Category: Projects

  • 2007

    You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident…

  • 2006

    Charlie Munger—my partner and Berkshire’s vice chairman—and I run what has turned out to be a big business, one with 217,000 employees and annual revenues approaching $100 billion. We certainly didn’t plan it that way. Charlie began as a lawyer, and I thought of myself as a security analyst. Sitting in those seats, we both…

  • 2005

    Long ago, Mark Twain said: “A man who tries to carry a cat home by its tail will learn a lesson that can be learned in no other way.” If Twain were around now, he might try winding up a derivatives business. After a few days, he would opt for cats. A business in which…

  • 2004

    In one respect, 2004 was a remarkable year for the stock market, a fact buried in the maze of numbers on page 2[1]. If you examine the 35 years since the 1960s ended, you will find that an investor’s return, including dividends, from owning the S&P has averaged 11.2% annually (well above what we expect…

  • 2003

    In last year’s report, I took a look at how “independent” directors—as defined by statute—had performed in the mutual fund field. The Investment Company Act of 1940 mandated such directors, and that means we’ve had an extended test of what statutory standards produce. In our examination last year, we looked at the record of fund…

  • 2002

    Table of Contents My managerial model is Eddie Bennett, who was a batboy. In 1919, at age 19, Eddie began his work with the Chicago White Sox, who that year went to the World Series. The next year, Eddie switched to the Brooklyn Dodgers, and they, too, won their league title. Our hero, however, smelled…

  • 2001

    Table of Contents Two years ago, reporting on 1999, I said that we had experienced both the worst absolute and relative performance in our history. I added that “relative results are what concern us,” a viewpoint I’ve had since forming my first investment partnership on May 5, 1956. Meeting with my seven founding limited partners…

  • 2000

    We find it meaningful when an owner cares about whom he sells to. We like to do business with someone who loves his company, not just the money that a sale will bring him (though we certainly understand why he likes that as well). When this emotional attachment exists, it signals that important qualities will…

  • 1999

    Berkshire’s collection of managers is unusual in several important ways. As one example, a very high percentage of these men and women are independently wealthy, having made fortunes in the businesses that they run. They work neither because they need the money nor because they are contractually obligated to—we have no contracts at Berkshire. Rather,…

  • 1998

    Normally, a gain of 48.3% would call for handsprings—but not this year. Remember Wagner, whose music has been described as better than it sounds? Well, Berkshire’s progress in 1998—though more than satisfactory—was not as good as it looks. That’s because most of that 48.3% gain came from our issuing shares in acquisitions. To explain: Our…

  • 1997

    Unconventional Commitments When we can’t find our favorite commitment—a well-run and sensibly-priced business with fine economics—we usually opt to put new money into very short-term instruments of the highest quality. Sometimes, however, we venture elsewhere. Obviously we believe that the alternative commitments we make are more likely to result in profit than loss. But we…

  • 1996

    Executive compensation at GEICO Today, the bonuses received by dozens of top executives, starting with Tony, are based upon only two key variables: (1) growth in voluntary auto policies and (2) underwriting profitability on “seasoned” auto business (meaning policies that have been on the books for more than one year). In addition, we use the…

  • 1995

    How Buffett and Munger grow Berkshire’s portfolio of companies Charlie Munger, Berkshire’s Vice Chairman and my partner, and I want to build a collection of companies—both wholly- and partly-owned—that have excellent economic characteristics and that are run by outstanding managers. Our favorite acquisition is the negotiated transaction that allows us to purchase 100% of such…

  • 1994

    “If something is not worth doing at all, it’s not worth doing well.” Charles Munger Waiting for opportunities Nevertheless, we will stick with the approach that got us here and try not to relax our standards. Ted Williams, in The Story of My Life, explains why: “My argument is, to be a good hitter, you’ve…

  • 1993

    Book value is an accounting term that measures the capital, including retained earnings, that has been put into a business. Intrinsic value is a present-value estimate of the cash that can be taken out of a business during its remaining life. At most companies, the two values are unrelated. At Berkshire, we have no view…

  • 1992

    When management is “hell-bent on expansion” We wish to increase Berkshire’s size only when doing that also increases the wealth of its owners. Those two objectives do not necessarily go hand-in-hand as an amusing but value-destroying experience in our past illustrates. On that occasion, we had a significant investment in a bank whose management was…

  • 1991

    “If at first you do succeed, quit trying.” If my universe of business possibilities was limited, say, to private companies in Omaha, I would, first, try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few…

  • 1990

    The tendency of executives to mindlessly imitate the behavior of their peers The banking business is no favorite of ours. When assets are twenty times equity—a common ratio in this industry—mistakes that involve only a small portion of assets can destroy a major portion of equity. And mistakes have been the rule rather than the…

  • 1989

    Taxes and Berkshire’s investment policy Because of the way the tax law works, the Rip Van Winkle style of investing that we favor—if successful—has an important mathematical edge over a more frenzied approach. Let’s look at an extreme comparison. Imagine that Berkshire had only $1, which we put in a security that doubled by yearend…

  • 1988

    What needs to be reported What needs to be reported is data—whether GAAP, non-GAAP, or extra-GAAP—that helps financially-literate readers answer three key questions: (1) Approximately how much is this company worth? (2) What is the likelihood that it can meet its future obligations? and (3) How good a job are its managers doing, given the…