Key Quotes from 1979 Shareholder Letter

1. "'Earnings per share' will rise constantly on a dormant savings account or on a U.S. Savings Bond bearing a fixed rate of return simply because 'earnings' (the stated interest rate) are continuously plowed back and added to the capital base. Thus, even a 'stopped clock' can look like a growth stock if the dividend payout ratio is low."

2. "The inflation rate, coupled with individual tax rates, will be the ultimate determinant as to whether our internal operating performance produces successful investment results... This combination — the inflation rate plus the percentage of capital that must be paid by the owner to transfer into his own pocket the annual earnings achieved by the business — can be thought of as an 'investor's misery index'."

3. "If we should continue to achieve a 20% compounded gain... your after-tax purchasing power gain is likely to be very close to zero at a 14% inflation rate."

4. "A business whose per-share net worth compounded at 20% annually would have guaranteed its owners a highly successful real investment return. Now such an outcome seems less certain."

5. "We have achieved this result while utilizing a low amount of leverage... and also without significant issuance or repurchase of shares."

6. "Government has been exceptionally able in printing money and creating promises, but is unable to print gold or create oil."

7. "We intend to continue to do as well as we can in managing the internal affairs of the business. But you should understand that external conditions affecting the stability of currency may very well be the most important factor in determining whether there are any real rewards from your investment in Berkshire Hathaway."

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Source: Full Letter