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1991 Shareholder Letter

Published on 28 February 1991

· Value Investing

The original 1991 Shareholder letter can be found here (

Again, Size Matters

For the last few years, WB has been emphasizing that it's getting increasingly harder for Berkshire to maintain its >20% return due to their size. As they get bigger and bigger, the number of opportunities that will make a measurable impact on their returns have decreased. Conversely, this means that there's huge advantages for small individuals like us, who have a much bigger universe of investable companies that will make an outsized return

there are many more ways to make $1 million than to make $370 million

A Franchise Vs A Business

Later on in the letter, WB shares his thinking about two categories of companies: Economic Franchises VS Businesses. In his view, economic franchises (or near-monopolies) are not constrained by prevailing economic conditions, and can even survive lousy managements for a period. Businesses, on the other hand, can only generate spectacular levels of returns by having the lowest costs, or having access to the supply. A business however, cannot survive lousy management for long.

An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute and; (3) is not subject to price regulation.

Value-Investing Requires Patience

Further down, WB repeats the mantra: that to be a successful investor, the best holding period is forever. Once you have done the research, and bought into the company at a sensible price, then you just need to wait, and avoid panic-selling.

Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.

The 4 Key Principles

Later, in a sign of what future letters hold, WB repeats the 4 key principles again, which at BTS we focus predominantly on. (1) Buy into companies that you can understand and that are understandable by you; (2) Durable economic characteristics (3) honest and able management and (4) at a sensible price.

We continually search for large businesses with understandable, enduring and mouth-watering economics that are run by able and shareholder-oriented managements. This focus doesn't guarantee results: We both have to buy at a sensible price and get business performance from our companies that validates our assessment.

Buying stocks is not different from buying whole businesses

Lastly, WB adds that the "usual" approach by other funds seems nonsensical, and that a common-sense approach would be to approach buying stocks similarly to the way you would buy any businesses wholly: look for businesses that you understand, economic characteristics that are favourable, management that you believe in, and get a good deal on the price.

If my universe of business possibilities was limited, say, to
private companies in Omaha, I would, first, try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price. I certainly would not wish to own an equal part of every business in town. Why, then, should Berkshire take a different tack when dealing with the larger universe of public companies?

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