Berkshire Hathaway's Owners Manual

I recently reread the Berkshire Hathaway's Owner's Manual. It was originally mailed out to share-owners of Berkshire Hathaway in 1996, but has been periodically updated on Berkshire's web site. Its last updated was posted in February 2010 when Berkshire's annual report came out.

The owner's manual identifies 15 guiding principals that Warren Buffet and Charlie Munger use to run Berkshire Hathaway. Rereading the principles I am a bit struck at how these principles seem rarely followed at other large institutions. For most of the conference call transcripts, annual reports, and earning releases I read through these principles don't appear to apply.

I find many large companies seem to focus on being #1 in their market, growing as big as possible, short term growth rates, and increasing their earnings. While all of these areas are important and can help make their business a better investment, I rarely hear about these principles such as comparing investment performance to the S&P, allocating business capital with the long term economic consequences to shareholders in mind, or being forward and candid about appraising the businesses' value.

A side note - I feel the simplest indicator of whether I can trust an executive team is whether the use a consistent set of performance measures used by the executive team year over year in their annual report. I love how company's annual reports selectively chose favorable metrics each year that put the company in the most favorable light.

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Comments (1)

A large part of Warren Buffett and Charlie Munger's success with Berkshire Hathaway does seem to lie in their straightforward, honest attitude. I was tempted to call that "old-fashioned," but I'm not sure that it was more common sixty years ago than it is today.

They stand by their decisions while continuing to learn from their mistakes.

A few years ago I read a book about "value" investing fund managers. They all gave lip service to the concept of "buying businesses," but later said they sold stocks when they reached "fair" (as they defined it) value in the marketplace.

So it's interesting that the king of value investors doesn't sell businesses he's bought and rarely sells stock - refusing to be a "gin rummy" (discard your weakest card) manager.

It's unfortunate that their principle of treating shareowners as partners falls short of paying dividends. Berkshire Hathaway is a company I respect, but as an investor I want money returned to my pocket on a quarterly basis.

Posted by Richard Stooker | January 12, 2011 5:28 PM