们一共买下九成股权，剩下的一成由原有管理公司的家族 成员拥有，另还预留一成的认购权给有潜力的年轻人。
遗传学家应好好研究 Blumkin 家族为何皆能成为优秀的经理人?Louie Blumkin- B 太太的儿子担任 Nebraska Furniture 的总经理已有好多年且被公
认为最精明的家具与家电用品的最佳采购者，他说因为他有最好的老师，而 B 太太则说她有最优秀的学生，两者的说法完全正确，Louie 跟他三个儿子皆继
承了 Blumkin 家族优秀的管理能力、勤奋工作与最重要的正直的人格特质，他 4
www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism 们实在是不错的合伙人，很高兴能与他们一起合作。(1983)
1983 年公司的净值由原来每股 737 美元增加成为 975 美元，约成长 32%，
但我们从未把单一年度的数字表现看得太认真，毕竟没有什么道理要把企业反映 盈余的期间与地球绕行太阳公转的周期划上等号，反而我们建议至少以五年为一 周期来评断企业整体的表现，若五年平均利得要比美国企业平均来得差时，便要
开始注意了(就像 Goethe 所观察到的，到时要注意我们所提出的解释，万一要是 失败了，解释的理由可能会有一大堆)
在现有经营阶层过去十九年的任期内，帐面价值由 19 美元增加成为 975 美
元，约以 22.6%年复合成长率成长，考量到我们现有的规模，未来可能无法支持 这么高的成长率，不信的人最好选择去当业务员而非数学家。我们之所以选择帐 面价值(虽然不是所有形况皆如此)是因为它是衡量内含价值成长(这是真正重要
的)的一种保守但合理的替代方式，它的好处是很容易去计算且不牵涉主观去衡 量内含价值，但仍需强调这两者事实上具有截然不同的意义。
帐面价值是会计名词，系记录资本与累积盈余的财务投入，内含价值则是经 济名词，是估计未来现金流入的折现值，帐面价值能够告诉你已经投入的，内含 价值则是预计你能从中所获得的。类似词能告诉你之间的不同，假设你花相同的 钱供二个小孩读到大学，二个小孩的帐面价值即所花的学费是一样的，但未来所
获得的回报(即内含价值)却不一而足，可能从零到所付出的好几倍，所以也有相 同帐面价值的公司，却有截然不同的内含价值。
像波克夏在 1965 年会计年度刚开始由现有经营阶层接管时，其帐面价值为
每股 19 美金，明显高于其实际的内含价值，所谓的帐面价值主要系以那些无法
赚取合理报酬的纺织设备为主，就好比是将教育经费摆在不会读书的孩子身上一 样。
但如今我们的内含价值早已大幅超越帐面价值，主要的原因有两点:
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www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism
(1)标准会计原则要求我们保险子公司所持有的股票以市价记录于帐面上，
但其它公司部份却以成本与市价孰低法计算，到 1983 年底为止，后者的市价超
过帐面价值有税前七千万美金或税后五千万美金之多，超过的部份属于内含价值 的一部份，但不包含在计算帐面价值之内。
(2)更重要的是，我们所拥有的几家企业具有庞大的经济商誉(事实上是包含 在内含价值之内的)且远大于记载在帐上的商誉。
商誉不管是经济上或是会计上的，是一项神秘的课题，实在需要比现在所报 告还要更多的时间解释，本报告书的附录有关商誉及其摊销、规定与现实，将解 释为何经济上与会计上的商誉事实上通常是大不相同。
虽然不用了解商誉及其摊销，你一样可以过得很好，但对于研究投资的学生
或经理人也好，却有必要了解其间些微的不同，我现在的想法与 35 年前课堂所
教要重视实质的资产并规避那些主要倚靠经济商誉的公司的作法已有明显的转 变，当初的偏见虽然使我投入较少但也犯了许多投资上的疏乎。
凯恩斯发现问题所在，困难的地方不在于要有新观念，而是如何摆脱旧有的 窠臼，我的反应比较慢，一方面是由于教我的老师一直以来皆让我受益良多，但 从商的经历，直接或间接地让我对拥有商誉而仅须运用少量实质资产的公司大有 好感。
我建议那些对会计专有名词不会觉得感冒且对商誉的经济价值有兴趣的人 读读附录，而不论你看不看附录，Charlie 跟我一致认为波克夏拥有比帐面价值更 高经济价值的商誉。(1983)
下表显示波克夏依照各个公司持股比例来列示帐面盈余的主要来源，而各个 公司资本利得损失并不包含在内而是汇总于下表最后 “已实现出售证券利得” 一栏(我们认为单一年度的出售证券利得并无太大意义，但每年加总累计的数字 却相当重要)，至于商誉的摊销则以单一字段另行列示，虽然本表列示的方式与 一般公认会计原则不尽相同但最后的损益数字却是一致的: 其中在1982年波克 夏拥有 Blue Chips Stamps 60%的股权，但到了 1983 年下半年这个比例增加
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www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism 到 100%，而 Blue Chips 又拥有 Wesco 财务公司 80% 的股权，故波克夏间
接拥有 Wesco 的股权亦由 48%增加到 80%。 1983
Unit:US'000
After Income Tax
Berkshire Share
(18,400) 39,114 (63) 355 1,521 12,212 8,832 (353) 3,448
1,917 1,136 (563)
(7,346) (1,656) 8,490 48,644
Earnings Before Income Tax
Percent Total
Berkshire Share
(33,872) 43,810 (100) 697 3,049 24,526 16,547 (1,876) 4,844
(467) 2,102 (563)
(13,844) (3,066) 9,623 51,410
Earnings from Operation Insurance Group
Berkshire-Waumbec Textiles Associated Retail Stores Nebraska Furniture Mart See's Candies
Buffalio Evening News Blue Chip Stamps-Parent
Wesco Financial Corporation-Parent
Mutual Savings and Loan
Presion Steel
Amortization of Goodwill
Interest on Debt
Shareholder's Contribution
Other 10,121
61,043
100.0% 100.0% 100.0% 100.0%
80.0% 89.5% 85.5%
131.9% 64.6%
(33,872) 43,810 (100) 697 3,812 27,411 19,352 (1,422) 7,493
58.5% 64.9%
(798) 3,241 (532)
(15,104) (3,066)
有观 Wesco 旗下事业会在 Charlie 的报告中讨论，他在 1983 年底接替 Louie
Vincenti 成为 Wesco 的董事长，Louie 由于身体健康的关系以 77 岁年纪退休，有
时健康因素只是借口，但以 Louie 这次情况确是事实，他实在是一位杰出的经理 人。
GEICO 的特别股利系由于该公司自我们及其它股东手中买回自家股票，经 过买回后我们持有的股权比例仍维持不变，整个卖回股权的过程其实等于是发放
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www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism
股利一样，不像个人，由于企业收到股利的实际联邦税率 6.9%较资本利得税率 28%低得许多，故前者可让公司股东获得更多实质收益。而即使把前述特别股利
加入计算，我们在1983年从GEICO所收到的现金股利还是远低于我们依比例所 赚到的盈余，因此不论从会计或经济的角度来说，将这项额外收入计入盈余当中
是再适当也不过了，但由于金额过于庞大因此我们必需特别加以说明。
前表告诉大家我们盈余的来源，包括那些不具控制权的股权投资所收到的现 金股利，但却不包括那些未予分配的盈余，就长期而言，这些盈余终将反映在公 司的股票市价之上，而波克夏的内含价值亦会跟随着增加，虽然我们的持股不一 定表现一致，有时让我们失望，但有时却会让我们惊喜，到目前为止，情况比我 们当初预期的还要好，总得来说，最后所产生的市场价值要比当初我们保留的每 一块钱还要高。
下表显示在 1983 年底我们持有不具控制权的股权投资，所有的数字包含波 克夏与 80%Wesco 的权益，剩下的 20%已予以扣除:
Company Name
Affiliated Publications, Inc.
General Foods, Inc
GEIGO Corporation
Handy & Harman
Interpublic Group of Companies, Inc
Media General
Ogilvy & Mather Int'l, Inc
R.J. Reynolds Industries
Time, Inc
The Washington Post Company
All Other Common Stock
Total Common Stock
Market 26,603
Unrealized 23,087 64,912 351,018 14,913 29,032
8,000 10,253 45,416 29,128
153,247 10,559 739,565
217,976
Shares
(a) 690,975
(b) 4,451,544
(a) 6,850,000
(a) 2,379,200
(a) 636,310
(a) 197,200 (a) 250,400 (b) 5,618,661 (a) 901,788 (a) 1,868,600
Cost 3,516
163,786
47,138
27,318 42,231
4,056 33,088
3,191 11,191
2,580 12,833 268,918 314,334 27,732 56,860
228,698 398,156
10,628 7,485 566,348
163,875 18,044 1,305,913
依照目前持股情况与股利发放率(扣除去年 GEICO 发放特别股利的特例)我 们预期在 1984 年将收到约三千九百万美金的现金股利，而保留未予发放的盈余
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www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism 估计将达到六千五百万，虽然这些盈余对公司短期的股价将不会有太大影响，但
长期来说终将显现出来。
水牛城晚报
首先我要澄清一点，我们公司的名称是水牛城晚报公司，但所发行的报纸名 称，自从一年多以前开始发行早报开始，却是水牛城新闻。
1983 年公司约略超过原先设定 10%的税后纯益率，主要有两项原因:(1)州 的所得税因前期亏损扣抵而变得很少(2)每吨新闻印刷成本突然降低(不过隔年情 况可能完全相反)
虽然水牛城新闻的获利情况在一般新闻来说表现平平，但若考量到水牛城当 地的经济与销售环境，这种表现却是不凡，由于重工业聚集，故最近的不景气确 使当地的一部份经济活动受到重创，且复苏缓慢，一般民众大受其害，当地的报 纸也无法幸免，发行量大幅滑落，许多业者被迫删减版面作为因应，在这种窘况
下，水牛城新闻却拥有一项利器-大众对其的接受程度，即渗透率(指每天每个社 区家庭购买该报的比率)，我们的比率相当高，以 1983 年九月止的前半年，水牛
城新闻高居全美一百份最大报纸的第一位(这项排名系由流通量调查局依照城市 邮政编码所编撰) 。
在解释所谓的排名之前，有一点必须要说明的是有许多大城市同时发行两份 报纸，则其渗透率一定会比只发行一份的城市，如水牛城还低得许多，尽管如此， 仍有许多名列一百大者拥有单一城市，而水牛城不但名列前茅，更远胜于许多全 国赫赫有名的日报。
此外在周日版部份，水牛城的渗透率更挤进前三名，比某些大报还高上一到
二十个百分点，而这并不是一开始就如此的，下表列示该报在 1977 前几年与现
在发行量的比较，在水牛城所发行的周日报原来是 Couier-express(当时水牛城
日报还未发行周日报)而现在当然是水牛城日报了:
-
1970 314,000
-
1971 306,000
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巴菲特研究中心 Research Centre for Buffettism
1972
1973
1974
1975
1976
1984 (现今)
302,000 290,000 278,000 269,000 270,000
376,000
我们认为一份报纸的渗透率是该事业强弱的一项重要指针，广告主而言若一 家报纸能在某一地区拥有极高渗透率的话，便能发挥极高的经济效益，相对的若 渗透率很低则无法吸引太多的广告主。
而我们认为有三个原因使得水牛城日报广为当地民众所接受，其中第二与第 三亦能解释为何水牛城周日报会比当时同时发行的 Couier-express 更受欢迎的 原因:
(1)第一点与水牛城日报本身无关，水牛城居民的流动率相对较低，稳定的 居民对于当地社区事务抱持着更多的关心，也因此对当地地区性报纸的在地新闻 更感兴趣。
(2)该报长期由传奇人物 Alfred Kirchhofer 领导，以编辑品质与公正客观性
著称，并由 Murray Light 继承并保存之，这对于我们能够成功战胜
Courier-express 的激烈竞争极为重要，若没有周日报，水牛城日报可能无法存 活至今。
(3) 水牛城日报就如其名一般，它刊载大量的新闻，在 1983 年我们的新闻 版面(News Hole)即真正的新闻而非广告，约占超过一半(不包括夹报的部份) ，就
我们所知在所有主宰当地地区的大报之中，只有一家的比例是超越我们的，虽然 没有具体明确的数字，但一般估计的平均比例约为三十几，换言之，我们提供的
新闻份量比其它同业还要多上 25%，事实上丰富的新闻内容是经过精心安排的，
有些出版业者为了提高获利，大幅删减新闻版面，但我们却不愿如此做并坚持至 今，而我们相信只要好好地撰写与编辑提供丰富的新闻内容，将是对读者最大的 服务，而读者对我们刊物的珍视也将转化成极高的渗透率。
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仅管水牛城日报本身极具竞争力，但是 ROP (报纸版面上的广告与夹报的广
告量的比)却很难有再增加的空间，虽然我们在 1983 年有大幅成长，广告则数由
九百多万增加为一千六百多万，营收则由 360 万成长至 810 万美元，增加幅度与
全美其它地区差异不大，但以我们的 Case 来说考量到 Courier-express 同时关 闭则视嫌高估。
平心而论，若广告由报纸版面移到夹报对我们来说有负面的经济影响，夹报 的利润较低，且受限于其它相同传递方式的竞争，更甚者 ROP 则数的减少连带
使的新闻版面亦跟着减少(因为新闻版面须维持一定比例) ，进而减少对读者的 实用性。
Stan Lipsey 在年中接替 Henry Urban 成为水牛城日报的发行人，Henry 在日报因发行周日版而面对诉颂与损失的灰暗时期从未退缩，当时这项决定受到 许多当地新闻同业质疑，但 Henry 仍受到水牛城日报所有员工，也包含我与
Charlie 的敬重，Stan 跟 Henry 从 1969 年起便为波克夏工作，它对于水牛城日 报从编辑到发行的大小事务亲身参与，他的表现无与伦比。(1983)
喜斯糖果的经营表现依旧亮丽，它拥有可贵而稳固的客户基础与管理阶层， 近年来喜斯遇到两个重大的难题，所幸其中至少有一个已找到解决的方法，这问 题与成本有关，不过不是指原料成本，虽然我们跟竞争同业比原料成本较高，而 若这种情况相反的会我们反而会不高兴，事实上原料成本是我们较无法控制的， 因为不管价格如何变化，我们所使用皆属最上等的的原料，我们视产品品质为最 重要的一点。
但在其它成本却是我们所可以控制的，不过问题却出在这身上，我们的成本 (以每磅为基本单位，但不包括原料成本)增加的速度远高于一般物价水准，若要 扭转现在的竞争劣势与获利危机，降低成本绝对有其必要性，所幸最近几个月， 成本已受到有效控制，相信 1984 年的成本增加率将会低于通货膨胀，这自信源
自于我们与 Chuck 多年来共事的经验，打从我们买下喜斯以来便由他负责，而他 11
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巴菲特研究中心 Research Centre for Buffettism
的表现就如同下表一样有目共睹: 1983 (53weeks)
1982
1981
1980
1979
1978
1977
1976 (53weeks)
1975
1974
1973
1972
Sales('000) Profit('000) 133,531 13,699 123,662 11,875 112,578 10,779 97,715 7,547 87,314 6,330 73,653 6,178 62,886 6,154 56,333 5,569 50,492 5,132 41,248 3,021 35,050 1,940 31,337 2,083
Pounds('000) Stores 24,651 207 24,216 202 24,052 199 24,065 191 23,985 188 22,407 182 20,921 179 20,553 173 19,134 172 17,883 170 17,813 169 16,954 167
我们面临的另一个问题，如上表中可看到的是我们在实际售出的糖果磅数停 滞不前，事实上这是这个行业普遍遇到的困难，只是过去我们的表现明显优于同 业，不过现在却一样惨。过去四年来我们平均每家分店卖出的糖果数事实上无多
大变化，尽管分店数有所增加(而销售费用有同样增加)，当然营业额因我们大幅 调涨售价而增加许多，但我们认为衡量一家店经营绩效的标准在于每家分店卖出 糖果磅数而非销售额，1983 年平均一家店的销售量减少了 0.8%，不过这已是 1979
年来较好的表现了，累计的降幅约达 8%，集体订购量(约占整体销售的 25%)在经 过 1970 年代成长高峰后已停滞不前。
我们不确定分店与集体订购的销售量无法增加主要是受到我们的订价策略
还是景气萧条或是我们的市场占有率太高的影响，不过 1984 年我们调涨的幅度
较以往几年温和，希望明年跟各位报告的销售量能因此增加，不过我们却无任何 依据能保证这种情况一定发生。
除了销量的问题，喜斯具有多项且重要的竞争优势，在我们主要的销售地区 -西部，我们的糖果为消费者所偏爱，他们甚至愿意用多花二三倍的价钱来享受
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www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism
(糖果就如同股票一样，价格与价值乃有所不同，价格是指你所付出的，而价值
却是指你所得到的) ，我们全美直营店服务的品质跟我们的产品一样好，亲切贴 心的服务人员就跟包装上的商标一样，以一家雇用二千名季节性员工的企业来 说，可是不容易办到的，这都要归功于 Chuck 与所有同仁的努力。而由于我们在 1984 年仅微幅调整价格，所以预期明年度的获利只与今年相当。
我们本身除了经营保险业外，还在这项产业有庞大的投资部位，而这些由本 人作决策的事业，其经营成果显而易见的很惨，所幸那些不受本人控制的部份，
如 GEICO 表现杰出，才避免整个集团经营亮起红灯，没错你心里想的完全正确， 几年前我犯下的错误如今已找上门来了。
整个产业如下表所示，已低迷了好几个年头:
Yearly Change in Combined
Ratio
%%
|
Premiums Written |
-
1972 10.2%
-
1973 8.0%
-
1974 6.2%
-
1975 11.0%
-
1976 21.9%
-
1977 19.8%
-
1978 12.8%
-
1979 10.3%
-
1980 6.0%
-
1981 3.9%
-
1982 (Rev.) 4.4%
-
1983 (Est.) 4.6%
96.2% 99.2% 105.4% 107.9% 102.4% 97.2% 97.5% 100.6% 103.1% 106.0% 109.7% 111.0%
资料明白显示出目前整个产业，包括股市、共同基金与互助会所面临的惨况， Combined Ratio 代表所有的保险成本(发生的理赔损失加上费用)占保费收入的 比重，一百以下表示有承销利益，反之则发生亏损
13
after Policy-holder Dividends
www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism
如同去年我们所揭示的原因，我们认为 1983 年的惨况仍将持续好几个年头，
(正如 Yogi 所说:又是 déjà vu.)不过并不表示情况不会好转，事实上一定会，只是 要未来几年的平均 Combined Ratio 明显低于前几年的水准将不太可能，基于 对通货膨胀的预期，除非保费收入每年以超过 10%成长，否则损失比率将很难压 到比现在的水准还低。
我们自己的Combined Ratio是121，由于最近Mike Goldberg以接手负责 保险事业的经营，所以这个烫手山竽交给他来解决，要比本人亲自处理要来得好
得多了，然而不幸的是，保险这行业前置期很长，虽然企业政策与人员可随时改 进，但其效果却须要相当长的一段时间才能显现，(事实上我们就靠这点在投资
GEICO 上，赚了很多钱，我们可以在公司营运效益真正显现之前，先一步预期) ， 所以目前的窘境事实上是我两三年前直接负责营运时所捅下的偻子。所以尽管整 体表现不佳，但其中仍有几位经理人表现杰出，Roland 所领导的 National Indemnity
在同业对手一片惨泹时，一支独秀，而 Tom 在 Colorado 展露头角，我们可说是 挖到宝了。
近来我们在再保险领域的表现极为活跃，而事实上我们希望能够再更活跃一 些，在这行投保者相当注重承保者长期的债信以确保其对之多年后的承诺得以实 现，这一点波克夏所提供坚实的财务实力使我们成为客户倚赖的首选。这行生意 的来源主要是终身赔偿(Structured Settlement)即损害请求者每月定期领取赔 偿费直到终身而非一次给付，这对请求者来说可享受税赋上的优惠，也可避免一 下子把赔偿款花得精光，通常这些被害人皆严重伤残，所以分次给付可确保其往 后数十年的衣食无虞，而关于这点我们自认为可提供无与伦比的保障，没有其它 再保业者，即使其资产再雄厚，有比我们更坚强的财务实力。
我们也想过或许靠着本身坚强的财务实力，可承受有意愿移转其损失赔偿准 备的公司，在这类个案中，保险公司一次付给我们一大笔钱，以承担未来所有(或
一大部份)须面临的损害赔偿，当然相对的受托人要让委托人对其未来年度的财 14
www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism 务实力有信心，在这一点上我们的竞争力明显优于同业。
前述两项业务对我们而言极具潜力，且因为它们的规模与预计可产生的投资 利益大到让我们特别将其承销成绩，包括 Combined Ratio 另行列示，这两项
业务皆由 National Indemnity 的 Don 负责。 (1983)
GEICO 在 1983 年的表现之好，其程度跟我们自己掌管的保险事业差劲的
程度一样，跟同业平均水准 111 相比，GEICO 在加计预估分配给保户的股利后
的数字为 96，在这之前我从不认为它能够表现的如此之好，这都要归功于优异 的企业策略与经营阶层。
Jack 与 Bill 在承销部们一贯维持着良好的纪律(其中包含最重要的适当地损 失准备提列)而他们的努力从新事业的开展有成获得了回报，加上投资部门的 Lou
Simpson，这三个人组成了保险业的梦幻队伍。
我们拥有 GEICO 大约三分之一的股权，依比例约拥有二亿七千万的保费收 入量，约比我们本身所有的还多 80%，所以可以这么说我们拥有的是全美最优质 的保险业务，但这并不代表我们就不需改进自有的保险业务。(1983)
有人常问为什么波克夏不分割它的股票，而这个问题通常是建立在这个动作 将会对股东有利的假设基础之上，不过我们并不认同这点，让我告诉你为什么。
我们有一个目标是希望波克夏的股价能与其本身拥有的内含价值成正相关 (请注意是合理的正相关而非完全一致，因为如果一般绩优公司的股价远低于其 真正价值的话，波克夏也很难免除在外) ，而一个公司要维持合理的股价跟其所 背后的股东有很大关系，若公司的股东与潜在的买家主要都是基于非理性或情绪 性的投资该公司股票，则公司股票便会不时出现很离谱的价格，躁郁的人格会导 致躁郁的价格，这种性格甚至有助于我们买卖其它公司的股票，但我们尽量避免 这种情况跟波克夏沾上边将会对身为股东的你我有利。
很难确保公司股东皆维持高水平，A 太太可依自己喜好选择其个人的四百文 件投资组合，任何人都可买任何股票，没有任何公司可依智力、情绪稳定度、道
15
www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism 德感或衣着品味来筛选股东，所以股东优生学基本上是一项不可能的任务。
但大致而言，我们觉得可透过不断地沟通公司经营哲学以吸引并维持优质的 股东群，以达到自我筛选的目的。例如一场标榜为歌剧的音乐会，跟另一场以摇 滚乐为号召的演唱会，铁定会吸引不同的观众群来欣赏，虽然任何人皆可自由买 票进场。相同地透过不断地宣传与沟通，我们希望能够吸引到认同我们经营理念 与期望的股东(一样重要的是说服那些不认同的远离我们)我们希望那些倾向长 期投资且把公司当成是自己事业一样看待的股东加入我们，大家重视的是公司的 经营成果而非短期的股价波动。
具有这项特质的投资人属于极少数，但我们却拥有不少，我相信大概有 90%(甚至可能超过 95%)的股东已投资波克夏或 Blue Chips 达五年以上，另外
95%的股东，其持有的波克夏股票价值比起其本身第二大持股超过两倍以上，在 股东上千人，市值超过十亿的公司中，我敢保证波克夏的股东与经营者的想法是
最能契合的，我们很难再将我们股东的素质再加以提升。
如果我们将公司的股票分割，同时采行一些注重公司股价而非企业价值的动 作，我们吸引到的新进股东其素质可能要比离开的股东差得多，当波克夏的股价 为 1,300 元时，很少有人负担得起，对于买得起一股的人来说，将股票分割为 一百股对他来说并无任何影响，而那些认为有差别且真的因为我们股票分割而买
进的人肯定会将我们现有的股东水准往下拉(难到我们牺牲到那些原有思想透澈 换来一堆认为九张十元钞要比一张百元钞好的蛋头真得能够提升整个股东团队 的素质吗?)人们若非基于价值而买进股票早晚也会基于相同原因卖掉股票，他们
的加入只会使公司的股价偏离价值面而作不合理的波动。所以我们尽量避免那些 会招来短期投机客的举动，而采取那些会吸引长线价值型投资者的政策，就像你 在怖满这类型投资者的股票市场中买进波克夏的股票，你也可以在相同的市场中 卖出，我们尽量维持这种理想的状态。
股票市场上讽刺的一点是太过于重视变动性，经纪商称之为流动性与变现 性，对那些高周转率的公司大加赞扬(那些无法让你口袋麦可麦可的人，一定会
16
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让你的耳朵不得闲)但投资人必须有所认知，那就是凡事对庄家有利的一定对赌 客不利，而过热的股市跟赌场没有两样。假设一家公司的股东权益报酬率为 12%， 而其股票年周转率为百分之百，又若买卖股票须抽 1%的手续费(低价股的费率可
能还更高)而公司股票以帐面净值进行交易，这样算下来光是每年股权移转的交
易成本便占去净值的百分之二，且对公司的获利一点帮助都没有，(这还不包括
选择权交易，后者将会使这项磨擦成本更上一层楼)玩这种大风吹的游戏实在是
有点划不来，若是政府突然宣布调高企业或个人所得税 16%时，相信大家一定都 会跳起来，但过度重视变动性的结果便是要付出这样的代价。
过去在每天交易量约一亿股的年代(以今日的水准算是相当低的了) ，对所 有权人来说是绝对是祸不是福，因为那代表大家要付出二倍于五千万股交易量的
成本，又假设每买卖一股的交易成本为十五分钱，则一年累积下来约要花费 75 亿美金的代价，这相当于爱克森石油、通用动力、通用汽车与太古石油这四家全 美最大企业的年度盈余加总，这些公司以 1982 年底计有 750 亿美元净值，约占
财富杂志五百大企业净值与获利的 12%，换句话说投资人只因为手痒而将手中股 票换来换去的代价等于是耗去这些大企业辛苦一年的所得，若再加计约 20 亿投
资管理费的话，更相当于全美前五大金融机构(花旗、美国银行、大通银行、汉
华银行与摩根银行)获利的总和，这昂贵的游戏只是用来决定谁能吃这块饼，但 没有一点办法让饼变得更大。(我知道有一种论点说这过程能使资金作更有效的 配置，但我们却怀疑其可信度，相反的过热的股市反而妨碍的资金合理的配置， 反而使饼变得更小。亚当史密斯说:自由市场中有一只看不见的大手能导引经济
社会使其利益极大化，我们的看法是-赌场般的股市与神经质的投资行为仿佛是 一只看不见的大脚碍手碍脚地拖累了经济社会向前发展。
与那些过热的股票相比，波克夏目前的买卖价差约为 30 点，或大约 2% ， 依据交易量大小的不同，买卖双方所需支付的成本约略从 4%(只买卖几股)递减
17
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至 1 1/2 %(若量大的话可以议价方式降低差价与手续费)，而波克夏的股票交易单
量通常较大，故平均成本不超过 2%。同时波克夏股票的周转率(扣除盘商间交易 与亲属赠与)每年约仅 3%，也就是说总的而言，波克夏股东每年所付出的交易成 本约占其市值的万分之六，粗估约为 90 万美金(这笔金额不少，但远低于市场平
均) ，股票分割会增加交易成本，降低股东素质并鼓励公司股价与其内含价值悖 离，我们想不到有任何一点好处。(1983)
去年这时我登了一小段广告寻求可能的购并对象，在我们的新闻事业我们告 诉广告主重复刊登便会有结果(事实上是如此)，所以今年我再复述一次我们购并
的标准: 我们对具以下条件的公司有兴趣:
(1)钜额交易(每年税后盈余至少有五百万美元)
(2)持续稳定获利(我们对有远景或具转机的公司没兴趣)
(3)高股东报酬率(并甚少举债)
(4)具备管理阶层(我们无法提供)
(5)简单的企业(若牵涉到太多高科技，我们弄不懂)
(6)合理的价格(在价格不确定前，我们不希望浪费自己与对方太多时间)
我们不会进行敌意购并，并承诺完全保密并尽快答复是否感兴趣(通常不超 过五分钟) ，我们倾向采现金交易，除非我们所换得的内含价值跟我们付出的一 样多，否则不考虑发行股份。我们欢迎可能的卖方与那些过去与我们合作过的对 象打听，对于那些好的公司与好的经营阶层，我们可以提供一个好的归属。 (1983)
今年的股东指定捐赠计划约有 96.4%的有效票参与，总计在 1984 年初(帐 列 1983 年)捐出的款项分配给 1,353 家慈善机构，共计约三百万美元，虽然股 东回复占股权的比率颇高，但占股东总数的比率却不甚理想，主要的原因可能是 新购并进来的股东人数较多且不熟悉本计划的内容，我们建议新股东赶快阅读相
18
www.buffettism.com 巴菲特研究中心 Research Centre for Buffettism 关信息，若你也想参加的话，我们强烈建议你赶快把股份从经纪人那儿改登记于
自己的名下。(1982)
Blue Chips 与波克夏的合并案顺利完成，仅有低于 0.1%的股东表示反对， 也没有人要求再评估，在 1983 年我们因而获得了一些租税上的优惠，我们预期 往后几年能够再获得一些，此外整个合并案有个小插曲，相较于 1965 年现有经 营阶层接手时的 1,137,778 股，波克夏现今有 1,146,909 股流通在外，若你 当初持有 1%的股权约等于现在的 0.99%股权，不过波克夏的资产已从过去单纯
的纺织机器设备厂房，增加为拥有新闻、糖果、家具与保险事业，外加 13 亿美 金的有价证券。
我们欢迎原来是 Blue Chips 的股东加入我们，为了帮助你们对波克夏有进 一步的认识，只要来信索取我们很愿意将 1977-1982 的年报寄给各位。(1983)
19
To the Shareholders of Berkshire Hathaway Inc.:
This past year our registered shareholders increased from
about 1900 to about 2900. Most of this growth resulted from our
merger with Blue Chip Stamps, but there also was an acceleration
in the pace of “natural” increase that has raised us from the
1000 level a few years ago.
With so many new shareholders, it’s appropriate to summarize
the major business principles we follow that pertain to the
manager-owner relationship:
o Although our form is corporate, our attitude is partnership. Charlie Munger and I think of our shareholders as owner-partners, and of ourselves as managing partners. (Because of the size of our shareholdings we also are, for better or worse, controlling partners.) We do not view the company itself as the ultimate owner of our business assets but, instead, view the company as a conduit through which our shareholders own the assets.
o In line with this owner-orientation, our directors are all major shareholders of Berkshire Hathaway. In the case of at least four of the five, over 50% of family net worth is represented by holdings of Berkshire. We eat our own cooking.
o Our long-term economic goal (subject to some qualifications mentioned later) is to maximize the average annual rate of gain in intrinsic business value on a per-share basis. We do not measure the economic significance or performance of Berkshire by its size; we measure by per-share progress. We are certain that the rate of per-share progress will diminish in the future - a greatly enlarged capital base will see to that. But we will be disappointed if our rate does not exceed that of the average large American corporation.
o Our preference would be to reach this goal by directly owning a diversified group of businesses that generate cash and consistently earn above-average returns on capital. Our second choice is to own parts of similar businesses, attained primarily through purchases of marketable common stocks by our insurance subsidiaries. The price and availability of businesses and the need for insurance capital determine any given year’s capital allocation.
o Because of this two-pronged approach to business ownership and because of the limitations of conventional accounting, consolidated reported earnings may reveal relatively little about our true economic performance. Charlie and I, both as owners and managers, virtually ignore such consolidated numbers. However, we will also report to you the earnings of each major business we control, numbers we consider of great importance. These figures, along with other information we will supply about the individual businesses, should generally aid you in making judgments about them.
o Accounting consequences do not influence our operating or capital-allocation decisions. When acquisition costs are similar, we much prefer to purchase $2 of earnings that is not reportable by us under standard accounting principles than to purchase $1 of earnings that is reportable. This is precisely the choice that often faces us since entire businesses (whose earnings will be fully reportable) frequently sell for double the pro-rata price of small portions (whose earnings will be largely
.CNI YAWAHTAH ERIHSKREB
unreportable). In aggregate and over time, we expect the
unreported earnings to be fully reflected in our intrinsic
business value through capital gains.
o We rarely use much debt and, when we do, we attempt to structure it on a long-term fixed rate basis. We will reject interesting opportunities rather than over-leverage our balance sheet. This conservatism has penalized our results but it is the only behavior that leaves us comfortable, considering our fiduciary obligations to policyholders, depositors, lenders and the many equity holders who have committed unusually large portions of their net worth to our care.
o A managerial “wish list” will not be filled at shareholder expense. We will not diversify by purchasing entire businesses at control prices that ignore long-term economic consequences to our shareholders. We will only do with your money what we would do with our own, weighing fully the values you can obtain by diversifying your own portfolios through direct purchases in the stock market.
o 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.
o 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.
o You should be fully aware of one attitude Charlie and I
share that hurts our financial performance: 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.
We hope not to repeat the capital-allocation mistakes that led us
into such sub-par businesses. And we react with great caution to
suggestions that our poor businesses can be restored to
satisfactory profitability by major capital expenditures. (The
projections will be dazzling - the advocates will be sincere -
but, in the end, major additional investment in a terrible
industry usually is about as rewarding as struggling in
quicksand.) Nevertheless, gin rummy managerial behavior (discard
your least promising business at each turn) is not our style. We
would rather have our overall results penalized a bit than engage
in it.
o We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions were reversed. We owe you no less. Moreover, as a company with a major communications business, it would be inexcusable for us to apply lesser standards of accuracy, balance and incisiveness when reporting on ourselves than we would expect our news people to apply when reporting on others. We also believe candor benefits us as managers: the CEO who misleads others in public may eventually mislead himself in private.
o Despite our policy of candor, 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.
That completes the catechism, and we can now move on to the
high point of 1983 - the acquisition of a majority interest in
Nebraska Furniture Mart and our association with Rose Blumkin and
her family.
Nebraska Furniture Mart
Last year, in discussing how managers with bright, but
adrenalin-soaked minds scramble after foolish acquisitions, I
quoted Pascal: “It has struck me that all the misfortunes of men
spring from the single cause that they are unable to stay quietly
in one room.”
Even Pascal would have left the room for Mrs. Blumkin.
About 67 years ago Mrs. Blumkin, then 23, talked her way
past a border guard to leave Russia for America. She had no
formal education, not even at the grammar school level, and knew
no English. After some years in this country, she learned the
language when her older daughter taught her, every evening, the
words she had learned in school during the day.
In 1937, after many years of selling used clothing, Mrs.
Blumkin had saved $500 with which to realize her dream of opening
a furniture store. Upon seeing the American Furniture Mart in
Chicago - then the center of the nation’s wholesale furniture
activity - she decided to christen her dream Nebraska Furniture
Mart.
She met every obstacle you would expect (and a few you
wouldn’t) when a business endowed with only $500 and no
locational or product advantage goes up against rich, long-
entrenched competition. At one early point, when her tiny
resources ran out, “Mrs. B” (a personal trademark now as well
recognized in Greater Omaha as Coca-Cola or Sanka) coped in a way
not taught at business schools: she simply sold the furniture and
appliances from her home in order to pay creditors precisely as
promised.
Omaha retailers began to recognize that Mrs. B would offer
customers far better deals than they had been giving, and they
pressured furniture and carpet manufacturers not to sell to her.
But by various strategies she obtained merchandise and cut prices
sharply. Mrs. B was then hauled into court for violation of Fair
Trade laws. She not only won all the cases, but received
invaluable publicity. At the end of one case, after
demonstrating to the court that she could profitably sell carpet
at a huge discount from the prevailing price, she sold the judge
$1400 worth of carpet.
Today Nebraska Furniture Mart generates over $100 million of
sales annually out of one 200,000 square-foot store. No other
home furnishings store in the country comes close to that volume.
That single store also sells more furniture, carpets, and
appliances than do all Omaha competitors combined.
One question I always ask myself in appraising a business is
how I would like, assuming I had ample capital and skilled
personnel, to compete with it. I’d rather wrestle grizzlies than
compete with Mrs. B and her progeny. They buy brilliantly, they
operate at expense ratios competitors don’t even dream about, and
they then pass on to their customers much of the savings. It’s
the ideal business - one built upon exceptional value to the
customer that in turn translates into exceptional economics for
its owners.
Mrs. B is wise as well as smart and, for far-sighted family
reasons, was willing to sell the business last year. I had
admired both the family and the business for decades, and a deal
was quickly made. But Mrs. B, now 90, is not one to go home and
risk, as she puts it, “losing her marbles”. She remains Chairman
and is on the sales floor seven days a week. Carpet sales are
her specialty. She personally sells quantities that would be a
good departmental total for other carpet retailers.
We purchased 90% of the business - leaving 10% with members
of the family who are involved in management - and have optioned
10% to certain key young family managers.
And what managers they are. Geneticists should do
handsprings over the Blumkin family. Louie Blumkin, Mrs. B’s
son, has been President of Nebraska Furniture Mart for many years
and is widely regarded as the shrewdest buyer of furniture and
appliances in the country. Louie says he had the best teacher,
and Mrs. B says she had the best student. They’re both right.
Louie and his three sons all have the Blumkin business ability,
work ethic, and, most important, character. On top of that, they
are really nice people. We are delighted to be in partnership
with them.
Corporate Performance
During 1983 our book value increased from $737.43 per share
to $975.83 per share, or by 32%. 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. Red lights should start flashing if the
five-year average annual gain falls much below the return on
equity earned over the period by American industry in aggregate.
(Watch out for our explanation if that occurs as Goethe observed,
“When ideas fail, words come in very handy.”)
During the 19-year tenure of present management, book value
has grown from $19.46 per share to $975.83, or 22.6% compounded
annually. Considering our present size, nothing close to this
rate of return can be sustained. Those who believe otherwise
should pursue a career in sales, but avoid one in mathematics.
We report our progress in terms of book value because in our case (though not, by any means, in all cases) it is a conservative but reasonably adequate proxy for growth in intrinsic business value - the measurement that really counts. Book value’s virtue as a score-keeping measure is that it is easy to calculate and doesn’t involve the subjective (but important) judgments employed in calculation of intrinsic business value.
It is important to understand, however, that the two terms - book
value and intrinsic business value - have very different
meanings.
Book value is an accounting concept, recording the
accumulated financial input from both contributed capital and
retained earnings. Intrinsic business value is an economic
concept, estimating future cash output discounted to present
value. Book value tells you what has been put in; intrinsic
business value estimates what can be taken out.
An analogy will suggest the difference. Assume you spend
identical amounts putting each of two children through college.
The book value (measured by financial input) of each child’s
education would be the same. But the present value of the future
payoff (the intrinsic business value) might vary enormously -
from zero to many times the cost of the education. So, also, do
businesses having equal financial input end up with wide
variations in value.
At Berkshire, at the beginning of fiscal 1965 when the
present management took over, the $19.46 per share book value
considerably overstated intrinsic business value. All of that
book value consisted of textile assets that could not earn, on
average, anything close to an appropriate rate of return. In the
terms of our analogy, the investment in textile assets resembled
investment in a largely-wasted education.
Now, however, our intrinsic business value considerably
exceeds book value. There are two major reasons:
(1) Standard accounting principles require that common
stocks held by our insurance subsidiaries be stated on
our books at market value, but that other stocks we own
be carried at the lower of aggregate cost or market.
At the end of 1983, the market value of this latter
group exceeded carrying value by $70 million pre-tax,
or about $50 million after tax. This excess belongs in
our intrinsic business value, but is not included in
the calculation of book value;
(2) More important, we own several businesses that possess
economic Goodwill (which is properly includable in
intrinsic business value) far larger than the
accounting Goodwill that is carried on our balance
sheet and reflected in book value.
Goodwill, both economic and accounting, is an arcane subject
and requires more explanation than is appropriate here. The
appendix that follows this letter - “Goodwill and its
Amortization: The Rules and The Realities” - explains why
economic and accounting Goodwill can, and usually do, differ
enormously.
You can live a full and rewarding life without ever thinking
about Goodwill and its amortization. But students of investment
and management should understand the nuances of the subject. My
own thinking has changed drastically from 35 years ago when I was
taught to favor tangible assets and to shun businesses whose
value depended largely upon economic Goodwill. This bias caused
me to make many important business mistakes of omission, although
relatively few of commission.
Keynes identified my problem: “The difficulty lies not in
the new ideas but in escaping from the old ones.” My escape was
long delayed, in part because most of what I had been taught by
the same teacher had been (and continues to be) so
extraordinarily valuable. Ultimately, business experience,
direct and vicarious, produced my present strong preference for
businesses that possess large amounts of enduring Goodwill and
that utilize a minimum of tangible assets.
I recommend the Appendix to those who are comfortable with
accounting terminology and who have an interest in understanding
the business aspects of Goodwill. Whether or not you wish to
tackle the Appendix, you should be aware that Charlie and I
believe that Berkshire possesses very significant economic
Goodwill value above that reflected in our book value.
Sources of Reported Earnings
The table below shows the sources of Berkshire’s reported
earnings. In 1982, Berkshire owned about 60% of Blue Chip Stamps
whereas, in 1983, our ownership was 60% throughout the first six
months and 100% thereafter. In turn, Berkshire’s net interest in
Wesco was 48% during 1982 and the first six months of 1983, and
80% for the balance of 1983. Because of these changed ownership
percentages, the first two columns of the table provide the best
measure of underlying business performance.
All of the significant gains and losses attributable to
unusual sales of assets by any of the business entities are
aggregated with securities transactions on the line near the
bottom of the table, and are not included in operating earnings.
(We regard any annual figure for realized capital gains or losses
as meaningless, but we regard the aggregate realized and
unrealized capital gains over a period of years as very
important.) Furthermore, amortization of Goodwill is not charged
against the specific businesses but, for reasons outlined in the
Appendix, is set forth as a separate item.
Operating Earnings:
Insurance Group:
Earnings Before Income Taxes
-------------------------------------- ------------------
Total Berkshire Share Berkshire Share
------------------ ------------------ ------------------
1983 1982 1983 1982 1983 1982
-------- -------- -------- -------- -------- --------
(000s omitted)
Underwriting ............ $(33,872) $(21,558) $(33,872) $(21,558) $(18,400) $(11,345)
Net Investment Income ...
Berkshire-Waumbec Textiles
Associated Retail Stores ..
Nebraska Furniture Mart(1)
See’s Candies .............
Buffalo Evening News ......
Blue Chip Stamps(2) .......
Wesco Financial - Parent ..
Mutual Savings and Loan ...
Precision Steel ...........
Interest on Debt .......... (15,104) (14,996) (13,844) (12,977) (7,346) (6,951)
43,810 (100)
(1,422)
7,493
(798) 3,241
21,000 --
(3,066) (891)
(532) 151
10,121 3,371
697
3,812
27,411
19,352
697
3,049
24,526
16,547
355
1,521
12,212
8,832
Special GEICO Distribution
Shareholder-Designated
Contributions ..........
Amortization of Goodwill ..
Other .....................
Operating Earnings ..........
Sales of securities and
(1) October through December
(2) 1982 and 1983 are not comparable; major assets were
transferred in the merger.
For a discussion of the businesses owned by Wesco, please
read Charlie Munger’s report on pages 46-51. Charlie replaced
Louie Vincenti as Chairman of Wesco late in 1983 when health
forced Louie’s retirement at age 77. In some instances, “health”
is a euphemism, but in Louie’s case nothing but health would
cause us to consider his retirement. Louie is a marvelous man
and has been a marvelous manager.
The special GEICO distribution reported in the table arose
when that company made a tender offer for a portion of its stock,
19,551
(1,656)
(563)
41,620
(1,545)
914 --
23,884
(1,215)
4,182 6,156
(6) 1,035
43,810 (100)
(1,876)
4,844
(467) 2,102
21,000
(3,066)
(563)
41,620
(1,545)
914 --
14,235 (724)
2,492 2,937
(2) 493
--
(891) 90
39,114 (63)
35,270 (862)
446 --
6,914 (226)
2,472
2,210
1,524
265 --
(481) 90
9,623
-------- -------- -------- -------- -------- --------
2,658
82,043 41,102 72,410 27,742 68,195 31,497
67,260 36,651 65,089 21,875 45,298 14,877
-------- -------- -------- -------- -------- --------
Total Earnings .............. $149,303 $ 77,753 $137,499 $ 49,617 $113,493 $ 46,374
======== ======== ======== ======== ======== ========
unusual sales of assets ..
Net Earnings
After Tax
(353)
3,448
1,917
1,136
8,490
2,171
buying both from us and other shareholders. At GEICO’s request,
we tendered a quantity of shares that kept our ownership
percentage the same after the transaction as before. The
proportional nature of our sale permitted us to treat the
proceeds as a dividend. Unlike individuals, corporations net
considerably more when earnings are derived from dividends rather
than from capital gains, since the effective Federal income tax
rate on dividends is 6.9% versus 28% on capital gains.
Even with this special item added in, our total dividends
from GEICO in 1983 were considerably less than our share of
GEICO’s earnings. Thus it is perfectly appropriate, from both an
accounting and economic standpoint, to include the redemption
proceeds in our reported earnings. It is because the item is
large and unusual that we call your attention to it.
The table showing you our sources of earnings includes
dividends from those non-controlled companies whose marketable
equity securities we own. But the table does not include
earnings those companies have retained that are applicable to our
ownership. In aggregate and over time we expect those
undistributed earnings to be reflected in market prices and to
increase our intrinsic business value on a dollar-for-dollar
basis, just as if those earnings had been under our control and
reported as part of our profits. That does not mean we expect
all of our holdings to behave uniformly; some will disappoint us,
others will deliver pleasant surprises. To date our experience
has been better than we originally anticipated, In aggregate, we
have received far more than a dollar of market value gain for
every dollar of earnings retained.
The following table shows our 1983 yearend net holdings in
marketable equities. All numbers represent 100% of Berkshire’s
holdings, and 80% of Wesco’s holdings. The portion attributable
to minority shareholders of Wesco has been excluded.
Market
---------- ----------
(000s omitted)
General Foods Corporation(a) .....
GEICO Corporation ................
Handy & Harman ...................
Interpublic Group of Companies, Inc.
Media General ....................
Ogilvy & Mather International ....
R. J. Reynolds Industries, Inc.(a)
Time, Inc. .......................
The Washington Post Company ......
(a) WESCO owns shares in these companies.
Based upon present holdings and present dividend rates -
excluding any special items such as the GEICO proportional
redemption last year - we would expect reported dividends from
this group to be approximately $39 million in 1984. We can also
make a very rough guess about the earnings this group will retain
that will be attributable to our ownership: these may total about
$65 million for the year. These retained earnings could well
have no immediate effect on market prices of the securities.
Over time, however, we feel they will have real meaning.
In addition to the figures already supplied, information
No. of Shares Cost
-------------
690,975
4,451,544
6,850,000
2,379,200
636,310
197,200
250,400
5,618,661
901,788
1,868,600
Affiliated Publications, Inc. .... $ 3,516
$ 26,603
228,698
398,156
42,231
33,088
11,191
12,833
341,334
56,860
136,875
---------- ----------
$558,863 $1,287,869
7,485 18,044
---------- ----------
Total Common Stocks .............. $566,348 $1,305,913
========== ==========
All Other Common Stockholdings ...
163,786
47,138
27,318
4,056
3,191
2,580
268,918
27,732
10,628
regarding the businesses we control appears in Management’s
Discussion on pages 40-44. The most significant of these are
Buffalo Evening News, See’s, and the Insurance Group, to which we
will give some special attention here.
Buffalo Evening News
First, a clarification: our corporate name is Buffalo
Evening News, Inc. but the name of the newspaper, since we began
a morning edition a little over a year ago, is Buffalo News.
In 1983 the News somewhat exceeded its targeted profit
margin of 10% after tax. Two factors were responsible: (1) a
state income tax cost that was subnormal because of a large loss
carry-forward, now fully utilized, and (2) a large drop in the
per-ton cost of newsprint (an unanticipated fluke that will be
reversed in 1984).
Although our profit margins in 1983 were about average for
newspapers such as the News, the paper’s performance,
nevertheless, was a significant achievement considering the
economic and retailing environment in Buffalo.
Buffalo has a concentration of heavy industry, a segment of
the economy that was hit particularly hard by the recent
recession and that has lagged the recovery. As Buffalo consumers
have suffered, so also have the paper’s retailing customers.
Their numbers have shrunk over the past few years and many of
those surviving have cut their linage.
Within this environment the News has one exceptional
strength: its acceptance by the public, a matter measured by the
paper’s “penetration ratio” - the percentage of households within
the community purchasing the paper each day. Our ratio is
superb: for the six months ended September 30, 1983 the News
stood number one in weekday penetration among the 100 largest
papers in the United States (the ranking is based on “city zone”
numbers compiled by the Audit Bureau of Circulations).
In interpreting the standings, it is important to note that
many large cities have two papers, and that in such cases the
penetration of either paper is necessarily lower than if there
were a single paper, as in Buffalo. Nevertheless, the list of
the 100 largest papers includes many that have a city to
themselves. Among these, the News is at the top nationally, far
ahead of many of the country’s best-known dailies.
Among Sunday editions of these same large dailies, the News
ranks number three in penetration - ten to twenty percentage
points ahead of many well-known papers. It was not always this
way in Buffalo. Below we show Sunday circulation in Buffalo in
the years prior to 1977 compared with the present period. In
that earlier period the Sunday paper was the Courier-Express (the
News was not then publishing a Sunday paper). Now, of course, it
is the News.
Average Sunday Circulation
--------------------------
Year
----
1970
1971
1972
1973
1974
1975
1976
Circulation
-----------
314,000
306,000
302,000
290,000
278,000
269,000
270,000
1984 (Current)
376,000
We believe a paper’s penetration ratio to be the best
measure of the strength of its franchise. Papers with unusually
high penetration in the geographical area that is of prime
interest to major local retailers, and with relatively little
circulation elsewhere, are exceptionally efficient buys for those
retailers. Low-penetration papers have a far less compelling
message to present to advertisers.
In our opinion, three factors largely account for the
unusual acceptance of the News in the community. Among these,
points 2 and 3 also may explain the popularity of the Sunday News
compared to that of the Sunday Courier-Express when it was the
sole Sunday paper:
(1) The first point has nothing to do with merits of the
News. Both emigration and immigration are relatively
low in Buffalo. A stable population is more interested
and involved in the activities of its community than is
a shifting population - and, as a result, is more
interested in the content of the local daily paper.
Increase the movement in and out of a city and
penetration ratios will fall.
(2) The News has a reputation for editorial quality and
integrity that was honed by our longtime editor, the
legendary Alfred Kirchhofer, and that has been preserved
and extended by Murray Light. This reputation was
enormously important to our success in establishing a
Sunday paper against entrenched competition. And without
a Sunday edition, the News would not have survived in the
long run.
(3) The News lives up to its name - it delivers a very
unusual amount of news. During 1983, our “news hole”
(editorial material - not ads) amounted to 50% of the
newspaper’s content (excluding preprinted inserts).
Among papers that dominate their markets and that are of
comparable or larger size, we know of only one whose news
hole percentage exceeds that of the News. Comprehensive
figures are not available, but a sampling indicates an
average percentage in the high 30s. In other words, page
for page, our mix gives readers over 25% more news than
the typical paper. This news-rich mixture is by intent.
Some publishers, pushing for higher profit margins, have
cut their news holes during the past decade. We have
maintained ours and will continue to do so. Properly
written and edited, a full serving of news makes our
paper more valuable to the reader and contributes to our
unusual penetration ratio.
Despite the strength of the News’ franchise, gains in ROP
linage (advertising printed within the newspaper pages as
contrasted to preprinted inserts) are going to be very difficult
to achieve. We had an enormous gain in preprints during 1983:
lines rose from 9.3 million to 16.4 million, revenues from $3.6
million to $8.1 million. These gains are consistent with
national trends, but exaggerated in our case by business we
picked up when the Courier-Express closed.
On balance, the shift from ROP to preprints has negative
economic implications for us. Profitability on preprints is less
and the business is more subject to competition from alternative
means of delivery. Furthermore, a reduction in ROP linage means
less absolute space devoted to news (since the news hole
percentage remains constant), thereby reducing the utility of the
paper to the reader.
Stan Lipsey became Publisher of the Buffalo News at midyear
upon the retirement of Henry Urban. Henry never flinched during
the dark days of litigation and losses following our introduction
of the Sunday paper - an introduction whose wisdom was questioned
by many in the newspaper business, including some within our own
building. Henry is admired by the Buffalo business community,
he’s admired by all who worked for him, and he is admired by
Charlie and me. Stan worked with Henry for several years, and
has worked for Berkshire Hathaway since 1969. He has been
personally involved in all nuts-and-bolts aspects of the
newspaper business from editorial to circulation. We couldn’t do
better.
See’s Candy Shops
The financial results at See’s continue to be exceptional.
The business possesses a valuable and solid consumer franchise
and a manager equally valuable and solid.
In recent years See’s has encountered two important
problems, at least one of which is well on its way toward
solution. That problem concerns costs, except those for raw
materials. We have enjoyed a break on raw material costs in
recent years though so, of course, have our competitors. One of
these days we will get a nasty surprise in the opposite
direction. In effect, raw material costs are largely beyond our
control since we will, as a matter of course, buy the finest
ingredients that we can, regardless of changes in their price
levels. We regard product quality as sacred.
But other kinds of costs are more controllable, and it is in
this area that we have had problems. On a per-pound basis, our
costs (not including those for raw materials) have increased in
the last few years at a rate significantly greater than the
increase in the general price level. It is vital to our
competitive position and profit potential that we reverse this
trend.
In recent months much better control over costs has been
attained and we feel certain that our rate of growth in these
costs in 1984 will be below the rate of inflation. This
confidence arises out of our long experience with the managerial
talents of Chuck Huggins. We put Chuck in charge the day we took
over, and his record has been simply extraordinary, as shown by
the following table:
52-53 Week Year
Ended About
December 31
Sales
Revenues
Operating
Profits
After Taxes
Number of
Pounds of
Candy Sold
Number of
Stores Open
at Year End
------------------- ------------ ----------- ---------- -----------
1983 (53 weeks) ...
1982 ..............
1981 ..............
1980 ..............
1979 ..............
1978 ..............
1977 ..............
1976 (53 weeks) ...
1975 ..............
1974 ..............
1973 ..............
1972 ..............
$133,531,000
123,662,000
112,578,000
97,715,000
87,314,000
73,653,000
62,886,000
56,333,000
50,492,000
41,248,000
35,050,000
31,337,000
$13,699,000
11,875,000
10,779,000
7,547,000
6,330,000
6,178,000
6,154,000
5,569,000
5,132,000
3,021,000
1,940,000
2,083,000
24,651,000 207
24,216,000 202
24,052,000 199
24,065,000 191
23,985,000 188
22,407,000 182
20,921,000 179
20,553,000 173
19,134,000 172
17,883,000 170
17,813,000 169
16,954,000 167
The other problem we face, as the table suggests, is our
recent inability to achieve meaningful gains in pounds sold. The
industry has the same problem. But for many years we
outperformed the industry in this respect and now we are not.
The poundage volume in our retail stores has been virtually
unchanged each year for the past four, despite small increases
every year in the number of shops (and in distribution expense as
well). Of course, dollar volume has increased because we have
raised prices significantly. But we regard the most important
measure of retail trends to be units sold per store rather than
dollar volume. On a same-store basis (counting only shops open
throughout both years) with all figures adjusted to a 52-week
year, poundage was down .8 of 1% during 1983. This small decline
was our best same-store performance since 1979; the cumulative
decline since then has been about 8%. Quantity-order volume,
about 25% of our total, has plateaued in recent years following
very large poundage gains throughout the 1970s.
We are not sure to what extent this flat volume - both in
the retail shop area and the quantity order area - is due to our
pricing policies and to what extent it is due to static industry
volume, the recession, and the extraordinary share of market we
already enjoy in our primary marketing area. Our price increase
for 1984 is much more modest than has been the case in the past
few years, and we hope that next year we can report better volume
figures to you. But we have no basis to forecast these.
Despite the volume problem, See’s strengths are many and
important. In our primary marketing area, the West, our candy is
preferred by an enormous margin to that of any competitor. In
fact, we believe most lovers of chocolate prefer it to candy
costing two or three times as much. (In candy, as in stocks,
price and value can differ; price is what you give, value is what
you get.) The quality of customer service in our shops - operated
throughout the country by us and not by franchisees is every bit
as good as the product. Cheerful, helpful personnel are as much
a trademark of See’s as is the logo on the box. That’s no small
achievement in a business that requires us to hire about 2000
seasonal workers. We know of no comparably-sized organization
that betters the quality of customer service delivered by Chuck
Huggins and his associates.
Because we have raised prices so modestly in 1984, we expect
See’s profits this year to be about the same as in 1983.
Insurance - Controlled Operations
We both operate insurance companies and have a large
economic interest in an insurance business we don’t operate,
GEICO. The results for all can be summed up easily: in
aggregate, the companies we operate and whose underwriting
results reflect the consequences of decisions that were my
responsibility a few years ago, had absolutely terrible results.
Fortunately, GEICO, whose policies I do not influence, simply
shot the lights out. The inference you draw from this summary is
the correct one. I made some serious mistakes a few years ago
that came home to roost.
The industry had its worst underwriting year in a long time,
as indicated by the table below:
1972 ....................
1973 ....................
1974 ....................
1975 ....................
1976 ....................
1977 ....................
1978 ....................
1979 ....................
1980 ....................
1981 ....................
Yearly Change in Premiums Written (%) -------------
10.2
8.0
6.2
11.0
21.9
19.8
12.8
10.3
6.0
3.9
Combined Ratio
after Policy-
holder Dividends
----------------
96.2
99.2
105.4
107.9
102.4
97.2
97.5
100.6
103.1
106.0
1982 (Revised) .......... 4.4 109.7
1983 (Estimated) ........ 4.6 111.0
Source: Best’s Aggregates and Averages.
Best’s data reflect the experience of practically the entire
industry, including stock, mutual, and reciprocal companies. The
combined ratio represents total insurance costs (losses incurred
plus expenses) compared to revenue from premiums; a ratio below
100 indicates an underwriting profit and one above 100 indicates
a loss.
For the reasons outlined in last year’s report, we expect the poor industry experience of 1983 to be more or less typical for a good many years to come. (As Yogi Berra put it: “It will be deja vu all over again.”) That doesn’t mean we think the figures won’t bounce around a bit; they are certain to. But we believe it highly unlikely that the combined ratio during the balance of the decade will average significantly below the 1981-1983 level. Based on our expectations regarding inflation - and we are as pessimistic as ever on that front - industry premium volume must grow about 10% annually merely to stabilize loss ratios at present levels.
Our own combined ratio in 1983 was 121. Since Mike Goldberg
recently took over most of the responsibility for the insurance
operation, it would be nice for me if our shortcomings could be
placed at his doorstep rather than mine. But unfortunately, as
we have often pointed out, the insurance business has a long
lead-time. Though business policies may be changed and personnel
improved, a significant period must pass before the effects are
seen. (This characteristic of the business enabled us to make a
great deal of money in GEICO; we could picture what was likely to
happen well before it actually occurred.) So the roots of the
1983 results are operating and personnel decisions made two or
more years back when I had direct managerial responsibility for
the insurance group.
Despite our poor results overall, several of our managers
did truly outstanding jobs. Roland Miller guided the auto and
general liability business of National Indemnity Company and
National Fire and Marine Insurance Company to improved results,
while those of competitors deteriorated. In addition, Tom Rowley
at Continental Divide Insurance - our fledgling Colorado
homestate company - seems certain to be a winner. Mike found him
a little over a year ago, and he was an important acquisition.
We have become active recently - and hope to become much
more active - in reinsurance transactions where the buyer’s
overriding concern should be the seller’s long-term
creditworthiness. In such transactions our premier financial
strength should make us the number one choice of both claimants
and insurers who must rely on the reinsurer’s promises for a
great many years to come.
A major source of such business is structured settlements -
a procedure for settling losses under which claimants receive
periodic payments (almost always monthly, for life) rather than a
single lump sum settlement. This form of settlement has
important tax advantages for the claimant and also prevents his
squandering a large lump-sum payment. Frequently, some inflation
protection is built into the settlement. Usually the claimant
has been seriously injured, and thus the periodic payments must
be unquestionably secure for decades to come. We believe we
offer unparalleled security. No other insurer we know of - even
those with much larger gross assets - has our financial strength.
We also think our financial strength should recommend us to
companies wishing to transfer loss reserves. In such
transactions, other insurance companies pay us lump sums to
assume all (or a specified portion of) future loss payments
applicable to large blocks of expired business. Here also, the
company transferring such claims needs to be certain of the
transferee’s financial strength for many years to come. Again,
most of our competitors soliciting such business appear to us to
have a financial condition that is materially inferior to ours.
Potentially, structured settlements and the assumption of
loss reserves could become very significant to us. Because of
their potential size and because these operations generate large
amounts of investment income compared to premium volume, we will
show underwriting results from those businesses on a separate
line in our insurance segment data. We also will exclude their
effect in reporting our combined ratio to you. We “front end” no
profit on structured settlement or loss reserve transactions, and
all attributable overhead is expensed currently. Both businesses
are run by Don Wurster at National Indemnity Company.
Insurance - GEICO
Geico’s performance during 1983 was as good as our own insurance performance was poor. Compared to the industry’s combined ratio of 111, GEICO wrote at 96 after a large voluntary accrual for policyholder dividends. A few years ago I would not have thought GEICO could so greatly outperform the industry. Its superiority reflects the combination of a truly exceptional business idea and an exceptional management.
Jack Byrne and Bill Snyder have maintained extraordinary
discipline in the underwriting area (including, crucially,
provision for full and proper loss reserves), and their efforts
are now being further rewarded by significant gains in new
business. Equally important, Lou Simpson is the class of the
field among insurance investment managers. The three of them are
some team.
We have approximately a one-third interest in GEICO. That
gives us a $270 million share in the company’s premium volume, an
amount some 80% larger than our own volume. Thus, the major
portion of our total insurance business comes from the best
insurance book in the country. This fact does not moderate by an
iota the need for us to improve our own operation.
Stock Splits and Stock Activity
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.
One of our goals is to have Berkshire Hathaway stock sell at
a price rationally related to its intrinsic business value. (But
note “rationally related”, not “identical”: if well-regarded
companies are generally selling in the market at large discounts
from value, Berkshire might well be priced similarly.) The key to
a rational stock price is rational shareholders, both current and
prospective.
If the holders of a company’s stock and/or the prospective
buyers attracted to it are prone to make irrational or emotion-
based decisions, some pretty silly stock prices are going to
appear periodically. Manic-depressive personalities produce
manic-depressive valuations. Such aberrations may help us in
buying and selling the stocks of other companies. But we think
it is in both your interest and ours to minimize their occurrence
in the market for Berkshire.
To obtain only high quality shareholders is no cinch. Mrs.
Astor could select her 400, but anyone can buy any stock.
Entering members of a shareholder “club” cannot be screened for
intellectual capacity, emotional stability, moral sensitivity or
acceptable dress. Shareholder eugenics, therefore, might appear
to be a hopeless undertaking.
In large part, however, we feel that high quality ownership can be attracted and maintained if we consistently communicate our business and ownership philosophy - along with no other conflicting messages - and then let self selection follow its course. For example, self selection will draw a far different crowd to a musical event advertised as an opera than one advertised as a rock concert even though anyone can buy a ticket to either.
Through our policies and communications - our
“advertisements” - we try to attract investors who will
understand our operations, attitudes and expectations. (And,
fully as important, we try to dissuade those who won’t.) We want
those who think of themselves as business owners and invest in
companies with the intention of staying a long time. And, we
want those who keep their eyes focused on business results, not
market prices.
Investors possessing those characteristics are in a small
minority, but we have an exceptional collection of them. I
believe well over 90% - probably over 95% - of our shares are
held by those who were shareholders of Berkshire or Blue Chip
five years ago. And I would guess that over 95% of our shares
are held by investors for whom the holding is at least double the
size of their next largest. Among companies with at least
several thousand public shareholders and more than $1 billion of
market value, we are almost certainly the leader in the degree to
which our shareholders think and act like owners. Upgrading a
shareholder group that possesses these characteristics is not
easy.
Were we to split the stock or take other actions focusing on
stock price rather than business value, we would attract an
entering class of buyers inferior to the exiting class of
sellers. At $1300, there are very few investors who can’t afford
a Berkshire share. Would a potential one-share purchaser be
better off if we split 100 for 1 so he could buy 100 shares?
Those who think so and who would buy the stock because of the
split or in anticipation of one would definitely downgrade the
quality of our present shareholder group. (Could we really
improve our shareholder group by trading some of our present
clear-thinking members for impressionable new ones who,
preferring paper to value, feel wealthier with nine $10 bills
than with one $100 bill?) People who buy for non-value reasons
are likely to sell for non-value reasons. Their presence in the
picture will accentuate erratic price swings unrelated to
underlying business developments.
We will try to avoid policies that attract buyers with a
short-term focus on our stock price and try to follow policies
that attract informed long-term investors focusing on business
values. just as you purchased your Berkshire shares in a market
populated by rational informed investors, you deserve a chance to
sell - should you ever want to - in the same kind of market. We
will work to keep it in existence.
One of the ironies of the stock market is the emphasis on
activity. Brokers, using terms such as “marketability” and
“liquidity”, sing the praises of companies with high share
turnover (those who cannot fill your pocket will confidently fill
your ear). But investors should understand that what is good for
the croupier is not good for the customer. A hyperactive stock
market is the pickpocket of enterprise.
For example, consider a typical company earning, say, 12% on
equity. Assume a very high turnover rate in its shares of 100%
per year. If a purchase and sale of the stock each extract
commissions of 1% (the rate may be much higher on low-priced
stocks) and if the stock trades at book value, the owners of our
hypothetical company will pay, in aggregate, 2% of the company’s
net worth annually for the privilege of transferring ownership.
This activity does nothing for the earnings of the business, and
means that 1/6 of them are lost to the owners through the
“frictional” cost of transfer. (And this calculation does not
count option trading, which would increase frictional costs still
further.)
All that makes for a rather expensive game of musical
chairs. Can you imagine the agonized cry that would arise if a
governmental unit were to impose a new 16 2/3% tax on earnings of
corporations or investors? By market activity, investors can
impose upon themselves the equivalent of such a tax.
Days when the market trades 100 million shares (and that
kind of volume, when over-the-counter trading is included, is
today abnormally low) are a curse for owners, not a blessing -
for they mean that owners are paying twice as much to change
chairs as they are on a 50-million-share day. If 100 million-
share days persist for a year and the average cost on each
purchase and sale is 15 cents a share, the chair-changing tax for
investors in aggregate would total about $7.5 billion - an amount
roughly equal to the combined 1982 profits of Exxon, General
Motors, Mobil and Texaco, the four largest companies in the
Fortune 500.
These companies had a combined net worth of $75 billion at
yearend 1982 and accounted for over 12% of both net worth and net
income of the entire Fortune 500 list. Under our assumption
investors, in aggregate, every year forfeit all earnings from
this staggering sum of capital merely to satisfy their penchant
for “financial flip-flopping”. In addition, investment
management fees of over $2 billion annua