Berkshire Hathaway 2003 Annual Report Download - page 73

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When we sold the Class B shares in 1996, we stated that Berkshire stock was not undervalued — and some
people found that shocking. That reaction was not well-founded. Shock should have registered instead had
we issued shares when our stock was undervalued. Managements that say or imply during a public offering
that their stock is undervalued are usually being economical with the truth or uneconomical with their
existing shareholders’ money: Owners unfairly lose if their managers deliberately sell assets for 80¢ that
in fact are worth $1. We didn’ t commit that kind of crime in our offering of Class B shares and we never
will. (We did not, however, say at the time of the sale that our stock was overvalued, though many media
have reported that we did.)
11. You should be fully aware of one attitude Charlie and I share that hurts our financial performance:
Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are
also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and
as long as we feel good about their managers and labor relations. We hope not to repeat the capital-
allocation mistakes that led us into such sub-par businesses. And we react with great caution to
suggestions that our poor businesses can be restored to satisfactory profitability by major capital
expenditures. (The projections will be dazzling and the advocates sincere, but, in the end, major additional
investment in a terrible industry usually is about as rewarding as struggling in quicksand.) Nevertheless,
gin rummy managerial behavior (discard your least promising business at each turn) is not our style. We
would rather have our overall results penalized a bit than engage in that kind of behavior.
We continue to avoid gin rummy behavior. True, we closed our textile business in the mid-1980’ s after 20
years of struggling with it, but only because we felt it was doomed to run never-ending operating losses.
We have not, however, given thought to selling operations that would command very fancy prices nor have
we dumped our laggards, though we focus hard on curing the problems that cause them to lag.
12. We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising
business value. Our guideline is to tell you the business facts that we would want to know if our positions
were reversed. We owe you no less. Moreover, as a company with a major communications business, it
would be inexcusable for us to apply lesser standards of accuracy, balance and incisiveness when
reporting on ourselves than we would expect our news people to apply when reporting on others. We also
believe candor benefits us as managers: The CEO who misleads others in public may eventually mislead
himself in private.
At Berkshire you will find no “big bath” accounting maneuvers or restructurings nor any “smoothing” of
quarterly or annual results. We will always tell you how many strokes we have taken on each hole and
never play around with the scorecard. When the numbers are a very rough “guesstimate,” as they
necessarily must be in insurance reserving, we will try to be both consistent and conservative in our
approach.
We will be communicating with you in several ways. Through the annual report, I try to give all
shareholders as much value-defining information as can be conveyed in a document kept to reasonable
length. We also try to convey a liberal quantity of condensed but important information in the quarterly
reports we post on the internet, though I don’ t write those (one recital a year is enough). Still another
important occasion for communication is our Annual Meeting, at which Charlie and I are delighted to
spend five hours or more answering questions about Berkshire. But there is one way we can’t
communicate: on a one-on-one basis. That isn’ t feasible given Berkshire’ s many thousands of owners.
In all of our communications, we try to make sure that no single shareholder gets an edge: We do not
follow the usual practice of giving earnings “guidance” or other information of value to analysts or large
shareholders. Our goal is to have all of our owners updated at the same time.
13. Despite our policy of candor, we will discuss our activities in marketable securities only to the extent
legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as
good product or business acquisition ideas are. Therefore we normally will not talk about our investment
ideas. This ban extends even to securities we have sold (because we may purchase them again) and to
stocks we are incorrectly rumored to be buying. If we deny those reports but say “no comment” on other
occasions, the no-comments become confirmation.