Original link: https://ljf.com/2023/07/19/1281/
1989 Speech at the Shareholders’ Meeting of Siko Finance
What we have come to today is not by predicting future interest rate levels or changes in the economic cycle. We are not equipped for that kind of forecasting. Instead, we often do things that are in the wrong rhythm and encounter periodic adversity.
In the alternation of cycles, whether you encounter good times or bad times, they are all part of long-term investment. We always compare all the investment opportunities in front of us, and strive to find the most reasonable investment logic at the moment, which is the most important thing. After finding the most reasonable investment logic, no matter how violent the cyclical fluctuations are, whether it is good times or bad times, we remain calm. That’s how we invest. We don’t make all kinds of short-term forecasts, what we pursue is long-term good results.
I’ve never found long-term planning useful. I’m not convinced that long-term planning is advocated in both modern business schools and the federal home loan banking system. Many companies develop five-year plans. Berkshire Hathaway never makes long-term plans unless required to do so by regulators.
Sir William Osler believed in a famous saying of Thomas Carlyle: “Instead of worrying about the hazy future, it is better to be down-to-earth and do the present thing well.” This is also Berkshire’s business philosophy.
Who doesn’t want to see farther? The problem is, if you want to see far, you can’t see very far. Just use your head, put your head down, and get everything right in front of you, and you’ll likely end up with a great company. Sir William Osler used this method, and Berkshire Hathaway also used this method.
In our worldview, we don’t believe in prophecy. We are not purely opportunists, but we do believe in playing by ear. We also do long-term forecasts, but very little. Perhaps our long-term forecasts are more accurate because we try to do the immediate thing well and rarely make long-term forecasts.
We also make long-term preparations, mainly to be as conservative as possible to prevent the impact of catastrophes. We prepare for the worst possible environment. Our balance sheet has been very conservative for a long time.
There is another aspect that also reflects our conservatism—we try to stay away from people with questionable character. Our building rents out offices. We found that some tenants had bad character, and we stopped renting to them after the lease expired. Whether it’s a lawyer, an accountant, a tenant, or a cleaner, we want to be surrounded by people of good character and style.
We associate with people of integrity and we remain financially strong, that’s what we’ve learned over the years. Experience tells us that a man of bad character is a scourge.
The “French Army Code of Practice” divides soldiers into four categories.
There is a class of people who are stupid and lazy, the vast majority of soldiers in the army belong to this class of people.
There is a class of people who are smart and lazy, and this type of person is an excellent candidate for a commander. Among the large number of combat plans proposed by the General Staff, many are simply not feasible. Only a smart but lazy commander can pick out one or two most reasonable plans.
There is a class of people who are smart and hardworking. This kind of person is suitable for entering the General Staff. They can keep making suggestions and formulating a large number of plans. With enough plans, it is easy to choose the most suitable one for actual combat.
Finally, there is another class of people, stupid and hardworking. According to the Army Code of Practice, such people must be discharged.
We feel the same way. One is the misbehaving, the other the foolish and industrious, and both are scourges.
Regarding the future, we basically adopt a play-by-play attitude.
The Westco you hold doesn’t know how to use so much cash. It’s not that the managers don’t tell you, but the managers themselves don’t know.
We do long-term loan business, paying special attention to preventing the risk of rising interest rates.
There are two main factors that determine the outcome: one is the situation and the other is the person. The situation is too strong, no matter how capable you are, it won’t help.
Keshir withdrew much of the money from the mill and invested it elsewhere. If Berkshire refuses to admit defeat, insists on fighting against the general trend of the textile industry going downhill, and keeps investing money in it, this textile factory can exhaust Berkshire’s funds. Hit if you can, and run if you can’t.
We never provide shareholders with specific numbers on intrinsic value. Whether it is at Seaco or at the parent company, Berkshire, we disclose information as detailed as possible, and clearly state the principles we follow in our own valuation, and then let shareholders estimate the intrinsic value by themselves.
Why do we disclose the investment logic of Freddie Mac
We disclosed the logic of our investment in Freddie Mac, which is not in line with the practice of Berkshire Hathaway as a group. We generally don’t talk about our investment logic. After disclosing our investment logic, our subsequent buying or selling activities may encounter resistance.
We made an exception this time because we have already bought the upper limit stipulated by the law, and there should be no way to continue to buy more Freddie Mac stocks. As such, we have chosen to disclose this information.
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