Here is the full text of Warren Buffett's 2000 letter to shareholders:
To the Shareholders of Berkshire Hathaway Inc.:
Berkshire's net worth increased by $3.96 billion in 2000, and the book value per share of both Class A and Class B stock grew by 6.5%. Over the past 36 years since the current management took over, the book value per share has grown from $19 to $40,442, with an annual compound growth rate of approximately 23.6%.
We completed eight acquisitions in 2000, costing about $8 billion, with 97% of that amount paid in cash and 3% in stock. (Notice, no debt was used in these purchases.) These acquisitions include a furniture rental company, an insurance company, a jeweler, a brick manufacturer, a carpet manufacturer, an industrial insulation and roofing products manufacturer, and a paint manufacturer.
Our investment approach remains focused on fundamental valuation. We believe that the value of an asset is determined by the cash flows it can generate in the future. Quoting Aesop, we take valuation back to first principles: "A bird in the hand is worth two in the bush." To apply this principle, we need to answer three questions: How certain are we that there are indeed birds in the bush? When will they emerge, and how many will there be? What is the risk - free interest rate? By answering these questions, we can determine the maximum value of the bush. This investment axiom is immutable and can be applied to any asset, whether it is farms, oil royalties, bonds, stocks, lottery tickets, or manufacturing plants. The advent of new technologies such as the steam engine, electricity, or the automobile has not changed this formula, nor will the internet.
We also discussed the accounting scandals of the time. We believe that financial reporting should disclose all the important facts about current operations and the CEO's frank view of the long - term economic characteristics of the business.
In 2000, we also had some thoughts on the insurance business. For example, GEICO, one of our insurance subsidiaries, faced increased competition. We analyzed several factors that affected its business, including the diminishing returns of advertising, the exhaustion of low - hanging fruits, stricter underwriting standards, and changes in the competitive landscape.
Overall, we are satisfied with Berkshire's performance in 2000. We will continue to adhere to our investment principles and strive to create long - term value for shareholders.
Best regards,
Warren E. Buffett
Chairman of the Board
