I am really grateful to Riddhi for helping me with editing work.

WB Letter 1971

Mr.Buffett’s objective is the growth of the business by improvising returns on total capital and returns on equity of the business.

Textile Operation

Berkshire’s textile business was facing recession and that dropped the performance of the business. To sustain profitability of the business; management is even trying to reduce costs as well as control inventories.

Insurance Operation

Berkshire started with reinsurance operation and home-state insurance operation, by acquiring home & automobile insurance company.

WB Letter 1972

Berkshire did not issue additional share capital to run the business. Instead, he repurchased his own company’s shares from the public during the recession.

WB 1972 01

WB Letter 1973

Mr.Buffett believes that premium rate will drop in future due to increasing competition in the Insurance business.

The merger of Diversified Retailing Company into Berkshire got approved pertaining to the terms and conditions of issuing shares of Berkshire. Berkshire and Diversified Retailing Company both had shares of Blue Chip Stamps and after the merger of Diversified Retailing Company into Berkshire, the holding of shares of Blue Chip into Berkshire increased.

WB 1973 01

WB Letter 1974

Textile operation

Berkshire, in order to avoid the buffer inventory, started its operations at 1/3rd of its installed capacity.

Insurance operation

Unusual profitability into insurance business increased the competition level into the industry. On account of this competition; the profit level of various companies decreased and the underwriting losses increased on a larger scale. But above all of this, the insurance business kept on growing and earned higher returns on capital employed.

The merger of Diversified Retailing Company into Berkshire was terminated by Board of Directors but Mr.Buffett planned to reopen possibilities of the merger in the future.

WB Letter 1975

Textile operation

During 1975, the textile industry again faced recession and that resulted in the operation losses and reduction of employment by ~53%. Most of the textile producers decreased their production and this resulted into business rebound in the fourth quarter of 1975.

WB 1975 01

We can able to see that we should buy cyclical companies during the worst time in the industry as Mr.Buffett has done.

Iron ore price

Metal company

Metal company 1

From the above, we can analyze that investors who had purchased shares of metal companies which dealt in iron ore during December 2015 where the prices were the lowest in the period of 10 years; have received decent returns.

Insurance operation of the company showed underwriting losses which in turn reduced the fund available to make an investment into the stocks and as a result of this; the investment portfolio reported an unrealized loss.

WB 1975 02

Mr.Buffett says that short-term market price fluctuation is not important; only business performance counts and hence he explains the criteria for the selection of stocks for holding the businesses for a longer period of time.

Warren Buffett’s Letters 1957 – 2012



WB Letter 1969

Mr.Buffett has made a comment on the fund management business –

WB 1969 01

Mr.Buffett has mentioned that in the year 1967, Associated Cotton Shops, a subsidiary of DRC run by Ben Rosner, and National Indemnity Company, a subsidiary of Berkshire Hathway run by Jack Ringwalt can able to earn about 20% on capital employed. And there are only 37 companies among Fortune 500 which can able to achieve such performance. Achieving a better performance is not possible for each company. Also, Mr.Buffett indicates irrelevant of focusing on market price.

WB 1969 02

Mr.Buffett has made a decision to liquidate partnership due to changing the market environment and increasing the size of the fund manage by the Buffett. Such factors bring down the performance of the partnership and also Mr.Buffett does not able to identify quantitatively cheap investment ideas. He suggested Bill Ruane as a fund manager to the partners who want to give money to manage.

WB 1969 03

WB 1969 04

Diversified Retailing Company owned two businesses – one was Hochschild, Kohn & Company of Baltimore and another one was Associated Retail Stores. The company had sold out entire stake of Hochschild, Kohn & Company of Baltimore to the Supermarkets General Corp. for $5,045,205 of cash plus non-interest bearing SGC notes for $2 million due on date 2-1-70, and $4,540,000 due on date 2-1-71. The present value of these notes approximates $6.0 million so, effectively, DRC received about $11 million on the sale. DRC has tangible net assets of about $11.50 – $12.00 per share, an excellent operating business and substantial funds available for reinvestment in other operating businesses. On an interim basis, such funds will be employed in marketable securities.

Buffett Partnership owns 691441 shares of Berkshire Hathway, the company having an operating businesses includes Textile, Insurance, Illinois National Bank, Trust Company of Rockford Illinois, Sun Newspapers Inc, and Gateway Underwriters.

WB 1969 05

WB 1969 06

Diversified Retailing Company and Berkshire Hathway, both were run by an excellent management and which was one of the reason for Buffett to hold these both companies. Mr.Buffett mentioned that we should not focus on the short-term price action of the securities because we are not holding a piece of paper but we are holding a business. So if businesses will perform well over a period of time then the stock will also perform.

There were a few questions was asked to Buffett by his partners and Buffett has given logical answers to those questions.

WB 1969 07

Above answer shows his genuineness, he is not ready to liquidate a business who has a huge employee strength just because of his own benefits. He decided to keep business working till the time business does not require any additional capital.

WB 1969 08

WB Letter 1970

Mr.Buffett stated his criteria for purchasing bonds.

WB 1969 09

Berkshire Hathway’s textile division experiencing a recession in the textile industry which has the impact of lower profitability. Management has tried to control costs during a recession time so that operation can run more efficiently. Other both major businesses i.e insurance business and banking business of Berkshire performing well.

Warren Buffett’s Letters 1957 – 2012