The “Missing” Berkshire Hathaway Letters (1969-1976)
There is a conspicuous gap between the last Buffett Partnership letter, written in 1969, and the first Berkshire Hathaway letter posted on the company’s website, written in 1978. Recently I discovered several of the “missing” documents.
A consistent theme in Buffett’s early management of Berkshire is that capital from the textile operation was best redeployed in either marketable securities or business acquisitions. From 1969 to 1977 the textile operation averaged a return on capital of less than 3%, while the insurance and banking subsidiaries averaged well above 10%. Buffett’s refusal to shut down the Berkshire mills resulted in an immense opportunity cost compounded over nearly 20 years.
The moral seems to be that basing investment solely upon asset value (quite significant in Berkshire’s case) is not intelligent. This was a rewarding activity when security analysis was in its infancy, but a great deal has changed since then. One of the best criticisms of the “Graham approach”—which involves net working capital bargains, classic arbitrage, etc.—can be found in Victor Niederhoffer’s The Education of a Speculator:
“On the rare occasion when a true guru shares secrets of a recurring, well-defined systematic nature, the cycles are about to change. Better to go against. What looks good today is encapsulated in the market tomorrow and will change the expected profits, the probabilities, and the paths of least resistance in subsequent periods. A good bet is that all systems will stop working when you use them.”
This criticism extends to merger arbitrage, convertible arbitrage and liquidations, as well as to other approaches that are less systematic. Recent experience suggests that even value-oriented investors are unsafe.
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[...] The “Missing” Berkshire Hathaway Letters (1969-1976) [...]
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[...] (Note: You can find PDF’s of the more recent letters (post 1977) here: http://www.berkshirehathaway.com/letters/letters.html, and the text of the 1969-1976 letters here: http://stableboyselections.com/2008/08/25/the-missing-berkshire-hathaway-letters-1969-1976/.) [...]
Great find. I have the 1973-1976 letters in pdf. If you send me an email I’ll pass those along to you.
Would love the letters in PDF if you could be so kind. Thanks in advance for your time
I would appreciate it if you would not mind sending the 1973-1976 letters in pdf.
Thank you.
Joe, If you still have these available, could you forward them to me?
Thx.
Cogitator, thanks for posting!! John
Did he write a letter in 1970?
FM,
In the 1971 letter, Buffett writes, “As mentioned last year, Ken Chace and his management group have been swimming against a strong industry tide.”
I will try to find a copy of the 1970 letter next Wednesday. Frankly, I doubt it will be of any consequence to us, since the market has changed a great deal over the years.
Cogitator,
You should post historical financial statements of great investments, such as GEICO in the mid-1970s, Coca-Cola in the late ’80s, and whatever else, if you have them available. Having an archive of that information would be a valuable service.
Did you ever find the 1970 letter?
In Appendix III of “The Midas Touch” (by John Train, 1987) there are some extracts from the early letters. One or two of those extracts purport to be from the 1970 letter.
Are these letters still available? Links appear to not work for me :0(
The New Yorker ran an article recently which howled against the special tax rules for “carried interests” (http://www.newyorker.com/talk/financial/2010/03/15/100315ta_talk_surowiecki). Warren Buffett was quoted in this article, in support of the author’s thesis. Curiously, Mr Buffett made his first $25 million from his carried interest in the Buffett Partnership Limited. Presumably he took advantage of the very tax concession which he now opposes!
I was thinking that just because you disagree with something, doesn’t mean it’s inappropriate to take advantage of it while it’s still moral and legal. Taxes are inevitable, and where they come from is always debatable. He was fortunate to make a fortune partly helped by avoiding taxes via earnings that came from carried interest/capital gains in his early career. The fact that he disagrees with this as a way to structure the tax system doesn’t preclude the idea that he would do everything possible to gain from it while it was possible to do so. It does make the feat somewhat unlikely to ever be repeated, though, if you see tax structures balancing tax rates on carried interest and earnings in the future. Sadly for people who can compound capital better than they can earn it as salary.
Hi, i write from germany. I am interested in Berkshire´s annual letters from before 1970. When i wanted to download i saw broken links/ errors. So can you help me? Where can i find these letters again? Thanks to you from germany.