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In the decade or so after breaking up the partnership, that is the 1970s and early 1980s, Buffett and Munger contemplated fundamental principles for managing the collection of businesses and shareholdings they had gathered, and for the way in which they were to treat shareholders. These ideas formed the foundations stones for the creation of the greatest company ever created.
From Buffett’s summary of principles (below), published with his 1983 letter to BH shareholders, you can detect that he saw shareholders in the same light as those who had trusted him when he was a twenty-something enthusiast collecting together the savings of a few Omahans in the tens of thousands of dollars.
Whatever the, rather limited, legal obligations he had to shareholders, he was determined to go further and treat them in much the same way he did partners in his old partnerships. He was also determined to build trust-based friendships with the managers of his operating companies.
These principles are a timeless guide for would-be builders of a diversified business or a diversified portfolio of shares. I reproduce them in full:
Although our form is corporate, our attitude is partnership. Charlie Munger and I think of our shareholders as owner-partners, and of ourselves as managing partners. (Because of the size of our shareholdings we also are, for better or worse, controlling partners.) We do not view the company itself as the ultimate owner of our business assets but, instead, view the company as a conduit through which our shareholders own the assets.
In line with this owner-orientation, our directors are all major shareholders of Berkshire Hathaway. In the case of at least four of the five, over 50% of family net worth is represented by holdings of Berkshire. We eat our own cooking.
Our long-term economic goal (subject to some qualifications mentioned later) is to maximize the average annual rate of gain in intrinsic business value on a per-share basis. We do not measure the economic significance or performance of Berkshire by its size; we measure by per-share progress. We are certain that the rate of per-share progress will diminish in the future – a greatly enlarged capital base will see to that. But we will be disappointed if our rate does not exceed that of the average large American corporation.
Our preference would be to reach this goal by directly owning a diversified group of businesses that generate cash and consistently earn above-average returns on capital. Our second
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