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1991 Shareholder Letter

Buffett's 1991 letter introduces the 'Second Job' concept (Salomon chairmanship), explains the bacteria analogy for capital base limits, and discusses the H.H. Brown acquisition.

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1991 Shareholder Letter

Date: February 28, 1992 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1991 net worth increased $2.1 billion or 39.6%, with per-share book value reaching $6,437 — a 23.7% compound annual return over 27 years. The "double-dip" gains from Coca-Cola and Gillette revaluation contributed $1.6 billion.

Key Points

A Second Job — Salomon

Buffett took the interim chairmanship of Salomon Inc after a Treasury fraud scandal, stepping away from Berkshire. The decision sent an implicit message: Berkshire's managers were so outstanding that Buffett could reduce his time involvement without affecting performance.

"Berkshire is my first love and one that will never fade: At the Harvard Business School last year, a student asked me when I planned to retire and I replied, 'About five to ten years after I die.'"

The Double-Dip Is Over

"We got a double-dip benefit, delivered partly by the excellent earnings growth and even more so by the market's reappraisal of these stocks. We believe this reappraisal was warranted. But it can't recur annually: We'll have to settle for a single dip in the future."

H.H. Brown Acquisition

In mid-1991, Berkshire acquired H.H. Brown, a leading North American work shoe and boot manufacturer. Frank Rooney, former Melville Shoe CEO, came out of retirement to run it. Brown had 2,000 employees and earned ~$25 million annually before taxes.

Capital Base Math

With equity capital now at $7.4 billion, Buffett recalculated what 15% annual growth requires:

  • To earn 15% on book value over the next decade, Berkshire must earn $22 billion

The Bacteria Analogy (First Mention)

While the 1989 letter cited Sagan's bacteria analogy, this letter reinforced the point with direct numbers:

"When we were working with capital of $20 million, an idea producing $1 million of profit added five percentage points to our return. Now we need a $370 million idea."

Famous Quotes

"Working with people who cause your stomach to churn seems much like marrying for money — probably a bad idea under any circumstances, but absolute madness if you are already rich."

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