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1984 Shareholder Letter

Published on 25 February 1985

· Value Investing

The original 1984 Shareholder letter can be found here (

Judge performance based on Return on Capital

immediately in the first paragraph, WB reiterates that when we judge the performance of a company, we should always evaluate it relative to the capital that produces them. Imagine spending $1M on a property to only earn 50k in rental income a year, versus a property that only cost you $500k. Which one is a better investment? So be careful every time a company announces "record" profits, or "record" earnings: Is it a good company that's producing awesome returns?

Economic gains must be evaluated by comparison with the capital that produces them.

You need patience

This year, WB notes his own difficulties in finding good deals that meets their standards and are available at a good price. He notes that it's important to do nothing when there's nothing to do, and it's the mark of a true investor to be able to wait and do nothing.

We try to avoid compromise of these standards, although we find doing nothing the most difficult task of all.

Think like an owner

Again, similar to last year, WB emphasized the need for business managers to think like owners, but oftentimes, it's difficult because the management owns so little of the company. They always want to maximise upside, yes, but risk-aversion is very real in such professional managers, and they want to avoid-at-all-costs the risk of looking less-than-intelligent, afterall, most of their networth is tied up in their salary and performance bonuses rather than a share of the company. WB sums it up best:

Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.

The kind of management/CEO that you want to invest in, are the kind that treats the company's money as though its their own hard-earned money: this will allow them to make rational and hard-headed financial decisions rather than decisions that make them popular.

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