6 Quotes from Warren Buffett: 1982 Berkshire Hathaway Shareholder Letter

WarrenThe first quote and simplest to understand pertaining to business management and the decisions that are made that are not beneficial to the acquiring shareholders is the following: “Managers and directors might sharpen their thinking by asking themselves if they would sell 100% of their business on the same basis they are being asked to sell part of it.  And if it isn’t smart to sell all on such a basis, they should ask themselves why it is smart to sell a portion.” But we constantly see dilutive equity offerings executed for the sole purpose of acquiring a less attractive (not at the time) business at the expense of the shareholders. As Warren explains in the letter he would never offer part of his ownership stake for less than intrinsic value. Ask yourself does it make sense to sell $1 for 0.50 cents ?

“Don’t ask the barber whether you need a haircut.”  Making sure interests align is key, being aware of the biases that are produced by so many of us constantly is essential in navigating the world of individualistic societies, where everyone is trying to get one step further ahead at the expense of a fellow human.

“The thrill of the chase blinded the pursuers to the consequences of the catch.” As seen to often by dilutive, value destroying management, in it for a bigger bonus or a larger slice of gluttony pie. Management is a key component of any business and it is best to make sure their interest align with yours (maximizing shareholder value not employee compensation)

Acquiring a business or a portion of the ownership is very exciting especially when bargains are littered in a non-effiecient market, produced by more often than not, buyers forced to sell at an unpleasant time due to urgency, liquidity, or usually the case, leverage and can be had by any individual willing to pay the requested price at the time sought. “Fractional-interest purchases can be made in an auction market where prices are set by participants with behaviour patterns that sometimes resemble those of an army of manic-depressive lemmings.” For clearer clarification of the quote please see the definition of a lemming below.
1) “any of various small, mouselike rodents of the genera (Lemmus,Myopus,  and Dicrostonyx,)  of far northern regions, (as L. lemmus,  ofNorway, Sweden, etc.,) noted for periodic mass migrations thatsometimes result in mass drownings.” – Dictionary.com 

A very humorous analogy of goals, business benchmarking, business performance and management execution can be summed up in the following quote from Warren. “Just shoot the arrow of business performance into a blank canvas and then carefully draw the bullseye around the implanted arrow.” As we see too often today obscure comparisons and fictional benchmark standards are implemented just in time, as the drum of the old benchmark beats a loud thump of failure and is swept under the rug. It is casually replaced by a “new” “better” and “more accurate” benchmark, only to be changed again at the first sign of defeat.

The last quote is in regards to valuation of a business using accounting statements and how investors and management often put to much focus and labor into the analysis of these numbers, which more often than not, are implemented in a questionable (liberal) manner. “It’s simply to say that managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation.”

1982 Berkshire Hathaway Annual Shareholder Letter (HERE)



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