Berkshire Hathaway Letters to Shareholders, 2016
Summary
This is the collected volume of Buffett's annual letters to Berkshire Hathaway shareholders through 2016, running from 1965. The letters are the primary source for his thinking on business analysis, capital allocation, accounting, governance and market behaviour, written annually over five decades with the results visible against the claims.
The recurring analytical content includes: the distinction between businesses that require capital to grow and those that do not, and why the second are worth far more; owner earnings, defined as reported earnings plus depreciation less the capital expenditure required to maintain competitive position, which he argues is the number that matters and which no accounting standard reports; the treatment of float in the insurance businesses as capital supplied by policyholders at negative cost when underwriting is disciplined; the criteria for acquisitions, stated identically for decades; the arguments about goodwill amortisation and about accounting for options and pensions; and the repeated instruction that market volatility is the source of opportunity rather than of risk.
The letters also contain Buffett's admissions of error, which are unusually specific for a chief executive, including the original textile business, Dexter Shoe, and several acquisitions and investments.
The volume is long and repetitive by construction, since the same principles are restated annually. Readers wanting the material organised by topic should use Cunningham's Essays of Warren Buffett, which does exactly that. The letters are published free by Berkshire, so the paid volume's value is only in the binding.
Key takeaways 7
- Businesses that grow without requiring proportionate additional capital are worth far more than businesses that must reinvest to grow at the same rate.
- Owner earnings, meaning reported earnings plus depreciation less the capital expenditure needed to maintain competitive position, is the figure that matters and no accounting standard reports it.
- Insurance float is capital supplied by policyholders that costs less than nothing when underwriting is disciplined, and it is the foundation of Berkshire's capital structure.
- Market volatility is the source of opportunity for a long-horizon investor rather than a measure of risk.
- Retained earnings must produce at least a dollar of market value per dollar retained, and management failing that test should distribute the cash.
- Acquisition criteria stated publicly and applied consistently for decades produce a deal flow of sellers who self-select for those terms.
- Accounting treatments including goodwill amortisation, option expensing and pension assumptions distort reported earnings enough that an analyst must reconstruct the economics.
Who should read it
Investors who want Buffett's primary writing in one volume, though the letters are free from Berkshire and Cunningham's Essays organises them better.
About Warren Buffett
Chairman, Berkshire Hathaway; chief executive 1970-2025; earlier general partner, Buffett Partnership Ltd.
The Berkshire shareholder letters are a primary source in their own right, read and cited far beyond investing.
Where it sits in the reference 2
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