1986年 华伦.docx
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1986年华伦
BERKSHIREHATHAWAYINC.
SHAREHOLDERLETTERS
March4,1986
CHAIRMAN’SLETTERS1986
TotheShareholdersofBerkshireHathawayInc.:
Ourgaininnetworthduring1986was$492.5million,or
26.1%.Overthelast22years(thatis,sincepresentmanagement
tookover),ourper-sharebookvaluehasgrownfrom$19.46to
$2,073.06,or23.3%compoundedannually.Boththenumeratorand
denominatorareimportantintheper-sharebookvalue
calculation:
duringthe22-yearperiodourcorporatenetworth
hasincreased10,600%whilesharesoutstandinghaveincreased
lessthan1%.
InpastreportsIhavenotedthatbookvalueatmost
companiesdifferswidelyfromintrinsicbusinessvalue-the
numberthatreallycountsforowners.Inourowncase,however,
bookvaluehasservedformorethanadecadeasareasonableif
somewhatconservativeproxyforbusinessvalue.Thatis,our
businessvaluehasmoderatelyexceededourbookvalue,withthe
ratiobetweenthetworemainingfairlysteady.
Thegoodnewsisthatin1986ourpercentagegainin
businessvalueprobablyexceededthebookvaluegain.Isay
"probably"becausebusinessvalueisasoftnumber:
inourown
case,twoequallywell-informedobserversmightmakejudgments
morethan10%apart.
Alargemeasureofourimprovementinbusinessvalue
relativetobookvaluereflectstheoutstandingperformanceof
keymanagersatourmajoroperatingbusinesses.Thesemanagers-
theBlumkins,MikeGoldberg,theHeldmans,ChuckHuggins,Stan
Lipsey,andRalphSchey-haveovertheyearsimprovedthe
earningsoftheirbusinessesdramaticallywhile,exceptinthe
caseofinsurance,utilizinglittleadditionalcapital.This
accomplishmentbuildseconomicvalue,or"Goodwill,"thatdoes
notshowupinthenetworthfigureonourbalancesheet,norin
ourper-sharebookvalue.In1986thisunrecordedgainwas
substantial.
Somuchforthegoodnews.Thebadnewsisthatmy
performancedidnotmatchthatofourmanagers.Whiletheywere
doingasuperbjobinrunningourbusinesses,Iwasunableto
skillfullydeploymuchofthecapitaltheygenerated.
CharlieMunger,ourViceChairman,andIreallyhaveonly
twojobs.Oneistoattractandkeepoutstandingmanagerstorun
ourvariousoperations.Thishasn’tbeenallthatdifficult.
Usuallythemanagerscamewiththecompanieswebought,having
demonstratedtheirtalentsthroughoutcareersthatspannedawide
varietyofbusinesscircumstances.Theyweremanagerialstars
longbeforetheyknewus,andourmaincontributionhasbeento
notgetintheirway.Thisapproachseemselementary:
ifmyjob
weretomanageagolfteam-andifJackNicklausorArnold
Palmerwerewillingtoplayforme-neitherwouldgetalotof
directivesfrommeabouthowtoswing.
Someofourkeymanagersareindependentlywealthy(wehope
theyallbecomeso),butthatposesnothreattotheircontinued
interest:
theyworkbecausetheylovewhattheydoandrelishthe
thrillofoutstandingperformance.Theyunfailinglythinklike
owners(thehighestcomplimentwecanpayamanager)andfindall
aspectsoftheirbusinessabsorbing.
(OurprototypeforoccupationalfervoristheCatholic
tailorwhousedhissmallsavingsofmanyyearstofinancea
pilgrimagetotheVatican.Whenhereturned,hisparishhelda
specialmeetingtogethisfirst-handaccountofthePope."Tell
us,"saidtheeagerfaithful,"justwhatsortoffellowishe?
"
Ourherowastednowords:
"He’saforty-four,medium.")
CharlieandIknowthattherightplayerswillmakealmost
anyteammanagerlookgood.Wesubscribetothephilosophyof
Ogilvy&Mather’sfoundinggenius,DavidOgilvy:
"Ifeachofus
hirespeoplewhoaresmallerthanweare,weshallbecomea
companyofdwarfs.But,ifeachofushirespeoplewhoare
biggerthanweare,weshallbecomeacompanyofgiants."
Aby-productofourmanagerialstyleistheabilityitgives
ustoeasilyexpandBerkshire’sactivities.We’veread
managementtreatisesthatspecifyexactlyhowmanypeopleshould
reporttoanyoneexecutive,buttheymakelittlesensetous.
Whenyouhaveablemanagersofhighcharacterrunningbusinesses
aboutwhichtheyarepassionate,youcanhaveadozenormore
reportingtoyouandstillhavetimeforanafternoonnap.
Conversely,ifyouhaveevenonepersonreportingtoyouwhois
deceitful,ineptoruninterested,youwillfindyourselfwith
morethanyoucanhandle.CharlieandIcouldworkwithdouble
thenumberofmanagerswenowhave,solongastheyhadtherare
qualitiesofthepresentones.
Weintendtocontinueourpracticeofworkingonlywith
peoplewhomwelikeandadmire.Thispolicynotonlymaximizes
ourchancesforgoodresults,italsoensuresusan
extraordinarilygoodtime.Ontheotherhand,workingwith
peoplewhocauseyourstomachtochurnseemsmuchlikemarrying
formoney-probablyabadideaunderanycircumstances,but
absolutemadnessifyouarealreadyrich.
ThesecondjobCharlieandImusthandleistheallocation
ofcapital,whichatBerkshireisaconsiderablymoreimportant
challengethanatmostcompanies.Threefactorsmakethatso:
we
earnmoremoneythanaverage;weretainallthatweearn;and,we
arefortunatetohaveoperationsthat,forthemostpart,require
littleincrementalcapitaltoremaincompetitiveandtogrow.
Obviously,thefutureresultsofabusinessearning23%annually
andretainingitallarefarmoreaffectedbytoday’scapital
allocationsthanaretheresultsofabusinessearning10%and
distributinghalfofthattoshareholders.Ifourretained
earnings-andthoseofourmajorinvestees,GEICOandCapital
Cities/ABC,Inc.-areemployedinanunproductivemanner,the
economicsofBerkshirewilldeteriorateveryquickly.Ina
companyaddingonly,say,5%tonetworthannually,capital-
allocationdecisions,thoughstillimportant,willchangethe
company’seconomicsfarmoreslowly.
CapitalallocationatBerkshirewastoughworkin1986.We
didmakeonebusinessacquisition-TheFechheimerBros.
Company,whichwewilldiscussinalatersection.Fechheimeris
acompanywithexcellenteconomics,runbyexactlythekindof
peoplewithwhomweenjoybeingassociated.Butitisrelatively
small,utilizingonlyabout2%ofBerkshire’snetworth.
Meanwhile,wehadnonewideasinthemarketableequities
field,anareainwhichonce,onlyafewyearsago,wecould
readilyemploylargesumsinoutstandingbusinessesatvery
reasonableprices.Soourmaincapitalallocationmovesin1986
weretopayoffdebtandstockpilefunds.Neitherisafate
worsethandeath,buttheydonotinspireustodohandsprings
either.IfCharlieandIweretodrawblanksforafewyearsin
ourcapital-allocationendeavors,Berkshire’srateofgrowth
wouldslowsignificantly.
Wewillcontinuetolookforoperatingbusinessesthatmeet
ourtestsand,withluck,willacquiresuchabusinessevery
coupleofyears.Butanacquisitionwillhavetobelargeifit
istohelpourperformancematerially.Undercurrentstock
marketconditions,wehavelittlehopeoffindingequitiestobuy
forourinsurancecompanies.Marketswillchangesignificantly-
youcanbesureofthatandsomedaywewillagaingetourturn
atbat.However,wehaven’tthefaintestideawhenthatmight
happen.
Itcan’tbesaidtoooften(althoughI’msureyoufeelI’ve
tried)that,evenunderfavorableconditions,ourreturnsare
certaintodropsubstantiallybecauseofourenlargedsize.We
havetoldyouthatwehopetoaverageareturnof15%onequity
andwemaintainthathope,despitesomenegativetaxlawchanges
describedinalatersectionofthisreport.Ifweareto
achievethisrateofreturn,ournetworthmustincrease$7.2
billioninthenexttenyears.Againofthatmagnitudewillbe
possibleonlyif,beforetoolong,wecomeupwithafewverybig
(andgood)ideas.CharlieandIcan’tpromiseresults,butwedo
promiseyouthatwewillkeepoureffortsfocusedonourgoals.
SourcesofReportedEarnings
Thetableonthenextpageshowsthemajorsourcesof
Berkshire’sreportedearnings.Thistablediffersinseveral
waysfromtheonepresentedlastyear.Wehaveaddedfournew
linesofbusinessbecauseoftheScottFetzerandFechheimer
acquisitions.InthecaseofScottFetzer,thetwomajorunits
acquiredwereWorldBookandKirby,andeachispresented
separately.FourteenotherbusinessesofScottFetzerare
aggregatedinScottFetzer-DiversifiedManufacturing.SF
FinancialGroup,acreditcompanyholdingbothWorldBookand
Kirbyreceivables,isincludedin"Other."Thisyear,because
Berkshireissomuchlarger,wealsohaveeliminatedseparate
reportingforseveralofoursmallerbusinesses.
Inthetable,amortizationofGoodwillisnotcharged
againstthespecificbusinessesbut,forreasonsoutlinedinthe
Appendixtomyletterinthe1983AnnualReport,isaggregatedas
aseparateitem.(ACompendiumofearlierletters,includingthe
Goodwilldiscussion,isavailableuponrequest.)BoththeScott
FetzerandFechheimeracquisitionscreatedaccountingGoodwill,
whichiswhytheamortizationchargeforGoodwillincreasedin
1986.
Additionally,theScottFetzeracquisitionrequiredother
majorpurchase-priceaccountingadjustments,asprescribedby
generallyacceptedaccountingprinciples(GAAP).TheGAAP
figures,ofcourse,aretheonesusedinourconsolidated
financialstatements.But,inourview,theGAAPfiguresarenot
necessarilythemostusefulonesforinvestorsormanagers.
Therefore,thefiguresshownforspecificoperatingunitsare
earningsbeforepurchase