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This is perhaps simplistic, but at a 6% annual rate the early investors who withdrew monthly would get 0.50% of their last year's ending principal balance per month. Not all of the early investors 'let it ride' so-to-speak. Some were giving him their retirement savings and needed regular cash. I'd imagine that the long-term rate of return and government alternatives would have played into the decision too. On the other hand keeping the math simple for his investors (such as his aunt) and for himself (paper-based records) could have been the reason.

Again, full disclosure, totally biased here...I think people often dismiss a lot of what is said or written by Charlie and sometimes Warren, because it sounds too simple. They think, 'oh there must be more'. While true that they have thought tremendously on many subjects and have a deep understanding of business, what they come back to are often simple principles. It really is really hard to apply simple concepts and proven ideas. My all-time favorite Munger quote is this: “It is occasionally possible for a tortoise, content to assimilate proven insights of his best predecessor, to outrun hares which seek originality or don’t wish to be left out of some crowd folly which ignores the best work of the past. This happens as the tortoise stumbles on some particularly effective way to apply the best previous work, or simply avoids standard calamities. Anyway, we hope so.” – Charlie Munger, 1987 Chairman’s Letter to Wesco Shareholders Charlie just plods along, looking for the best work of the past. The man was broke at age 30, tragically lost a 9 year old son, and still managed to become worth billions and highly respected. That, to me, is worth investigating thoroughly. As an aside, and probably excluding everyone on this site, I simply cannot understand people who follow the get rich quick schemes and day trader crowd over proven ability. I once asked a guy who day traded how many day traders were on the Fortune 500. I got a blank stare.

Thanks, glad you find it useful. I'm not sure why it's not working for you, the file isn't locked. I'm including the file directly to this post. Please let me know if you continue to have problems. Berkshire_Hathaway_Look_Through_Portfolio_June_2015.xlsx

If you don't buy and read, cover to cover, Poor Charlie's Almanack, Seeking Wisdom, and Damn Right! by Janet Lowe, you are doing yourself a disservice as an investor. And as a human being. You won't be disappointed. I would personally buy all three books from you if you don't find them worthy of your bookshelf. I think Charlie said somewhere, and I'm paraphrasing, "If you don't like Poor Charlie's Almanack, give it to someone more intelligent". I started Poor Charlie's Almanack. It was unfocused and boring. I might get back to it or try to find someone more intelligent. ::) Jurgis, I'd highly recommend giving it another try. It's not supposed to be a book per se, such as a novel read cover to cover with even flow. Rather it's a collection of Charlie's speeches, sayings, etc. over time. There's an enormous amount to be learned from him in terms of approaching investing and life. Munger has a rather "rough" façade, which might explain why people either love him or are turned away. I'm, of course, in the former category.

I 100% second that thought, KC. There is much more nuance in the speech than in the transcript.

If you don't buy and read, cover to cover, Poor Charlie's Almanack, Seeking Wisdom, and Damn Right! by Janet Lowe, you are doing yourself a disservice as an investor. And as a human being. You won't be disappointed. I would personally buy all three books from you if you don't find them worthy of your bookshelf. I think Charlie said somewhere, and I'm paraphrasing, "If you don't like Poor Charlie's Almanack, give it to someone more intelligent".

Thanks for the feedback. Yes, admittedly it is not perfect. Just like using change in book value as a rough proxy for change in intrinsic value, using reported earnings vs. calculating owner earnings for each company is a crude measure. It just helps make more tangible the fact that we're owners of those companies. Yes it's several steps removed (BRK Shareholder > Berkshire > Investee), but it's real nonetheless. I may start doing this exercise every quarter and see what sort of trends emerge.

For those curious what their portion of Berkshire's investment portfolio looks like on a "look through" basis, I've created a spreadsheet to do just that. Enter the number of BRKB shares you own and it will calculate how many shares of Wells Fargo, Coke, etc. that you own through your investment Berkshire. It also uses trailing 12 month data to give an estimate of look thru earnings. Data is from Berkshire's 13f filing for 6/30/15, and MSN Money (data connection through Excel). Side note: Highlighted in yellow are the top 10 positions. Interesting to note the concentration despite a 46-issue portfolio. http://www.meadcm.com/memos

I never said that. I wonder why you think I did. The fact that I subtract growth capex from FCF does not mean it's necessarily wasted. It just means that for that particular metric I want to know how much cash company can put in the bank (or spend on buying cheap stocks ;) ). I also look at other metrics so this discussion is rather misdirected IMO. :) Ideal company does not necessarily make ideal investment. There is always a question of price. ;) Securities of very non-ideal companies may result in better returns than securities of ideal ones. Long term, sure I probably would love something like AAPL or MSFT in the old days. However, I'll admit that I am too cheap and I usually don't buy the ideal companies when they are young and growing fast. BTW, looking at this board, I have a feeling that there's not much discussion of organic FCF-for-growth-capex companies either. Mostly I see people talking about rollups or special situations. Maybe this is misperception though. It was your "Yes. Assuming." that lead me to believe you were sticking with your original statement in hard form. Bottom line is this: growth requires capital, the more invested = further away from cash = riskier. It's our job to risk-adjust investments ala the pari mutuel system.

For those interested in an academic discussion please see the following: http://people.stern.nyu.edu/adamodar/pdfiles/papers/growthorigins.pdf Professor D. has done a lot of good work in this area. (Though I wish he would discard his professorial attachment to beta, etc., he is worth studying.)

Yes. Assuming. Most managements' growth capex is not producing the same return as the first. Even for best companies. Even for Buffett companies. It is very hard for large companies to produce the same ROIC on incrementals. I'm pretty sure KO has not produced the same return on growth capex for ages. Jurgis - I'd agree with you that a good many businesses do not earn on their incremental investments a return better than that of the original business. This is partly due to the fact that rarely have those at the top been schooled in capital allocation and, therefore, they invest based on another metric, such as growth in market share, or simply growth in sales. The other part is because growth opportunities in "home" markets get saturated. But to say that ALL growth capex is wasted is incorrect. Yes, growth is hard to value. Yes, management's can (and many do) invest in sub par projects. Yes, many people misunderstand growth and think that it's all good, which it's not. Growth adds value if invested above the cost of capital; at the cost of capital value is neither added nor destroyed; and below the cost of capital growth is a negative. Do you have a savings account? If so, do you take out the interest every month, for fear that it will be lost? No, of course not. Your interest become "growth spending" increasing your asset base, and therefore the earnings power of your saving account. A company is an asset that is made up of a collection of other assets (machinery, equipment, people, processes) that can be added to for growth. Based on what you've described as ideal, I'd guess that your portfolio is made up entirely of cash cow blue chips? What else could reasonably satisfy your desire for high payout ratios yet still maintain a reasonable value based solely on discarding all growth spending? Jurgis - as we've met before I hope none of the above comes off as disrespectful or otherwise misconstrued. Just trying to understand your logic, and hopefully, contribute to this conversation.

Short answer: Maintenance capex. Read Bruce Greenwald's books/works. Maintenance capex is simply replacing the plant, property and equipment back up to its original, beginning of year state. In most cases maintenance capex = depreciation. This makes sense right since accountants spend a lot of time trying to figure out what the economic life of an asset is, so they can apply the correct depreciation schedule. I say most cases, because there are exceptions, such as in an inflationary environment. Let's go through a simple example, ignoring taxes. You're entering the courier service (taxiing documents around the city). You go and buy a car for $25,000, using the savings you've accumulated out of patience and good conduct in the past, and hire an employee to do all the actual work. After the end of the first year your P&L looks as follows: Sales: $50,000 Operating Expenses (excluding depreciation): $40,000 Depreciation: $5,000 (5 year life) Total Expenses: $45,000 Net Profit: $5,000 How much money have you made, and what was your return? Well your return on sales (pre-tax profit margin) was 10% ($5k / $50k); your return on capital (also your ROE since there's no debt) was 20% ($5k/$25k). Since you have no receivables or payables your operating cash flow was $5k net income + $5k non-cash depreciation = $10k. So, you laid out $25k and got $10k back, wasn't your actual return $10k / $25k = 40%? Let's fast forward to the end of five years...At the end of year 5 your operating asset, your car, has been so beat up and abused that it's no longer worth anything. You can't even trade it in for anything it's so beat up, you've literally wrung the life out of it. You see in your bank account $50,000, representing the $10k/year accumulated cash flow. In order to stay in business you must - must - buy another vehicle. We were lucky to not have had any inflation over that time so your vehicle still costs $25k. You outlay the money and look at your account: $25k. You've earned 20% per year. Your true "owner earnings" was your pre-tax income. Now. Let's make this business grow. Instead of buying just one vehicle, replacing the old one, you buy two. $50k goes out the door. Now your P&L doubles (I'll leave you to do the math). Has the money spent on the second "growth" vehicle actually been wasted? Is it worthless? No. Assuming it earns the same return as the first you can enjoy a 20% return on a larger pool of capital. The returns (%) have stayed the same, but the amount of capital employed has gone up. This is why Buffett is not impressed with "record" earnings. He cares most about ROIC. The business just described would, according to Buffett, be described as close to the ideal business. You can just keep adding and reinvesting capital into it and it keeps on keeping on. In the real world what happens is returns go down, there is competition, technology changes. What should we do with that surplus cash at the end of the day? Should we reinvest, return cash to shareholders, buy another company? This is the art capital allocation.

I'm having trouble finding the source material where I originally read about an anecdote about Charlie. He was testifying on the stand or otherwise under oath, and after being asked a question Charlie asked the person to repeat it, that he was day dreaming or otherwise zoned out. The attorney repeated the question, to which Charlie replied something along the lines of 'I've done it again, please repeat'. Was this in Damn Right, or maybe it was related by someone else in a speech? I can't find it in my brief search of written material, nor through a Google string search. Thanks to all for their help!

Anyone know when the next annual meeting is? Is it this year, since the last one was delayed? Aren't they usually in September?

I hope this doesn't come across as rude, especially since I just joined this forum. But, no, I don't think I can pardon your laziness. As another commented, go back and read other letters / 10k's. Better yet, grab the latest compilation of letters and read all 50 going back to 1965! Use your curiosity to dig deeper. Ask, 'Does book value include deferred tax liabilities?' Grab an accounting book, or search online. (Hint: look at the statement "Consolidated Statements of Comprehensive Income". ) I'll leave you with a Munger quote, "I can't tell you how to get rich with soft white hands." Read: It's going to require some work.