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1995 Shareholder Letter

Published on 1 March 1996

· Value Investing

The original 1995 Shareholder letter can be found here (

Sometimes, everyone makes money

One of the best years on record for Berkshire, and WB, in his characteristic humor, alludes to the fact that the extraordinary success was not due to any special things that he does, but instead, because of a particularly good economy.

There's no reason to do handsprings over 1995's gains. This
was a year in which any fool could make a bundle in the stock market. And we did. To paraphrase President Kennedy, a rising tide lifts all yachts.

Again, principles

Again and again, in all his letters, WB always allude to a few of the key principles underlying value investing. This year, it's no different. It's hard to say which principle is more important than the other, because ultimately value-investing is an imprecise science, but safe to say that you should at least put some effort into fulfillling all 4 principles, and ensure that you can satisfy yourself that you are putting some due diligence into your study.

...that have excellent economic characteristics and that are run by outstanding managers. Our favorite acquisition is the negotiated transaction that allows us to purchase 100% of such a business at a fair price. But we are almost as happy when the stock market offers us the chance to buy a modest percentage of an outstanding business at a pro-rata price well below what it would take to buy 100%.

In this quote, WB speaks about 3 principles: durable economic characteristics, good management, and a fair price. Despite so many decades of doing the same thing, his value-investing philosophy haven't changed.

Size could be a disadvantage

For many years now, WB has reiterated that it's getting increasingly harder for Berkshire to maintain the same level of returns. Again here, he repeats this fact: that a huge portfolio will eventually drag your % returns simply because the absolute amount required is much larger.

The giant disadvantage we face is size: In the early years, we needed only good ideas, but now we need good big ideas.

DIY investing has its advantages

Not intentionally, but WB mentions a few key advantages that individual investors enjoy.

Even so, we do have a few advantages, perhaps the greatest being that we don't have a strategic plan.

As individuals managing our own money and portfolio, we have 100% flexibility in how we want to allocate our capital, and whether we can hold most of it in cash or not. Most professional fund managers will not have that luxury. They may also have investments that they can't make (due to fund mandates or compliance issues).

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