1964 Letter to Shareholders

To the Shareholders of Berkshire Hathaway Inc.

1964 was a year of solid achievement for Berkshire Hathaway and its shareholders. Our overall performance—the combination of textile operations and our investment portfolio—delivered returns that meaningfully exceeded market averages.

Performance vs. The Market

I measure our success against the Dow Jones Industrial Average, which closed 1964 at 874.13, an advance of 18.7% including dividends. Our performance in 1964 was approximately 24.5%, giving us an advantage of nearly six percentage points over the market.

This relative outperformance is not accidental. It results from consistently applying sound investment principles: purchasing securities trading below their intrinsic value, maintaining a margin of safety in every investment, and holding for the long term while the market focuses on short-term fluctuations.

"Over any extended period of years, I believe that a diversified portfolio of equities purchased at reasonable prices will outperform a portfolio of bonds or other fixed-income securities. The key is to be patient and to avoid the temptation to trade excessively."

Investment Portfolio Highlights

Our investment portfolio benefited significantly from several positions:

Xerox Corporation continued to be our largest holding and delivered excellent returns. The company's dominant position in plain-paper copiers generated strong earnings growth, and the market increasingly recognized the quality of this franchise.

American Express remained a significant position and performed well. Our thesis—that the 1963 vegetable oil scandal was a temporary setback for a franchise business of enormous long-term value—proved correct as the company's shares recovered and advanced.

The Sanborn Map Company illustrated perfectly the principle of investing in businesses trading below intrinsic value. Our analysis indicated that the map business, with its recurring revenue from utility and fire insurance customers, was worth substantially more than the market was according.

Textile Operations

The textile business continued to be challenging. While we worked to improve efficiency and reduce costs, the fundamental problems of the industry—a commodity product with excess global capacity—remained. Our textile mills generated only modest profits in a favorable economic year, which underscores how difficult this business is.

I want to be transparent: the textile operations will likely never be outstanding capital allocators. However, they do generate cash that can be deployed into better investments, and they provide meaningful employment. I will continue to operate them unless conditions deteriorate significantly.

Capital Allocation

Our approach to capital allocation reflects our dual nature as both an operating company and an investment vehicle. Cash generated by textiles is deployed into securities when attractive opportunities arise. We have no interest in diversifying simply for the sake of diversification—every dollar should work at its highest potential return.

I continued to purchase shares of Berkshire Hathaway during 1964 whenever they traded below intrinsic value. My personal holdings increased, aligning my interests further with those of outside shareholders.

The Virtue of Patience

I want to close with a reflection on patience. Every investment approach that has ever worked requires time to compound. The investor who moves in and out of securities, chasing recent performance, is almost guaranteed to underperform the patient investor who identifies sound investments and holds them.

This principle, which Benjamin Graham taught me, is perhaps the most valuable lesson in all of investing. The stock market exists to transfer wealth from the impatient to the patient. Berkshire Hathaway is structured to be patient with every dollar entrusted to our care.

I look forward to reporting to you again in 1965.

Warren E. Buffett January 1965