1983 Shareholder Letter

Date: March 14, 1984 Author: Warren Buffett Company: Berkshire Hathaway

Overview

This landmark letter articulated Berkshire's core business principles for the many new shareholders from the Blue Chip Stamps merger. It established the partnership framework that would guide Berkshire for decades.

Key Principles

Partnership Attitude

"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. 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."

We Eat Our Own Cooking

"Our directors are all major shareholders of Berkshire Hathaway. In the case of at least four of the five, over 50% of family net worth is represented by holdings of Berkshire."

Per-Share Progress Over Size

"Our long term economic goal is to maximize the average annual rate of gain in intrinsic business value on a per-share basis. We are certain that the rate of per-share progress will diminish in the future - a greatly enlarged capital base will see to that."

Prefer Unreportable Earnings

"When acquisition costs are similar, we much prefer to purchase $2 of earnings that is not reportable by us under standard accounting principles than to purchase $1 of earnings that is reportable."

This is because entire businesses (earnings fully reportable) often sell for double the pro-rata price of small portions (earnings largely unreportable).

The Five-Year Retention Test

"We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis."

Conservative Financing

"We will reject interesting opportunities rather than over-leverage our balance sheet. This conservatism has penalized our results but it is the only behavior that leaves us comfortable."

Famous Quotes

"A managerial 'wish list' will not be filled at shareholder expense."

Related

• letter-1982 — Previous year
• letter-1984 — Following year
• warren-buffett
• capital-allocation