1963 Letter to Shareholders

To the Shareholders of Berkshire Hathaway Inc.

This is our first full year reporting to you on the operations of Berkshire Hathaway Inc. I want to present both the challenges we faced in our textile operations and the progress made in our investment portfolio, as both are essential to understanding your company's value.

Textile Operations

Our textile business faced headwinds throughout 1963. The domestic textile industry continued to struggle with competitive pressures from synthetic fibers, foreign imports, and the inherent cyclicality of the business. Our mills in New Bedford, Massachusetts and Lowell operated below capacity, and margins were compressed.

However, I want to emphasize that our textile management team worked diligently to minimize losses and optimize operations. While the textile business will never be a spectacular earner, it provides employment to our workers and has proven adequate in terms of generating sufficient cash to fund our investment activities.

The Investment Portfolio

The investment portfolio is where Berkshire Hathaway's real value lies. Our investments in marketable securities appreciated meaningfully in 1963, and several positions showed substantial gains.

We continued to follow the principles I learned from Benjamin Graham—investing in securities trading below their intrinsic value, with a margin of safety that protects against both analytical errors and market volatility.

"The true measure of our progress is the growth in intrinsic business value, not the quarterly fluctuation of market prices."

Our largest single investment continued to be our position in Xerox Corporation, which we acquired at attractive valuations and which continued to perform well as the company extended its dominance in the copying industry.

Intrinsic Value Philosophy

I believe it is important for shareholders to understand our philosophy. The stock market will fluctuate—it always has and always will. However, the intrinsic value of our business holdings and investment portfolio grows steadily when we make good decisions and compound our capital at attractive rates.

I am continuing to purchase shares of Berkshire Hathaway in the market when they trade at meaningful discounts to intrinsic value. This is my personal demonstration of confidence in the business.

Looking Ahead

I expect 1964 to bring continued challenges in textiles but further appreciation in our investment portfolio. The combination of an operating business generating cash and a portfolio of securities trading below intrinsic value provides the foundation for long-term value creation.

I remain committed to treating your capital as I would my own, with the care and attention it deserves.

Warren E. Buffett January 1964