1988 Shareholder Letter

Date: February 28, 1989 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1988 net worth increased $569 million or 20.0%, with per-share book value reaching $2,974.52 — a 23.0% compound annual return over 24 years. The letter explained why the capital base now makes 15% growth require $10.3 billion.

Key Points

Four Negatives Facing Berkshire

1. Less attractive stock market than the past 24 years
2. Higher corporate tax rates on investment income
3. More richly-priced market for acquisitions
4. Industry conditions for Capital Cities/ABC, GEICO, Washington Post "less favorable than five to ten years ago"

The Growing Capital Problem

"Four years ago I told you that we needed profits of $3.9 billion to achieve a 15% annual return over the decade then ahead. Today, for the next decade, a 15% return demands profits of $10.3 billion."

"That seems like a very big number to me and to Charlie Munger."

The Sainted Seven

"Without financial leverage, this group earned about 67% on average equity capital."

Borsheim's Acquisition

Early 1989, Berkshire purchased an 80% interest in Borsheim's, a jewelry business in Omaha — exactly what they look for: "an outstanding business run by people we like, admire, and trust."

Famous Quotes

"The major problem we face, however, is a growing capital base... And also, just as with age, it's better to have this problem continue to grow rather than to have it 'solved.'"

Related

• letter-1987 — Previous year
• letter-1989 — Following year
• warren-buffett
• compounding