Letter to Shareholders

# 1973 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. The stock market declined significantly in 1973. The Dow Jones Industrial Average fell from 1020 at the start of the year to 850 by year end. For value investors, such declines create opportunity. ## Washington Post During the market decline, we began accumulating shares of Washington Post Company. This is a wonderful business with strong competitive positions in both newspapers and broadcasting. The Washington Post newspaper dominates its market. In metropolitan areas, the leading newspaper typically captures the lion's share of advertising because advertisers want to reach the largest audience. This creates a powerful competitive advantage. > "We are buying Washington Post at a price that values the entire company at less than what we believe its intrinsic value to be." At current prices, we are paying significantly less than what a private buyer would pay for the entire business. This provides a margin of safety. We intend to continue purchasing shares as long as the price remains attractive. ## The Value of Cash The bear market demonstrates the importance of maintaining cash reserves. When markets decline, attractive investments become available. But you can only take advantage if you have cash. Many investors are fully invested at all times. They have no cash available when opportunities arise. We prefer to hold cash until we find truly compelling opportunities. The opportunity cost of holding cash is modest; the opportunity cost of missing a great investment is permanent. ## Operating Businesses See's Candies had another excellent year. The business continues to grow with minimal capital requirements. The brand's pricing power remains intact. Our insurance operations performed well despite challenging market conditions. We maintained underwriting discipline, even though this meant slower premium growth. We will not sacrifice underwriting profit for market share. ## Investment Philosophy Our approach to investing continues to evolve: 1. **We focus on business value, not stock price** — We buy businesses, not ticker symbols 2. **We are patient** — We wait for the right price 3. **We think long-term** — We intend to hold indefinitely 4. **We stay within our circle** — We only buy what we understand [[Charlie Munger]] has been instrumental in developing this philosophy. His clarity of thought cuts through complexity and reveals what truly matters. ## The Bear Market Mindset Bear markets are uncomfortable for most investors. But for us, they are opportunity. When prices fall, we can buy more of what we want for less money. This is not a time for fear; it is a time for action. Of course, we must be selective. Not everything that falls in price is a bargain. We only buy when: - The business is wonderful - The price is significantly below intrinsic value - We understand the business thoroughly These criteria are strict. Most stocks, even after declining, do not meet them. But occasionally, wonderful businesses become available at attractive prices. That is when we act. ## Looking Forward We will continue to: - Maintain cash reserves for opportunities - Buy wonderful businesses at attractive prices - Hold our investments indefinitely - Ignore market fluctuations and focus on business value The bear market will eventually end. When it does, we will have built positions in wonderful businesses at attractive prices. That is our goal. Warren E. Buffett March 1974