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Warren Buffett Owner Principle # 3

Written by: Pia Lord

Article Overview: Warren Buffett states that Berkshire Hathaway long term principle is to 'maximize Berkshire Hathaway's average annual rate of gain in intrinsic business value on a per share basis. This article dissects and analyzes the meanings inherent in this statement and how this principle can work for you.

Warren Buffett Owner Principle # 3

Warren Buffett Principle # 3 Long Term Economic Goal is to maximize Berkshire Hathaway’s average annual rate of gain in intrinsic business value on a per-share basis.

Every company has a business plan that they follow in order to keep them on track with earnings, sales, goodwill, returns on investment and so on. The key indicators that a company chooses to direct the overall goal is vital to streamline productivity and functioning.

Lets take a look at this statement “maximize average annual rate of gain in intrinsic business value on a per share basis” . Breaking this long phrase down into some component parts we get “ maximize”, “average annual rate of gain”, “intrinsic business value”, “per share basis” as keywords to analyze. First of all the term maximize here would certainly mean that Berkshire Hathaway is interested in “making the most of” or ” getting the highest value for”. Next, the phrase “average annual rate of gain” would seem to mean “how steadily the company is on the upward path of gaining over the course of a year and from year to year. “Intrinsic business value” would seem to indicate that Berkshire Hathaway is interested in continually increasing its value to society, individuals, investors, and the public thereby being able to be of greater business service to more and more people in one way or another. Then the phrase “on a per share basis” seems to indicate that BH is interested in using the stock price as a measure of this increase in intrinsic value, in benefit to society, individuals and investors.

When a company uses its stock price over the long term, year to year it is simple to view this just as long as the company has a public offering stock track record. Berkshire Hathaway has at least a 40 year track record of stock prices with it’s “A” shares and about a 15 year history with the “B” shares. Buffet acknowledges fluctuations in the stock price. But realizing that the stock has gone from an initial offering in the 1960’s of just under $ 100 per share to a soaring $ 120,000 per share in the early 2000’s settling around $80,000 per share I would say that BH has had a commitment to this principle. Granted BH does not pay out dividends to its share holders. But price stability and increase in overall capital per share has given Warren Buffett credence in maintaining this business principle # 3.

So you say, “That may be well and good for Berkshire Hathaway, but how can I use this principle in my business?”. If we acknowledge that building intrinsic value over time leads to business success then every business can and will be able to build upon this principle. Each company can increase its good will, its reputation through integrity, honesty and sound practices. Once they are large enough and have issued stock then they can hopefully go the route of Berkshire Hathaway in the future. But the building block of increasing intrinsic value overtime is fundamental.

All the best and great success to you!

Pia Lord

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Article Tags: berkshire hathaway, bh, business plan, business service, component parts, earnings, economic goal, goodwill, intrinsic business value, intrinsic value, nbsp, productivity, public offering, returns on investment, rsquo, share basis, stock price, stock track, upward path, warren buffett
Referred by: http://jaykubassek.com



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