Original link: https://ljf.com/2023/08/19/1300/
1994 Speech at the Shareholders’ Meeting of Siko Finance
If additional investment can achieve a high return on investment, investors are willing to invest more capital. The problem is that in many companies, shareholders have invested more capital. On the surface, the return on equity figures are not bad, but in fact shareholders cannot get real benefits.
When investing in stocks, there may be a relatively high probability of losing money on an investment, but if you make money, you may also make a lot of money. We occasionally make such investments. Most of our investments are held for the long term. For these investments we make, we believe that as long as we hold them for a long time, it is almost impossible to lose money. We mainly make this kind of investments.
At a previous shareholder meeting, I quoted a maxim from the banking industry. This adage was uttered by an old banker in Texas. “The loan was recovered before it was issued,” he said.
In many cases, it is really only before the loan is issued that the loan can be recovered. These words are too reasonable.
Not afraid of losing tens of millions of dollars. But there is a prerequisite for us to take risks – the price must be appropriate, the probability of risk occurrence is relatively small, even if the risk occurs, our net assets are sufficient to deal with it
Everyone says they are hedged. In the current financial world, it is embarrassing not to mention hedging, especially those with MBA degrees. In the financial field, hedging is very popular, the number of transactions is increasing, and the operation is becoming more and more complicated. I’ve never heard Warren Buffett say he hedged.
Layoff costs are also a real, very large liability that is not reflected on the balance sheet. A company knows very well that when it decides to lay off employees in the future, the assets on its balance sheet will be greatly reduced, but its current balance sheet does not record the huge liabilities that may be caused by layoffs. In this case, I believe that the accounting policy is flawed and does not adequately reflect the real situation.
The proportion of Wells Fargo’s real estate loans in total assets should not be lower than that of other banks. There are two main reasons why Wells Fargo’s losses are relatively small: first, Wells Fargo’s customer base has better credit and higher loan quality; second, after discovering the signs of a crisis, Wells Fargo took decisive action the effective measures.
Large pieces of land, even in prime locations, will allow developers to enter vertically and exit horizontally. Occasionally someone makes a lot of money, but that’s a minority. In general, real estate is a tough business.
For the mistakes we make, I think we should deal with them like taming a dog, letting the dog pull and smell by itself. I am willing to deeply reflect on my mistakes. I am willing to introspect. Although the process of introspection is uncomfortable, I know that introspection is right.
We feel that Berkshire’s current situation is very good, and it is very in the interests of shareholders. We do not consider listing the subsidiary separately at all. In fact, we especially hate that complex structure like a mess. To be honest, our brain capacity is really limited. We want to use our limited brain capacity for more meaningful things, and we don’t want to let a mess consume our energy. By listing the subsidiaries separately, Berkshire would have only a partial interest in a large number of subsidiaries, which we do not want to do.
We have all tried our best, and it takes five years to make a big acquisition. Warren has said many times that it is not easy to buy an entire company at a reasonable price right now. Our competitors bid generously, and they used other people’s money. When considering each acquisition, we treat Berkshire’s money as if it were our own.
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