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1993 Shareholder Letter

Buffett's 1993 letter discusses the Dexter Shoe acquisition, GAAP changes affecting unrealized gains, and introduces Ben Graham's 'voting machine vs weighing machine' quote.

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1993 Shareholder Letter

Date: March 1, 1994 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1993 per-share book value increased 14.3% (S&P 10.1%), with book value reaching $8,854 — a 23.3% compound annual return over 29 years. Net worth increased $1.5 billion, though market price rose 39%.

Key Points

Four Non-Operating Items

Two negatives and two positives affected reported net worth:

  1. Negative: New GAAP rule required current tax rate (34%) on all unrealized gains, reducing net worth by $70 million
  2. Negative: Corporate tax rate raised to 35%, adding another $75 million charge
  3. Positive: GAAP now requires all stocks to be carried at market, adding $172 million
  4. Positive: Stock issuance for Dexter acquisition added ~$478 million

Dexter Shoe Acquisition

In November 1993, Berkshire acquired Dexter Shoe (Dexter, Maine) for stock — "one of the best-managed companies Charlie and I have seen in our business lifetimes."

Founded by Harold Alfond in 1956 with $10,000, Dexter:

  • Produces over 7.5 million pairs of shoes annually
  • Has 77 retail outlets
  • Is a major golf shoe manufacturer (~15% of U.S. output)
  • Won supplier awards from Nordstrom and J.C. Penney

"Five years ago we had no thought of getting into shoes. Now we have 7,200 employees in that industry, and I sing 'There's No Business Like Shoe Business' as I drive to work."

Ben Graham Quote

"In the short-run, the market is a voting machine — reflecting a voter-registration test that requires only money, not intelligence or emotional stability — but in the long-run, the market is a weighing machine." — Ben Graham

Coke and Gillette Update

From 1991 to 1993, Coke and Gillette increased annual operating earnings per share by 38% and 37%, but stock prices only rose 11% and 6% — "the companies overperformed their stocks."

Famous Quotes

"We have no view of the future that dictates what businesses or industries we will enter. Indeed, we think it's usually poison for a corporate giant's shareholders if it embarks upon new ventures pursuant to some grand vision."

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