Warren Buffet’s letter to Shareholders, 1977 (Summary)

Key Take Always

- Operating earnings in 1977 of $21,904,000, or $22.54 per share. Out of which $1.43
capital gains by Blue Chip Stamps.
- operating earnings on beginning equity capital amounted to 19%, operating earnings
per share were up 37% in comparison to that of the previous year.
- Whereas there was a less impressive increase of 24% in beginning capital
- Poor performance on the Textile Operations front due to both challenges in forecasting
abilities & the nature of the textile industry.
- The reasons to continue the Textile Operations further despite the prior year’s poor
performance
o Workers co-operation in bringing in an effective cost structure and product mix
o change in corporate control took place
o hard work and some imagination regarding manufacturing and marketing
configurations
- Insurance Operations has grew significantly over the past 10 years.
- The past 10 years growth’s started with the acquisition of National Indemnity Company
and National Fire and Marine Insurance Company.
- The aggregate insurance premium volume stands at $151 million (as of 1977)
- This ~600% increase is due to
o large gains in National Indemnity’s traditional liability areas,
o the starting of new companies.
o through the marketing of additional products and
o reinsurance, within the National Indemnity Company corporate structure
- However there were some major mistakes during the past 10 years such as
o a surety operation initiated in 1969
o the 1973 expansion of Home and Automobile’s urban auto marketing into the
Miami, Florida area
o a still unresolved aviation “fronting” arrangement
o our Worker’s Compensation operation in California for which the reorganization
is in progress
- the lessons the management has learnt is the importance of being in businesses where
tailwinds prevail rather than headwinds.