1995 Shareholder Letter

Date: March 1, 1996 Author: Warren Buffett Company: Berkshire Hathaway

Overview

1995 net worth increased $5.3 billion or 45.0%, with per-share book value reaching $14,426 — a 23.6% compound annual return over 31 years.

Key Points

Three Acquisitions

1. Helzberg's Diamond Shops — jewelry retail chain
2. R.C. Willey Home Furnishings — furniture retailer
3. GEICO (remaining 49%) — completed immediately after year-end

These acquisitions roughly doubled revenues while headquarters staff increased from 11 to only 12.

Dual Approach: Whole Businesses vs. Minority Stakes

"Our favorite acquisition is the negotiated transaction that allows us to purchase 100% of such a business at a fair price. But we are almost as happy when the stock market offers us the chance to buy a modest percentage of an outstanding business at a pro-rata price well below what it would take to buy 100%."

Woody Allen analogy: "The real advantage of being bisexual is that it doubles your chances for a date on Saturday night."

The Skim Milk Analogy

"Things are seldom what they seem, skim milk masquerades as cream." — HMS Pinafore

Sellers' financial projections have "more entertainment value than educational value."

The跛脚马 (Lame Horse) Story

A man asked the vet to help with his horse that "sometimes walks fine and sometimes limps." The vet replied: "No problem — when he's walking fine, sell him." In M&A, that horse gets peddled as Secretariat.

No Strategic Plan = Advantage

"Our favorite acquisition is the negotiated transaction... We don't have a strategic plan. Thus we feel no need to proceed in an ordained direction."

Famous Quotes

"Dealmaking is exciting and fun, and working is grubby. Running anything is primarily an enormous amount of grubby detail work... dealmaking is romantic, sexy. That's why you have deals that make no sense." — Peter Drucker

Related

• letter-1994 — Previous year
• letter-1996 — Following year
• warren-buffett
• compounding