1981 Shareholder Letter

Date: February 26, 1982 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1981 operating earnings of $39.7 million represented 15.2% of beginning equity capital, down from 17.8% in 1980. This letter explains why Buffett prefers buying small portions of wonderful businesses at reasonable prices over buying entire mediocre businesses at cheap prices.

Key Points

Non-Controlled Ownership Earnings

"Our belief is that, in aggregate, those undistributed and, therefore, unrecorded earnings will be translated into tangible value for Berkshire shareholders just as surely as if subsidiaries we control had earned, retained and reported similar earnings."

The Core Acquisition Philosophy

"Regardless of the impact upon immediately reportable earnings, 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."

Corporate Acquisitions Critique

Buffett identified three unspoken motivations behind most high-premium acquisitions:

1. Animal spirits — Leaders relish increased activity and challenge
2. Empire building — Management prefers larger domains
3. Overconfidence —相信自己比市场更懂得估值

Famous Quotes

"In the long run, managements stressing accounting appearance over economic substance usually achieve little of either."

"If something's not worth doing at all, it's not worth doing well."

Related

• letter-1980 — Previous year
• letter-1982 — Following year
• warren-buffett
• capital-allocation