1980 Letter to Shareholders

To the Shareholders of Berkshire Hathaway Inc.

In 1980, Berkshire's book value reached $400 per share—a 21-fold increase from the $19 per share when Charlie and I took over in 1965. This compound rate of 21% per year has exceeded the returns of virtually every other investment over the same period.

"Temperament is more important than intelligence in investing. You need the right mindset: you must be willing to act counter-cyclically, to be patient when others are active, and to ignore short-term price movements."

Why Equities Beat All Other Assets

In 1980, I explained why equities are the best long-term investment. Over any period of 20 years or more, stocks have outperformed bonds, real estate, and gold.

The reason is simple: businesses generate returns that compound over time. The owner of a business participates in this compounding; the owner of a bond receives only fixed interest.

Stocks are not just pieces of paper. They are claims on real businesses. And real businesses—owned, improved, and compounded over decades—create enormous wealth.

Temperament Over Intelligence

Most investors believe that successful investing requires superior intelligence. They are wrong. Intelligence helps, but temperament matters more.

The intelligent investor must be willing to act counter-cyclically. When markets fall, the intelligent investor sees opportunity; the average investor sees danger. When markets rise, the intelligent investor stays disciplined; the average investor chases performance.

This temperament cannot be taught. It must be developed through experience and self-knowledge.

Looking Forward

Our approach will not change:

1. We own equities — They are the best long-term investment
2. We develop temperament — Intelligence without discipline is useless
3. We are patient — Compounding works over decades, not quarters
4. We hold forever — The best businesses deserve permanent ownership

Warren E. Buffett February 1981