Berkshire Hathaway: Families of the Sainted Seven via 1987-1991 Letters
"Berkshire is my first love and one that will never fade: At the Harvard Business School last year, a student asked me when I planned to retire and I replied, 'About five to ten years after I die.'”
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This is Part Four of my exploration of Warren Buffett’s shareholder letters. While most letters focus on his financial analysis and investment advice, I wanted to pull out elements that showed his analysis of people—something he doesn’t get enough credit for.
Here are the preceding letters:
Pre-Berkshire Hathaway: Buffett Partnership Letters 1957 - 1969
Berkshire Hathaway: Acquiring People it Deserves via 1971 - 1980 Letters
Berkshire Hathaway: Financially Sub-Optimal Yet Optimally Human via 1981-1986 Letters
With every year, the evolution of Berkshire led to the evolution of Buffett as a teacher to his shareholders and aspiring investors, like yours truly. Though I have the good fortune to read his letters one after another without needing to wait a year for the sequel, binging great work requires stamina.
This stamina depends on the individual. The disparity between Buffett and my intellect means I need a mountain of stamina. While Berkshire’s 70s period was a breeze, the 80s required two installments. Each five-year period was a lengthy 150 pages, easily the length of a non-fiction book. In fact, I felt Buffett said more in those 150 pages than most non-fictions seem to do in 300 pages. That is the honest explanation of the five-year range selected for this article.
It was during this period that Berkshire bought its first shares of Coca-Cola and Wells Fargo—investments they continue to hold in 2021. It also acquired Borsheim’s, the Omaha-based jeweler, and H.H. Brown, the boot company. It was a period that marked Buffett’s 25th year of owning Berkshire and 20th year of owning See’s Candies, which led to further reflection on all the mistakes he made and learned from during this period.
The continued acquisitions led to the formation of a group of non-insurance businesses Buffett called the Sainted Seven and glimpses into the various entrepreneurs who operated it. It was upon Buffett’s reflection over his past investments that I realized I had gravely misinterpreted one of his popular teachings, one everyone quoted but seemed to miss the full context. It turned out, Buffett preferred great managers over great businesses.
What Other Asset?
The risk with reading any form of literature is the decision we make to allow the writer’s opinions to enter our heads. With each book, essay, and letter we read, we condition our minds. It appears, however, that the wisdom of the crowd prevails over a long period of time with a communal bullshit meter in this matter.
Great works of literature are honest. They need to be honest and truthful. They don’t have to be “right”. What's important is the writer is communicating what they believe to be true. A reader can’t ask any more from a writer. Honesty in public is a hard art to practice and those who succeed at it have a chance of writing something great. People have a sense for this. They can sniff out a lie and the great works that stand the test of time have passed through many bullshit meters.
Some dishonest writing can get popular and make the bestsellers list or the “must read books of the year” category but they are soon forgotten. When they last the test of time, we can trust our peers verified the honesty of such content.
The same can be said of shareholder letters like Buffett’s. Read most one-pagers of public company letters that are “supposedly” written by the CEO and I imagine my brain making the face I do when I chew on stale bread. Not good.
In between the lines of the many one-page fillers there always is a mention of how the company salutes their employees. I’ve read too many of these sentences to actually believe any word from these CEOs. But I never paused to consider what they were not saying.
"Oftentimes, in his shareholders' letter, a CEO will go on for pages detailing corporate performance that is woefully inadequate. He will nonetheless end with a warm paragraph describing his managerial comrades as "our most precious asset." Such comments sometimes make you wonder what the other assets can possibly be.” - Warren Buffett
Buffett’s financial and quantitative acumen is a known commodity in the investing world. I remember hearing stories about how great Buffett’s memory was because he could recite the financials of companies a decade ago or how quantitative his investment approach was. But over the years, it’s apparent to me that his ability to understand the importance of people was ignored.
It may be because the financial industry—and much of the world—has a bias in believing quantitative ability is the sign of intellect. But as Buffett pointed out, people are what matter to a business, no matter the model. There are no other assets.