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1992 Shareholder Letter

Buffett's 1992 letter presents the annual performance chart comparing Berkshire vs S&P 500, discusses the Salomon aftermath, and explains why issuing shares requires 'equal value.'

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1992 Shareholder Letter

Date: March 1, 1993 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1992 per-share book value increased 20.3% (S&P 7.6%), with book value reaching $7,745 — a 23.6% compound annual return over 28 years. Net worth increased $1.52 billion, 98% from earnings and portfolio appreciation.

Key Points

First Annual Performance Chart

This letter introduced the annual comparison chart showing Berkshire's per-share net worth change versus S&P 500 (including dividends) — a practice that continues today.

Three points to remember when evaluating this data:

  1. Many businesses' earnings are unaffected by stock market valuations
  2. Corporate taxes significantly hurt relative performance vs. pre-tax S&P returns
  3. Capital base drag will substantially reduce future advantage over the index

No Issuing Shares Below Intrinsic Value

"We have a firm policy about issuing shares of Berkshire, doing so only when we receive as much value as we give."

When calling convertible debentures in January 1993: $25M converted before yearend, $46M converted in January, $405M redeemed for cash.

Salomon Resolution

Buffett stepped down as Salomon's Interim Chairman after 10 months, noting the company "didn't miss me while I was gone" but "I missed Berkshire." Salomon Brothers reported record pre-tax earnings, 34% above the previous high.

Key people who saved Salomon: Deryck Maughan, Bob Denham, Don Howard, John Macfarlane

Three Predictions

  1. S&P 500 returns over the next decade will be "far less" than the past decade
  2. Berkshire's expanding capital base will substantially reduce its historical advantage relative to the index
  3. Annual results will continue to be volatile due to stock market concentration and super-cat insurance

Famous Quotes

"Practice doesn't make perfect; practice makes permanent." — Golf pro advice that led Buffett to buy "good businesses at fair prices rather than fair businesses at good prices."

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