Warren Buffett is expected to release the 50th edition of his letter to Berkshire Hathaway shareholders this weekend.
In 1965, Buffett sent a letter to what was then the Buffett Investment fund which held Berkshire Hathaway as one of a series of positions.
And while Berkshire Hathaway is now a publicly traded company with a market cap over $US330 billion — and Class A shares worth $US222,850 per share — 50 years ago, Buffett was worried about getting too big.
From Buffett’s 1965 letter, posted by The Financial Times:
I do not feel that increased capital has hurt our operation to date. As a matter of fact, I believe that we have done somewhat better during the past few years with the capital we have had in the Partnership than we would have done if we had been working with a substantially smaller amount. This was due to the partly fortuitous development of several investments that were just the right size for us — big enough to be significant and small enough to handle.
I now feel that we are much closer to the point where increased size may prove disadvantageous. I don’t want to ascribe too much precision to that statement since there are many variables involved. What may be the optimum size under some market and business circumstances can be substantially more or less than optimum under other circumstances. There have been a few times in the past when on a very short-term basis I have felt it would have been advantageous to be smaller but substantially more times when the converse was true.
Nevertheless, as circumstances presently appear, I feel substantially greater size is more likely to harm future results than to help them. This might not be true for my personal results, but it is likely to be true for your results.
Stephen Foley at FT Alphaville has a great breakdown of Buffett’s letter here, which serves a great curtain raiser ahead of the 50th annual Berkshire letter.
And fortunately for Buffett’s shareholders, size did not slow him down: his compounded annual gain from 1965-2013 is 19.7% against 9.8% for the S&P 500 (with dividends).