April 17, 2015
Dear Warren and
Charlie:
I am a
shareholder of Berkshire Hathaway and a disciple of Buffettism. I wrote a book
in Chinese entitled “Following the Master: Embracing Buffettism --- co-Creating
Value with Berkshire Hathaway.”
In this book, I
share with my readers what I had learned from Warren Buffett – to become value
investors, they need to know how to assess the value of a firm, and to
understand market prices. From these two starting points, I justify the
importance of wealth management and introduce the concept of value investment.
In my book, I
examine the winning strategy of Berkshire Hathaway—its profit models, executive
talent, shareholdings, acquisitions and subsidiaries. I show my readers that
buying Berkshire Class B stock is the best way to make their money grow.
Drawing from my personal study, I explained some of my important conclusions
such as the following:
In the first
chapter, I defined wealth management as fully maximizing the possession and use
of past and present personal wealth. I discuss what I consider the essential
principles of Buffettism, for example, freeing oneself from “debt slavery” and
achieving “financial freedom” by making money work for us. As Mr. Benjamin
Graham wrote in his book "Security Analysis", I also defined investment as co-creating value
together with successful investors such as Berkshire Hathaway.
In the second
chapter, I advised my readers to know the people behind the business. In making
investment decisions, we should know who runs the business. The return on
investment largely depends on the CEO. My book examines why Mr. Warren Buffett
and Mr. Charlie Munger are top CEO’s. Their management and leadership styles
are behind Berkshire Hathaway’s high return on investment. If we entrusted the
management of our investments to these two gentlemen, how can we not make
money? And what would a post-Buffett and post-Munger investment landscape look
like? In my book, I wrote that such a landscape would see the emergence of
three separate roles—Chairman, CEO, and CIO (Chief Investment Officer), but
that Berkshire could easily draw from its rich
talent pool to fill in those roles.
In the third
chapter, I explained the cost-effectiveness of owning Berkshire stocks based on
their market value at the end of 2014 when Berkshire
stocks were ranked ahead of 15 other common stocks. Moreover, I analyzed Berkshire’s fund management model and demonstrated the
competitive advantages of 15 such models.
In the fourth chapter, I wrote about Berkshire’s
gradual acquisition of several profitable businesses as yet another benchmark
of outstanding success. In its 2014 Annual Report, Berkshire Hathaway Inc.
reported that it had 89 subsidiaries in four major industry categories: 1)
Insurance; 2) Regulated, Capital-Intensive Businesses; 3) Manufacturing, Service and
Retailing Operations; and 4) Finance and Financial Products.
In the fifth chapter, I asked the question: How much
is Berkshire worth? I then adopted Benjamin
Graham’s concept that one needs to distinguish between price and value, and
that we need to have a rough estimate of the intrinsic value of a business in
order to avoid error and reach an accurate valuation. According
to Mr. Warren Buffett, tracking Berkshire’s
book value is the best method of estimating
its intrinsic value. My book utilizes the Price-Book Ratio (PBR). PBR≦1.5x means that
Berkshire stock prices are reasonable; PBR≦1.2x means they are lower than Berkshire’s intrinsic
value; PBR≦1.1x reflects a material discount to the company’s intrinsic
business value.
To defeat Mr. Buffett, I tell my readers that first,
they should put pressure on Berkshire stocks
by investing most of their assets in it and to invest the rest of their assets
in other stocks. Thus, they “enter in order to attack, and remain outside to
defend themselves,” in the words of a famous Chinese war strategist. Secondly,
my readers could also learn the process of valuation of a business and enjoy a
long-term rate of return from an outstanding company. Lastly, my book
encourages them to reflect on their own financial outlook, understand how the
human mind works, and to formulate their own wealth management principles.
In the sixth chapter, I described my experience of
using an online platform to open an account with a U.S. securities firm (Firstrade
Securities Inc.) and to purchase Berkshire Class B stocks. I used that platform
to monitor stock prices, engage in trading, and paid and received payments
through remittances. I shared with my readers my conviction that purchasing
Berkshire Class B stocks is their best investment option, and that they should consider
never to sell them.
In the seventh chapter, I wrote that our thoughts and
convictions are our most important assets and I gave some examples of different
wealth management models. The usual way of saving money in the bank is one such
model. But it is one that cannot deliver the 19.4% compound interest earnings
from Berkshire shares.
Reading is power,
especially in the field of wealth management. I recommended reading some books
on this topic and I suggested that they read my book 12 times. At least one
year is needed to fully understand “Following
the Master: Embracing Buffettism --- co-Creating Value with Berkshire
Hathaway.” Only after a prolonged period of digesting its contents could they create
their own wealth management philosophy and investment principles.
I am convinced
that my book can help readers better understand wealth management and
investment, and the important role that Berkshire Hathaway plays in these
fields. It is unfortunate that until now I have not yet found a publisher.
This letter is
meant partly to satisfy my desire of sharing with you the existence of this
book and partly to request you to spread the word among other ardent fans of
Berkshire Hathaway, and possibly recommend it. I always consider myself a zealous
disciple of your art and science and I remain
Sincerely
yours,
John Qiu
