Key Quotes from 1982 Shareholder Letter

1. "It was only a few years ago that we told you that the operating earnings/equity capital percentage was the most important yardstick of single-year managerial performance. While we still believe this to be the case with the vast majority of companies, we believe its utility in our own case has greatly diminished."

2. "We own about 35% of GEICO Corporation but... only $3.5 million in dividends received from GEICO in 1982 after tax are the only item included in our 'accounting' earnings. An additional $23 million that represents our share of GEICO's undistributed operating earnings for 1982 is totally excluded from our reported operating earnings."

3. "Clearly 'accounting' earnings can seriously misrepresent economic reality."

4. "We prefer a concept of 'economic' earnings that includes all undistributed earnings, regardless of ownership percentage. In our view, the value to all owners of the retained earnings of a business enterprise is determined by the effectiveness with which those earnings are used."

5. "This number - not reflected at all in our earnings - is greater than our total reported earnings, which include only the $14 million in dividends received from these companies."

6. "Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation."

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Source: Full Letter