A lot has changed since 1984: Ronald Reagan isn't president, gas costs well more than a dollar per gallon, and Apple personal computers look considerably different. But, if just one thing hasn't changed in 30 years, it's Warren Buffett's letter to Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) shareholders.
Every year, the letter is chock-full of investing insight and witty commentary. Here are eight of Buffett's best lines from 30 years ago.
1. "This sounds pretty good, but actually it's mediocre."
In 1984, Berkshire Hathaway gained $152.6 million, or $133 per share, in net worth. By most companies' standards, a 14% gain in book value is great, and Buffett could have very easily explained that truth.
Instead, Buffett told Berkshire shareholders that, while a 14% gain in book value is nice, it's considerably less impressive when compared to Berkshire's 20-year compounded annual gain of 22%.
Those investors who rode out the "mediocre" year would have been rewarded with book value growth of 20% compounded annually as of 2012.
2. "Our experience has been [big ideas] pop up occasionally. (How's that for a strategic plan?)"
Buffett's explained, "To earn even 15% annually over the next decade [...] we would need profits aggregating about $3.9 billion. Accomplishing this will require a few big ideas -- small ones just won't do."
Shareholders may remember Berkshire's acquisition of Dairy Queen, Fruit of the Loom, Heinz, and myriad others -- so I guess big ideas do pop up?
3. "How much would you pay to be a minority shareholder of a company controlled by Robert Wesco?"
Wesco Financial is a subsidiary of Berkshire Hathaway, while -- and I never thought I'd have the opportunity to correct Warren Buffett -- Robert Vesco was a fugitive financier who had fled to Cuba to avoid prosecution not long after Buffett's letter.
Buffett was explaining that investors should buy into companies that are shareholder-friendly. He gave a fairly simple formula, suggesting if the company can earn more on its dollar by reinvesting its money, then it should reinvest, if not, then earnings should be distributed.
The problem is, however, seeing the opportunities. Luckily for Berkshire Hathaway shareholders, there's no one better at that than Buffett and Munger.
4. "I heard a story recently."
Buffett didn't hear a story; it's a joke, and I'm not joking. And because I wouldn't be doing you or Buffett justice by summarizing it, I'll include it in full. Enjoy.
A man was traveling abroad when he received a call from his sister informing him that their father had died unexpectedly. It was physically impossible for the brother to get back home for the funeral, but he told his sister to take care of the funeral arrangements and to send the bill to him. After returning home he received a bill for several thousand dollars, which he promptly paid. The following month another bill came along for $15, and he paid that, too. Another month followed, with a similar bill. When, in the next month, a third bill for $15 was presented, he called his sister to ask what was going on. "Oh," she said, "I forgot to tell you. We buried Dad in a rented suit."
5. "Well, it may be all right in practice, but it will never work in theory."
Much of what Berkshire Hathaway does is buy whole businesses. So, when it comes to buying pieces of businesses (stocks), Buffett uses similar principals. These principals -- though they've been wildly successful -- aren't widely accepted now, nor were they then, by academics and many industry professionals.
Buffett finishes his soap box commentary by saying, "Nevertheless, it has served its followers well."
6. "[L]emmings may have a rotten image, but no individual lemming has ever received bad press."
The image in question is that of the rodent's tendency to migrate in large packs, and -- in some cases -- follow the leader to an unfortunate death.
Buffett goes on to explain that CEOs and managers will often go by the book because it's harder to get fired that way. Meaning, the benefits of being unconventional and right are often not worth the punishment of being unconventional and wrong.
Luckily for Berkshire shareholders, since Buffett is the owner, he can be as unconventional as he pleases.
7. "If you have a harem of forty women, you never get to know any of them very well." -- Warren Buffett quoting Billy Rose
One of Berkshire Hathaway's biggest stock moves in 2013 was adding nearly nine million shares of ExxonMobil. While this came as a surprise to many, Exxon was one of just 10 major stock holdings in Berkshire's portfolio in 1984.
That's the beauty of really getting to know a few companies, rather than buying in and out of dozens. The better you understand a business model, the better equipped you are to know when to buy, hold, get out, and get back in.
8. "Both parties have followed Charlie Brown's advice: No problem is so big that it can't be run away from."
Buffett was commenting on the United States deficit -- a problem Buffett believed the government wasn't addressing particularly well.
He would go on to say that there was a possibility of runaway inflation -- or, inflation rising at a much faster pace than normal -- and in times such as these, "a diversified stock portfolio would almost surely suffer an enormous loss in real value. But bonds already outstanding would suffer far more."
This is one of the many reasons Buffett and Berkshire Hathaway favor stocks over bonds in a majority of circumstances.
Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends Apple and Berkshire Hathaway. The Motley Fool owns shares of Apple and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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