Berkshire Chairman's Letter 1977

We select our marketable equity securities in much the same
way we would evaluate a business for acquisition in its entirety.

We want the business to be
(1) one that we can understand,
(2) with favorable long-term prospects,
(3) operated by honest and competent people, and
(4) available at a very attractive price.

We ordinarily make no attempt to buy equities for anticipated
favorable stock price behavior in the short term. In fact, if
their business experience continues to satisfy us, we welcome
lower market prices of stocks we own as an opportunity to acquire
even more of a good thing at a better price.

Our experience has been that pro-rata portions of truly
outstanding businesses sometimes sell in the securities markets
at very large discounts from the prices they would command in
negotiated transactions involving entire companies.

Consequently, bargains in business ownership, which simply are
not available directly through corporate acquisition, can be
obtained indirectly through stock ownership. When prices are
appropriate, we are willing to take very large positions in
selected companies, not with any intention of taking control and
not foreseeing sell-out or merger, but with the expectation that
excellent business results by corporations will translate over
the long term into correspondingly excellent market value and
dividend results for owners, minority as well as majority.

Such investments initially may have negligible impact on our
operating earnings. For example, we invested $10.9 million in
Capital Cities Communications during 1977. Earnings attributable
to the shares we purchased totaled about $1.3 million last year.
But only the cash dividend, which currently provides $40,000
annually, is reflected in our operating earnings figure.

Capital Cities possesses both extraordinary properties and
extraordinary management. And these management skills extend
equally to operations and employment of corporate capital. To
purchase, directly, properties such as Capital Cities owns would
cost in the area of twice our cost of purchase via the stock
market, and direct ownership would offer no important advantages
to us. While control would give us the opportunity - and the
responsibility - to manage operations and corporate resources, we
would not be able to provide management in either of those
respects equal to that now in place. In effect, we can obtain a
better management result through non-control than control. This
is an unorthodox view, but one we believe to be sound.
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