巴菲特1989年致股东的信（英文版）

Here is the full text of Buffett's 1989 letter to shareholders1:

Our specialist, Jim Maguire of Henderson Brothers, Inc. (“HBI”), has continued his outstanding performance in trading Berkshire's stock on the New York Stock Exchange. Before we listed, dealer spreads often were 3% or more of market price. Jim has maintained the spread at 50 points or less, which at current prices is well under 1%. Shareholders who buy or sell benefit significantly from this reduction in transaction costs.

We are delighted with our experience with Jim, HBI, and the NYSE, and I publicly complimented the Exchange in ads it ran. Normally, I shun testimonials, but I was pleased to do so in this instance.

Last year I said we might reduce our arbitrage activities, and that's what happened. Arbitrage positions are a substitute for short - term cash equivalents. Sometimes we had little cash, and even when we had more, we chose not to engage in arbitrage. The main reason was that recent corporate activities made little economic sense. Engaging in such arbitrage is like playing the greater - fool game. We will do large - scale arbitrage from time to time, but only when we like the odds.

Except for three convertible preferred stock investments mentioned later, we significantly reduced our medium - and long - term fixed - income bond positions, especially the long - term part. We only have Washington Public Power Supply System bonds left. Last year, we sold some low - yield bonds bought at a low discount. The selling price was similar to that of high - credit - rating bonds, one time the original investment cost, plus 15% - 17% tax - free interest annually. We kept the high - yield bonds. Some will mature in 1991 or 1992, and the rest will be redeemed in the middle of 1990. We also sold many medium - term tax - exempt bonds. We said we'd sell them when the time was right and we found better investment opportunities, regardless of the price. The time came, so we sold most of them and got a good return. Overall, our pre - tax income from selling tax - exempt bonds in 1989 was about $51 million.

We used the proceeds from bond sales, along with our initial cash and mid - year earnings, to buy three convertible preferred stocks. In July, we invested $600 million in Gillette's 8.75% - interest - rate, ten - year - mandatory - redemption convertible preferred stock, with a conversion price of $50. Then we spent $358 million on USAir's 9.25% - interest - rate, ten - year - mandatory - redemption convertible preferred stock, with a conversion price of $60. Finally, at the end of the year, we invested $300 million in Champion International's 9.25% - interest - rate, ten - year - mandatory - redemption convertible preferred stock, with a conversion price of $38.

Unlike ordinary convertible preferred stocks, ours cannot be sold or converted within a certain period, so our short - term profit - making opportunity from common stock reversal is small. I joined Gillette's board of directors, but not those of USAir or Champion. (I like the current boards I'm on, but I may not have time to join other boards due to my busy schedule.)

Gillette is very much the kind of company we like. Charlie and I are familiar with the industry environment and believe we can make a reasonable prediction about the company's future. (If you haven't tried Gillette's new Sensor razor, go get one!) However, we can't predict the future of the investment banking, airline, or paper industries. (We bought Salomon's convertible bonds in 1987.) This doesn't mean their future is negative. Basically, we are agnostics, not atheists. So, due to the lack of strong arguments in these industries, our investment approach must be different from that for obviously good companies and industries.

It's important that we only deal with people we like, admire, and trust. People like John Gutfreund at Salomon, Colman Mockler, Jr. at Gillette, Ed Colodny at USAir, and Andy Sigler at Champion meet our standards. They also trust us and give us unrestricted conversion rights, which is rare in large - scale corporate financings in the US. In fact, they believe we are smart owners who focus on the future, just as we believe they are smart managers who consider both the present and the future.

This convertible preferred stock investment method ensures that even if the invested company faces a poor industry environment, we can still get stable returns. If the invested company performs well, we can get better returns than investing in ordinary US companies. We believe Gillette will perform well under Colman's leadership, and John and Andy won't disappoint us even in a bad industry environment.

In any case, we expect these convertible preferred stocks to allow us to recover the principal and dividends without worry. However, if that's all we can get, the result will be quite disappointing because we have to sacrifice liquidity, which may cause us to miss better investment opportunities in the next ten years. In this case, we can only get the benefits of ordinary preferred stocks, which is not what we want to invest in. So, the only thing beneficial to Berkshire is that the common stocks of our invested companies perform well. This requires a good management team and a tolerable industry environment. We believe Berkshire's investment in these four companies can also help them and their shareholders in the long run because they can be sure that there is a stable and concerned major shareholder supporting them. When dealing with our invested companies, we usually adopt a supportive, objective, and analytical attitude. We know that these company CEOs are very familiar with their industries, but we think they will also cherish the experience exchange with us objective people who have no industry background.

The returns of these convertible preferred stocks are certainly not as good as those of good stocks with economic advantages that haven't been discovered by the market, nor are they as good as the acquisitions of excellent enterprises where we can buy more than 80% of the equity. But these two types of investment opportunities are very rare and hard to come by, especially with our current capital scale.

In general, Charlie and I think this kind of convertible preferred stock investment can give us better investment returns than ordinary fixed - income bonds, and we can also play a secondary, interesting, and constructive role in these invested companies.

In September last year, Berkshire issued $900 million of zero - coupon convertible subordinated debentures, which are listed on the New York Stock Exchange. Salomon Brothers handled the bond underwriting, providing us with valuable advice and perfect execution.

Most bonds need to pay interest on time, usually every six months, but zero - coupon bonds don't need to pay interest immediately. Instead, investors deduct it in advance when buying the bonds at a large discount. The actual interest rate depends on the bond's issue price, maturity face value, and issuance period.

For the bonds we issued, the issue price is 44.314% of the face value, and they mature in 15 years. Investors who buy these bonds can get an annual return of about 5.5%. Since we only received $44.31 per bond, after deducting the $9.5 million issuance cost, the actual amount we received is $400 million.

The face value of these bonds is $10,000. Each bond can be converted into 0.4515 shares of Berkshire stock. Since the issue price of each bond is about $4,431, the conversion price into Berkshire is about $9,815, a 15% premium over the current market price. At the same time, Berkshire has the right to redeem these bonds after September 28, 1992, with interest (at an annual interest rate of 5.5%). Bondholders also have the right to ask the company to buy back the bonds they hold with interest on September 28, 1994, and September 28, 1999.

From a tax perspective, although there is no immediate interest payment, Berkshire can still enjoy the income tax deduction for the 5.5% interest expense every year. Due to the reduction in tax payments, from the cash flow perspective, we still have a net cash inflow every year, which is a good benefit. Of course, some unpredictable changes make it impossible for us to determine the real cost of funds for this issuance, but anyway, it should be lower than 5.5%. On the contrary, bondholders still have to pay income tax on the 5.5% interest every year, although they haven't received any cash interest income.

We issued similar bonds with other companies last year (especially Loews and Motorola), similar to the zero - coupon bonds that have become popular in recent years.