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1973 Shareholder Letter

Buffett's 1973 letter discusses 17.4% ROE despite stock portfolio losses, Jack Ringwalt's retirement, and the transition to Phil Liesche while maintaining faith in long-term stock investments.

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1973 Shareholder Letter

Date: March 29, 1974 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1973 produced operating earnings of $11,930,592 with a 17.4% return on beginning stockholders' equity — satisfactory but below the 19.8% of 1972. The decline occurred because earnings gains didn't match the increase in shareholders' investment. A significant development was Jack Ringwalt's retirement after building National Indemnity from nothing since 1940, succeeded by Phil Liesche.

Key Points

Jack Ringwalt's Legacy

"During 1973, Jack Ringwalt retired as President of National Indemnity Company after an absolutely brilliant record since founding the business in 1940. He was succeeded by Phil Liesche who, fortunately for us, possesses the same underwriting and managerial philosophy that worked so well for Jack."

Stock Portfolio Losses

Despite strong operating performance, the common stock portfolio had over $12 million in unrealized depreciation at year-end:

"We had significant unrealized depreciation — over $12 million — in our common stock holdings at year-end. Nevertheless, we believe that our common stock portfolio at cost represents good value in terms of intrinsic business worth. In spite of the large unrealized loss at year-end, we would expect satisfactory results from the portfolio over the longer term."

This demonstrated Buffett's willingness to hold investments through short-term losses when he believed intrinsic value exceeded cost.

Textile Industry Challenges

Price controls (Cost of Living Council) prevented matching competitor prices, creating headwinds despite strong demand. The company adopted LIFO inventory accounting to better match current costs against revenues.

Home-State Progress

  • Nebraska and Minnesota: Excellent progress with good growth and acceptable loss ratios
  • Texas: Problems required virtually starting over with new management
  • Iowa: Operations began late in 1973

Famous Quotes

"The textile business has been highly cyclical and price controls may have served to cut down some of the hills while still leaving us with the inevitable valleys."

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