Warren Buffett’s 1980 Letter to Berkshire Shareholders
It's 1980. Inflation is still high. Insurers are still in price wars.
00:00 - Real returns, hamburgers and ROE
01:45 - Why Buffett expects more severe pricing wars from insurance competitors
03:13 - Non-controlled ownership earnings and the earnings iceberg
05:22 - Why share repurchases are liked (if the business is undervalued)
06:26 - How Berkshire is doing
07:09 - Berkshire borrowed $60m anticipating opportunity
"Return on beginning equity capital (with securities valued at cost) fell to 17.8% from 18.6%. We believe the latter yardstick to be the most appropriate measure of single-year managerial economic performance. Informed use of that yardstick, however, requires an understanding of many factors, including accounting policies, historical carrying values of assets, financial leverage, and industry conditions"
"The part of “our” earnings that these companies
retained last year (the part not paid to us in dividends)
exceeded the total reported annual operating earnings of
Berkshire Hathaway. Thus, conventional accounting only allows
less than half of our earnings “iceberg” to appear above the
surface, in plain view"
"only gains in purchasing power represent real earnings on investment. If you (a) forego ten hamburgers to purchase an investment; (b) receive dividends which, after tax, buy two hamburgers; and (c) receive, upon sale of your holdings, after-tax proceeds that will buy eight hamburgers, then (d) you have had no real income from your investment, no matter how much it appreciated in dollars. You may feel richer, but you won’t eat richer"
I can never do the full letter justice. Read it here.