A letter a day!
Letter #23 1969
Today I am covering two letters. Both were written by Buffett at the end of 1969. Both the letters summarize positions in 2 main holdings Berkshire Hathaway and Diversified retailing company.
Key learnings:
- BPL ( Buffett partnership limited) owned 8,00,000 out of 10,00,000 outstanding shares in DRC. At that time DRC had outstanding debentures . Buffett had put a special clause for the debenture holders
“DRC has $6.6 million in debentures outstanding (prospectus with full description of the business as of December 18th, 1967 and the debenture terms will be sent you upon request) which have one unusual feature in that if I, or an entity controlled by me, is not the largest shareholder of DRC, the debenture holders have the right to present their debentures for payment by the company at par.”
- Market prices for stocks fluctuate at great amplitudes around intrinsic value but, over the long term, intrinsic value is virtually always reflected at some point in market price.
- Berkshire Hathaway had many business verticals and one of which was a textile unit. At that point of time, textile unit was not working well. On being asked by investors why are they still investing in the textile unit, Buffett reply was as follows:
“Pretty much for the reasons outlined in my letter. I don’t want to liquidate a business employing 1100 people when the Management has worked hard to improve their relative industry position, with reasonable results, and as long as the business does not require substantial additional capital investment. I have no desire to trade severe human dislocations for a few percentage points additional return per annum. Obviously, if we faced material compulsory additional investment or sustained operating losses, the decision might have to
be different, but I don’t anticipate such alternatives.”
We can consider Buffett more of an owner of Berkshire rather than just a shareholder. The owner having such a mindset is inspiring.
- Whenever a fund manager or business man does good business or makes good money for his investors , he is often asked who is the second line of management after you? Buffett was asked the same regarding the three excellently managed unit to which he replied
“In any company where the founder and chief driving force behind the enterprise is still active, it is very difficult to evaluate “second men”. The only real way to see how someone is going to do when running a company is to let him run it. Some of our businesses have certainly been more “one-man shows” than the typical corporation. Subject to the foregoing caveat, I think that we do have some good “second men” coming along.”
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