Berkshire Hathaway Letters

Each year, Warren Buffett writes an open letter to Berkshire Hathaway shareholders which many value investors can’t wait to jump on reading. In this post, we have summarised the key learnings from the letter written in 1979, to save you the time from reading the whole letter (although still strongly recommended).

Berkshire Hathaway – 1979 Letter Learnings

Buffett: You will notice that earned premiums in this segment were down somewhat from those of 1978. We hear a great many insurance managers talk about being willing to reduce volume in order to underwrite profitably, but we find that very few actually do so. Phil Liesche is an exception: if business makes sense, he writes it; if it doesn’t, he rejects it. It is our policy not to lay off people because of the large fluctuations in work load produced by such voluntary volume changes. We would rather have some slack in the organization from time to time than keep everyone terribly busy writing business on which we are going to lose money. Jack Ringwalt, the founder of National Indemnity Company, instilled this underwriting discipline at the inception of the company, and Phil Liesche never has wavered in maintaining it. We believe such strong-mindedness is as rare as it is sound – and absolutely essential to the running of a first-class casualty insurance operation.

MoneyWiseSmart (MWS): Do you implement such strong-mindedness in your personal portfolio? Do you swing at most opportunities, or only if they make lots of sense?

Buffett: In contrast, we include no narrative with our quarterly reports. Our owners and managers both have very long time horizons in regard to this business, and it is difficult to say anything new or meaningful each quarter about events of long-term significance.

MWS: Do you focus on items of short-term or long-term significance? Are you doing short-term or long-term investing?

Buffett: We continue to feel very good about our insurance equity investments. Over a period of years, we expect to develop very large and growing amounts of underlying earning power attributable to our fractional ownership of these companies. In most cases they are splendid businesses, splendidly managed, purchased at highly attractive prices.

MWS: Do you track the share price of your businesses, or your fractional ownership of the earnings power of those businesses? Are you an equity investor (/trader) or a business owner?