Berkshire Hathaway 2008 Annual Report Download - page 91

In June 1996, Berkshire’s Chairman, Warren E. Buffett, issued a booklet entitled “An Owner’s Manual*” to Berkshire’s
Class A and Class B shareholders. The purpose of the manual was to explain Berkshire’s broad economic principles of
operation. An updated version is reproduced on this and the following pages.
OWNER-RELATED BUSINESS PRINCIPLES
At the time of the Blue Chip merger in 1983, I set down 13 owner-related business principles that I thought would help new
shareholders understand our managerial approach. As is appropriate for “principles,” all 13 remain alive and well today, and they are
stated here in italics.
1. Although our form is corporate, our attitude is partnership. Charlie Munger and I think of our shareholders as owner-partners,
and of ourselves as managing partners. (Because of the size of our shareholdings we are also, for better or worse, controlling
partners.) We do not view the company itself as the ultimate owner of our business assets but instead view the company as a
conduit through which our shareholders own the assets.
Charlie and I hope that you do not think of yourself as merely owning a piece of paper whose price wiggles around daily and
that is a candidate for sale when some economic or political event makes you nervous. We hope you instead visualize yourself
as a part owner of a business that you expect to stay with indefinitely, much as you might if you owned a farm or apartment
house in partnership with members of your family. For our part, we do not view Berkshire shareholders as faceless members of
an ever-shifting crowd, but rather as co-venturers who have entrusted their funds to us for what may well turn out to be the
remainder of their lives.
The evidence suggests that most Berkshire shareholders have indeed embraced this long-term partnership concept. The annual
percentage turnover in Berkshire’s shares is a small fraction of that occurring in the stocks of other major American
corporations, even when the shares I own are excluded from the calculation.
In effect, our shareholders behave in respect to their Berkshire stock much as Berkshire itself behaves in respect to companies
in which it has an investment. As owners of, say, Coca-Cola or American Express shares, we think of Berkshire as being a
non-managing partner in two extraordinary businesses, in which we measure our success by the long-term progress of the
companies rather than by the month-to-month movements of their stocks. In fact, we would not care in the least if several years
went by in which there was no trading, or quotation of prices, in the stocks of those companies. If we have good long-term
expectations, short-term price changes are meaningless for us except to the extent they offer us an opportunity to increase our
ownership at an attractive price.
2. In line with Berkshire’s owner-orientation, most of our directors have a major portion of their net worth invested in the
company. We eat our own cooking.
Charlie’s family has 90% or more of its net worth in Berkshire shares; I have about 99%. In addition, many of my relatives—
my sisters and cousins, for example—keep a huge portion of their net worth in Berkshire stock.
Charlie and I feel totally comfortable with this eggs-in-one-basket situation because Berkshire itself owns a wide variety of
truly extraordinary businesses. Indeed, we believe that Berkshire is close to being unique in the quality and diversity of the
businesses in which it owns either a controlling interest or a minority interest of significance.
Charlie and I cannot promise you results. But we can guarantee that your financial fortunes will move in lockstep with ours for
whatever period of time you elect to be our partner. We have no interest in large salaries or options or other means of gaining
an “edge” over you. We want to make money only when our partners do and in exactly the same proportion. Moreover, when I
do something dumb, I want you to be able to derive some solace from the fact that my financial suffering is proportional to
yours.
3. Our long-term economic goal (subject to some qualifications mentioned later) is to maximize Berkshire’s average annual rate
of gain in intrinsic business value on a per-share basis. We do not measure the economic significance or performance of
Berkshire by its size; we measure by per-share progress. We are certain that the rate of per-share progress will diminish in the
future—a greatly enlarged capital base will see to that. But we will be disappointed if our rate does not exceed that of the
average large American corporation.
4. Our preference would be to reach our goal by directly owning a diversified group of businesses that generate cash and
consistently earn above-average returns on capital. Our second choice is to own parts of similar businesses, attained primarily
* Copyright ©1996 By Warren E. Buffett
All Rights Reserved
89