A letter a day!

A letter a day!

Letter #27 1973

Key learnings:

1. Textile Business

1.Textile business is considered semi-cyclical due to fluctuating prices of the raw materials. While analyzing any of the textile business, we can check if they follow a LIFO method for valuing inventory. This method ensures that current cost matches that current current revenue and no notional profits is visible in the P&L.

“Because of the extraordinary price rises in raw materials during 1973, which show signs of continuing in 1974, we have elected to adopt the “lifo” method of inventory pricing. This method more nearly matches current costs against current revenues, and minimizes inventory “profits” included in reported earnings. Further information on this change is included in the footnotes to our financial statements.”

2. Insurance Business

1. One of things I learned while reading Buffett’s letters is to look beyond numbers and to look at people running the business, and the products and services that ultimately fills the balance sheet. In each and every letter he clearly states by each of managers leading various business operations run by Berkshire Hathaway. So that investors are clear who is managing the business in which their money is invested.

“During 1973, Jack Ringwalt retired as President of National Indemnity Company after anm absolutely brilliant record since founding the business in 1940. He was succeeded by Phil Liesche who, fortunately for us, possesses the same underwriting and managerial philosophy that worked so well for Jack.”

One more example

“Our reinsurance operation had a somewhat similar year—good underwriting experience, but difficulty in maintaining previous volume levels. This operation, guided by the tireless and well‐ directed efforts of George Young, has been a major profit producer since its inception in 1969.”

3. Merger of Diversified retailing company into Berkshire Hathaway.
   When Buffett retired from managing public money, he announced he will keep updating investors about diversified retailing company and Berkshire Hathaway
   till the time he is invested. In this year he merged DRC with BH. A beginning of making of BH we see today!’

4. We all know about one of Berkshire Hathaway’s multi bagger see candy. It was a part of the company known as Blue chip and even Wesco financial corporation. Buffett was on
   in the Board of directors of this companies.

“Blue Chip’s trading stamp business has declined drastically over the past year or so, but it has important sources of earning power in its See’s Candy Shops subsidiary as well as Wesco Financial Corporation, a 54% owned subsidiary engaged in the savings and loan business. We expect Blue Chip Stamps to achieve satisfactory earnings in future years related to capital employed, although certainly at a much lower level than would have been achieved if the trading stamp business had been maintained at anything close to former levels. Your Chairman is on the Board of Directors of Blue Chip Stamps, as well as Wesco Financial Corporation, and is Chairman of the Board of See’s Candy Shops Incorporated. Operating management of all three entities is in the hands of first‐class, able, experienced executives.”