WARREN BUFFETT’S LETTER – 1985 – 86

WB Letter 1985

Mr.Buffett indicate that Berkshire Hathway has a capability to earn superior return generally earn by corporate America.

WB 1985 01

We need to focus on the mistakes which we have made and try to learn from our mistakes.

WB 1985 02

Berkshire liquidates its textile business in the year 1985. Cyclical nature of the business and huge competition makes them helpless which resulted in the shutdown of the textile business.

WB 1985 03

If management having good managerial skills then company able to produce the good economic return.

WB 1985 04

Commodity business only able to produce profit while prices of the product are fixed or capacity is shorted. And managers can enhance capacity with the availability of capital when things look good in future.

Acquisition of Scott & Fetzer

WB 1985 05

CEO of the Scott & Fetzer – Ralph Schey is capable enough. When he took charge of the company, at that Time, Company had 31 businesses. Ralph had disposed of many of the businesses which have limited profitability and result of that company left with 17 businesses. Capital allocation decision of the Ralph is good enough which Mr.Buffett admired.

After the purchase by Berkshire, Schey spent two years revising World Book segment by selling off the Japanese division and trimming domestic operations in much the same way as he had tightened Scott Fetzer.

WB Letter 1986

Mr.Buffett mentioned that he and Mr.Charlie only having a major two job to perform – one is to retain and attract a good manager to manage a business and other is to allocate capital of Berkshire Hathway in a way which helps to earn more money than average.

Acquisition of the Fechheimer Bros. Co.

Mr.Buffett mentioned that he only acquire a company when economic characteristics of the business are favorable, and connected with the right people who can handle position with integrity.

Mr.Buffett on Accounting numbers –

WB 1986 02