Welcome to Episode 6 of the "Becoming Buffett" Series!

This week we discuss the 1970 letter to Berkshire Hathaway shareholders.

Buffett's annual letters book: http://amzn.to/2ogVi4U

Some brief notes:

1970

First letter signed by Buffett

Very diverse earnings across various operations
- Bank had record earnings
- Insurance had some setbacks but still excellent returns
- Textile became more and more difficult and broke-even
- Highlights the value of diversifying
Overall BH return of ~10%
- This is far better than would have been the case if BH had remained exclusively devoted to the textile business
- Again, reinforces why strategic diversification can be so valuable
Continue to face strong headwinds in textile operations
- Actively working to make the most of the situation, including costly decisions to BH and employees
- Are we willing to make an honest assessment of our “business (household)” and make appropriate changes? Ex: cut expenses, take a step of faith and try to start a new income stream, etc.
New insurance division will take years before a real evaluation can be made (long-term mindset)
- How long are we willing to wait for an investing thesis to play out?
- What if an investment loses money for 3 years, then returns 20%+ for 10 years straight, would that be worth the wait?
Surety business
- Operated at a significant underwriting loss
- Contractor’s bond field was a disappointment
- Even Buffett and BH make investments that don't’ appear to work out, nobody is perfect at this!
Launched a new business/subsidiary out of National Indemnity (insurance operation) and plan to open a new one in 1971
- BH began launching new companies/subsidiaries
- This is a new method, methods so far:
- - Full acquisitions
  - Common stocks (no longer)
  - Starting new businesses
  - What options are on the table for you and I?
Buffett is quick to celebrate his operational managers and give them credit
- Strong management is central to his acquisition philosophy
- Are you surrounding yourself with people smarter than you?
- Are you trusting your capital to people smarter than you?
- Are you humble enough to admit and act on this?
- Bonus: Would you hire yourself to manage your business?

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153 - Great Management Matters (1970 Letter) 24:33 Share

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153 - Great Management Matters (1970 Letter)