Berkshire Hathaway Letter 1971

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1、BerkshireHathawayLetter1971TotheStockholdersofBerkshireHathawayInc.:Itisapleasuretoreportthatoperatingearningsin1971,excludingcapitalgains,amountedtomorethan14%ofbeginningshareholders’equity.Thisresult—considerablyabovetheaverageofAmericanindustry—wasachievedinthefaceofin

2、adequateearningsinourtextileoperation,makingclearthebenefitsofredeploymentofcapitalinauguratedfiveyearsago.Itwillcontinuetobetheobjectiveofmanagementtoimprovereturnontotalcapitalization(longtermdebtplusequity),aswellasthereturnonequitycapital.However,itshouldberealizedtha

3、tmerelymaintainingthepresentrelativelyhighrateofreturnmaywellprovemoredifficultthanwasimprovementfromtheverylowlevelsofreturnwhichprevailedthroughoutmostofthe1960’s.TextileOperationsWe,incommonwithmostofthetextileindustry,continuedtostrugglethroughout1971withinadequategro

4、ssmargins.Strongeffortstohammerdowncostsandacontinuoussearchforlessprice-sensitivefabricsproducedonlymarginalprofits.However,withouttheseeffortswewouldhaveoperatedsubstantiallyinthered.Employmentwasmorestablethroughouttheyearasourprogramtoimprovecontrolofinventoriesachiev

5、edreasonablesuccess.Asmentionedlastyear,KenChaceandhismanagementgrouphavebeenswimmingagainstastrongindustrytide.Thisnegativeenvironmenthasonlycausedthemtointensifytheirefforts.Currentlywearewitnessingamildindustrypickupwhichweintendtomaximizewithourgreatlystrengthenedsale

6、sforce.Withtheimprovementnowseeninvolumeandmixofbusiness,wewouldexpectbetterprofitability—althoughnotofadramaticnature—fromourtextileoperationin1972.InsuranceOperationsAnunusualcombinationoffactors—reducedautoaccidentfrequency,sharplyhighereffectiveratesinlargevolumelines

7、,andtheabsenceofmajorcatastrophes—producedanextraordinarilygoodyearforthepropertyandcasualtyinsuranceindustry.Wesharedinthesebenefits,althoughtheyarenotwithouttheirnegativeconnotations.Ourtraditionalbusiness—andstillourlargestsegment—isinthespecializedpolicyornon-standard

8、insured.Whenstandardmarketsbecometightbecauseofunprofitableindustryunderwriting,weexperiencesubs