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Berkshire Hathaway Shareholder Letters
In case you have not seen it, the Berkshire Hathaway Shareholder Letters are in the public domain, all the way from 1977! They are a great read about how one of the most iconoic companies in the world is run. Warren Buffett writing style is a mixture of phenomenal insight and humor. A very hard thing to do propely. Here are some gems I came across after reading them:
The textile industry illustrates in textbook style how producers of relatively undifferentiated goods in capital intensive businesses must earn inadequate returns except under conditions of tight supply or real shortage.
Now replace the “textile industry” with AI and “undifferentiated good” with LLMs ! Eerie similarities !
We would rather buy 10% of Wonderful Business T at X per share than 100% of T at 2X per share. Most corporate managers prefer just the reverse, and have no shortage of stated rationales for their behavior.
During 1981 we came quite close to a major purchase involving both a business and a manager we liked very much. However, the price finally demanded, considering alternative uses for the funds involved, would have left our owners worse off than before the purchase. The empire would have been larger, but the citizenry would have been poorer.
Compare this sentiment to the prevailing one of insane funding rounds without any product or acquisitions at eye popping numbers with little to no revenue.
If corporate pregnancy is going to be the consequence of corporate mating, the time to face that fact is before the moment of ecstasy.
lol !
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.
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.
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.
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.
We will not engage in unfriendly takeovers. We can promise complete confidentiality and a very fast answer - customarily within five minutes - as to whether we’re interested.
If you have ever engaged with a VC anytime, they are anything but fast. “Let’s keep in touch” is the usual phrase. In order to make decisions, one should be absolutely clear as to what they are looking for. A deep conviction, rather than the “flavor of the month”, which is usually someone else’s convictions. Then, when you see something that impresses you, a decision is easy and instantaneous.
These snippets are pure gold and a must read for any leader. What strikes me is that these are often the opposite of what you see in markets today. They are crystal clear about their vision / intention and every decision is intentional towards it.
PS: I have not read all the letters, but will update this blog as I read through them with intresting blurbs.