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1998 Shareholder Letter

Published on 1 March 1999

The original 1998 Shareholder letter can be found here (

Focus on Intrinsic Value

Again and again, WB focuses on Intrinsic Value, and mentions it almost every single year. Rather than focusing EPS (earnings per share) or BVPS (Book value per share), we have to try our best to calculate the intrinsic value per share. While it's important that EPS and BVPS continues to improve year to year, these numbers are subjected to accounting shenanigans.

it's the per-share gain in intrinsic value that counts rather than the per-share gain in book value

Market value vs networth

At the end of the day, we want the market value of our stocks to keep rising in the long run, and to be able to do that, the return on equity and return on capital must keep rising. However, for companies that have very high networth (assets minus liabilities), it's difficult to achieve a high percentage return simply because the base is just too large.

Market value is what counts for owners and General Electric and Microsoft, for example, have valuations more than three times Berkshire's. Net worth, though, measures the capital that managers must deploy, and at Berkshire that figure has indeed become huge.

15% is the magic number

As with past years, WB emphasizes that his main aim is to go for 15% returns on average, in the long run. While there will be fluctuations year to year, this is their target, even though it's still getting harder to achieve this.

Charlie and I will do our best to increase intrinsic value in the future at an average rate of 15%, a result we consider to be at the very peak of possible outcomes.

Think like a business owner

In a slightly different context, WB also mentions the key criteria in thinking like a business owner. As mentioned several times, in order to make good investments, we need to be able to think like business owners, regardless of whether we're buying the whole company or we're buying 0.0000001% of the company. The following is instructive, in the sense that it will help to give you the right mindset when you approach your research:

Just run your business as if: 1) you own 100% of it; 2) it is the only asset in the world that you and your family have or will ever have; and 3) you can't sell or merge it for at least a century.

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