1989 Shareholder Letter

Date: March 2, 1990 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1989 net worth increased $1.515 billion or 44.4%, with per-share book value reaching $4,296.01 — a 23.8% compound annual return over 25 years. This letter introduced Carl Sagan's bacteria analogy and explained why "double-dip" gains are over.

Key Points

The Bacteria Analogy

Buffett cited Carl Sagan on growth limits:

"A bacterium weighs only about a trillionth of a gram, its descendants, after a day of wild asexual abandon, will collectively weigh as much as a mountain... in two days, more than the sun."

"Some obstacle always impedes this kind of exponential growth. The bugs run out of food, or they poison each other, or they are shy about reproducing in public."

The Double-Dip Is Over

"Our performance to date has benefited from a double-dip: (1) the exceptional gains in intrinsic value that our portfolio companies have achieved; (2) the additional bonus we realized as the market appropriately 'corrected' the prices of these companies... We will continue to benefit from good gains in business value. But our 'catch-up' rewards have been realized."

Capital Base Reality

"From Berkshire's present base of $4.9 billion in net worth, we will find it much more difficult to average 15% annual growth in book value than we did to average 23.8% from the $22 million we began with."

Tax Burden

1989 income included a $712 million tax charge, plus $175 million in taxes paid by major investees.

Famous Quotes

"Even on bad days, Charlie Munger and I do not think of Berkshire as a bacterium."

Related

• letter-1988 — Previous year
• letter-1990 — Following year
• warren-buffett
• compounding