Annual Letters
We continue to feel that the ratio of operating earnings
(before securities gains or losses) to shareholders’ equity with
all securities valued at cost is the most appropriate way to
measure any single year’s operating performance.
(before securities gains or losses) to shareholders’ equity with
all securities valued at cost is the most appropriate way to
measure any single year’s operating performance.
Chairman's Letter - 1979
seeing how much $1 of net assets generates in earnings is the best indicator of evaluating a business.
in an asset light model, you can use intangible assets - like headcount, patents, etc.
how much earnings are you generating per $1 on net assets on the balance sheet
Associated’s business has not grown, and it consistently has
faced adverse demographic and retailing trends. But Ben’s
combination of merchandising, real estate and cost-containment
skills has produced an outstanding record of profitability, with
returns on capital necessarily employed in the business often in
the 20% after-tax area.
faced adverse demographic and retailing trends. But Ben’s
combination of merchandising, real estate and cost-containment
skills has produced an outstanding record of profitability, with
returns on capital necessarily employed in the business often in
the 20% after-tax area.
Chairman's Letter - 1978
cash flow business with no growth — run by family type for ever
Our experience has been that the manager of an already high-
cost operation frequently is uncommonly resourceful in finding
new ways to add to overhead, while the manager of a tightly-run
operation usually continues to find additional methods to curtail
costs, even when his costs are already well below those of his
competitors
cost operation frequently is uncommonly resourceful in finding
new ways to add to overhead, while the manager of a tightly-run
operation usually continues to find additional methods to curtail
costs, even when his costs are already well below those of his
competitors
Chairman's Letter - 1978
when spending is already high, the spender will find ways to keep spending
when spending is tight and constrained, spender will find ways to show restraint and curtail costs
We are not at all unhappy when our wholly-owned businesses
retain all of their earnings if they can utilize internally those
funds at attractive rates. Why should we feel differently about
retention of earnings by companies in which we hold small equity
interests, but where the record indicates even better prospects
for profitable employment of... See more
retain all of their earnings if they can utilize internally those
funds at attractive rates. Why should we feel differently about
retention of earnings by companies in which we hold small equity
interests, but where the record indicates even better prospects
for profitable employment of... See more
Chairman's Letter - 1978
if there are opportunities for high ROI investment at attractive costs, then earnings should be used to plow into the business — but if capital requirements are low for a business or track record of poor allocation of capital (low profitability) then earnings should be distributed as dividends or share repurchases
Of course, with a minor interest we do not have the right to
direct or even influence management policies of SAFECO. But why
should we wish to do this? The record would indicate that they
do a better job of managing their operations than we could do
ourselves. While there may be less excitement and prestige in
sitting back and letting others do the... See more
direct or even influence management policies of SAFECO. But why
should we wish to do this? The record would indicate that they
do a better job of managing their operations than we could do
ourselves. While there may be less excitement and prestige in
sitting back and letting others do the... See more
Chairman's Letter - 1978
if management is 10/10 and operated efficiently, then why ever change what they are doing or try to take full control — if it ain’t broke, don’t fix it
It is not easy to buy a good insurance
business, but our experience has been that it is easier to buy
one than create one. However, we will continue to try both
approaches, since the rewards for success in this field can be
exceptional.
business, but our experience has been that it is easier to buy
one than create one. However, we will continue to try both
approaches, since the rewards for success in this field can be
exceptional.
Chairman's Letter - 1978
attractive markets should keep being attacked with various approaches
Some of our expansion efforts - largely
initiated by your Chairman have been lackluster, others have been
expensive failures.
initiated by your Chairman have been lackluster, others have been
expensive failures.
Chairman's Letter - 1978
not everything works
CPI figures indicate rates overall were only 3% higher
in January 1979 than a year ago. But the items that make up loss
costs - auto repair and medical care costs - were up over 9%.
How different than yearend 1976 when rates had advanced over 22%
in the preceding twelve months, but costs were up 8%.
in January 1979 than a year ago. But the items that make up loss
costs - auto repair and medical care costs - were up over 9%.
How different than yearend 1976 when rates had advanced over 22%
in the preceding twelve months, but costs were up 8%.
Chairman's Letter - 1978
industry dynamics out of ones control will impact profits
Of course, it takes at least several years to evaluate
underwriting results, but the early signs are encouraging and
Floyd’s operation achieved the best loss ratio among the
homestate companies in 1978.
underwriting results, but the early signs are encouraging and
Floyd’s operation achieved the best loss ratio among the
homestate companies in 1978.
Chairman's Letter - 1978
don’t get ahead of yourself at the first signs of success. it takes several years to see success