To celebrate 50 years of Berkshire Hathaway, its founders, Warren Buffett and Charlie Munger write about the time gone by.
Can a corporate story spanning 50 years engage people in an age where five-month start-ups can’t wait to hit billion-dollar valuations?
Can two men whose combined age crosses 175 years hold their own amid 20-something founders waxing eloquent about value creation on the internet?
Have no doubts when the story is of Berkshire Hathaway Inc and the two men answer to names Warren Buffett and Charlie Munger.
Though Buffett’s annual letter is in any case the stuff of investment world folklore and is eagerly awaited every year, this year’s could well be counted as the Warren Buffett of Warren Buffett annual letters.
A small note at the end of the Berkshire financials says: “Fifty years ago, today’s management took charge at Berkshire. For this golden anniversary, Warren Buffett and Charlie Munger each wrote his views of what has happened at Berkshire during the past 50 years and what each expects during the next 50. Neither changed a word of his commentary after reading what the other had written.”
Each word of those two letters, would be easily worth a Berkshire share (only $221,180 or Rs 1.4 crore) each and therefore don’t deserve to be missed. Let me try and present some teasers here:
Munger’s letter is straightforward. He grapples the questions, including tough ones such as can Berkshire sustain if Buffett were to depart soon. And, comes up with direct answers, whereas Buffett is his usual witty self and full of anecdotes.
Munger compares Buffett’s success to that of Roger Federer. Answering the 'Why did Berkshire under Buffett do so well?' query, Munger writes: “Only four large factors occur to me:
(1) The constructive peculiarities of Buffett,
(2) The constructive peculiarities of the Berkshire system,
(3) Good luck and,
(4) The weirdly intense, contagious devotion of some shareholders and other admirers, including some in the press. I believe all four factors were present and helpful. But the heavy freight was carried by the constructive peculiarities, the weird devotion, and their interactions.
In particular, Buffett’s decision to limit his activities to a few kinds and to maximize his attention to these, and to keep doing so for 50 years, was a lollapalooza. Buffett succeeded for the same reason Roger Federer became good at tennis.”
Buffett’s remembers his association with Munger that began in 1959 very fondly but doesn’t have similar good memories about the acquisition of Berkshire.
In 1964, Buffett had told Seabury Stanton, who ran Berkshire then, that he would sell the seven per cent stake held through Buffett Partnership at $11.5 a share.
Soon, Berkshire made a public offer to buy back its shares at $11.375. Miffed by the lower offer, Buffett started stacking up Berkshire shares, which he calls “a monumentally stupid decision” in his letter.
“Through Seabury’s and my childish behavior – after all, what was an eighth of a point to either of us? – he lost his job, and I found myself with more than 25 per cent of BPL’s capital invested in a terrible business about which I knew very little. I became the dog who caught the car.”
Enter Munger. “Charlie had grown up a few hundred feet from where I now live and as a youth had worked, as did I, in my grandfather’s grocery store. Nevertheless, it was 1959 before I met Charlie, long after he had left Omaha to make Los Angeles his home. I was then 28 and he was 35. The Omaha doctor who introduced us predicted that we would hit it off – and we did.”
Buffett credits Munger with a crucial behavioural change that was at the core of the acquisitions-led strategy of Berkshire and its eventual turnaround, “The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”
Listening to him has paid off, Buffett concludes. Enjoy the full letters here: