1978 was a good year for the insurance business, Illinois National Bank and Berkshire as a whole. The textile business needs to turn down the suck though.
00:05 – Welcome falling prices
01:48 – How to treat capital gains when calculating return on capital
02:22 – Berkshire had a good year
02:37 – The textile business
03:56 – The insurance business
04:47 – The Illinois National Bank
“While we believe it is improper to include capital gains or losses in evaluating the performance of a single year, they are an important component of the longer term record. Because of such gains, Berkshire’s long-term growth in equity per share has been greater than would be indicated by compounding the returns from operating earnings that we have reported annually”
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“The textile industry illustrates in textbook style how producers of relatively undifferentiated goods in capital intensive businesses must earn inadequate returns except under conditions of tight supply or real shortage. As long as excess productive capacity exists, prices tend to reflect direct operating costs rather than capital employed. Such a supply-excess condition appears likely to prevail most of the time in the textile industry, and our expectations are for profits of relatively modest amounts in relation to capital”
I’ll never be able to do the full letter justice.
Read it here: