Letter to Buffett & Munger

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