1984 Shareholder Letter

Date: February 25, 1985 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1984 net worth increased $152.6 million or $133 per share, but this 13.6% gain was described as "mediocre" compared to the 20-year compound rate of 22.1%. Buffett honestly addressed how capital size makes high returns mathematically harder.

Key Points

The Capital Drag Problem

"Our twenty-year compounded annual gain in book value has been 22.1% (from $19.46 in 1964 to $1108.77 in 1984), but our gain in 1984 was only 13.6%."

Why 15% Will Require "Big Ideas"

"To earn even 15% annually over the next decade... we would need profits aggregating about $3.9 billion. Accomplishing this will require a few big ideas - small ones just won't do."

"Charlie Munger, my partner in general management, and I do not have any such ideas at present, but our experience has been that they pop up occasionally. (How's that for a strategic plan?)"

Intrinsic Value vs Book Value

"Book value serves as a useful, although somewhat understated, proxy" for intrinsic business value. The gap between market value and book value was widening due to the quality of Berkshire's businesses.

Famous Quotes

"Using my academic voice, I have told you in the past of the drag that a mushrooming capital base exerts upon rates of return. Unfortunately, my academic voice is now giving way to a reportorial voice."

Related

• letter-1983 — Partnership principles established
• letter-1985 — Record year (48.2% with Halley's Comet)
• warren-buffett
• compounding