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2003 Shareholder Letter

Published on 27 February 2004

· Value Investing

The original 2003 Shareholder letter can be found here (

Focus on Intrinsic Value

Immediately in the first page, WB emphasizes the need to focus on intrinsic value, and not just book value. Unlike most companies out there, WB repeats his point that Berkshire's book value is a useful proxy for the long-term rate of increase in its intrinsic value (aka the rate of increase of the book value is roughly the same as the rate of increase of the intrinsic value).

It’s per-share intrinsic value that counts, however, not book value.

Size Matters

Again, WB repeats his point that size of your investment portfolio matters: that the bigger you are, the harder it is to generate the same % of returns as in the past, simply because your investment universe shrinks drastically (a good problem as it means you have done well to compound your portfolio, but a problem nevertheless).

Today, the number of stocks that can be purchased in large enough quantities to move the performance needle at Berkshire is a small fraction of the number that existed a decade ago. (Investment managers often profit far more from piling up assets than from handling those assets well. So when one tells you that increased funds won’t hurt his investment performance, step back: His nose is about to grow.)

The Key Principles

Here at BTS, we focus on 4 key principles, often repeated in WB's letters. Here again, WB repeats these principles - but all these principles must stem from the first, all-important principle: YOU, the investor, must be able to understand the company/business/industry. Without this understanding, any predictions that you try to make will likely be too far off the mark, that any amount of margin of safety will not be able to help with.

find companies to purchase that (1) have favorable and enduring economic characteristics; (2) are run by talented and honest managers and (3) are available at a sensible price.

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