Berkshire Hathaway’s 1977 Shareholder Letter — Key Insights for Long-Term Investors
Through the lens of Moat In You
A Strong Year, But No Victory Lap
In 1977, Berkshire had a solid performance. Earnings crossed $21.9 million — about $22.54 per share — thanks in part to capital gains realized by Blue Chip Stamps. Still, Warren Buffett reminds us not to get carried away by any single year’s numbers. What really counts is the long-term, compounded growth.
The return on equity was 19%, higher than both Berkshire’s historical average and the typical U.S. corporation. That’s impressive. However, Buffett encourages us to see beyond surface-level figures like earnings per share, which rose 37%. This gain was partially driven by a 24% increase in equity capital. It’s a good reminder that growth only matters if it’s efficient.
Looking ahead, he tempers expectations. With a larger capital base and a likely softening in the insurance sector, Buffett notes that hitting the same return in 1978 would be challenging—but he’s confident in continued progress.
Breaking Down the Businesses — Some Wins, Some Lessons
Textiles:
This segment continued to underperform, and Buffett was candid about it. Forecasting improvements had failed repeatedly. So why stay in it?
It’s not just about numbers. The mills are major employers in their communities. The workforce is skilled and committed. Managers and unions alike have acted with integrity. And earlier profits from the textile business helped finance Berkshire’s growth into insurance.
This is Buffett at his most human: sometimes, you stick with a business not because of the returns, but because it’s the right thing to do. But he’s also clear-eyed — no manager, however talented, can overcome an industry with poor long-term economics.
Insurance:
Here’s where Berkshire really shined in 1977. The insurance operations, especially under National Indemnity, performed exceptionally well. Since entering the business in 1967, premiums had grown nearly sixfold — all through internal growth and smart acquisitions, never by issuing new stock.
Buffett admits not every decision worked — some regional or product expansions fell flat — but insurance as a business allows room to recover from mistakes, unlike textiles.
The year's profits were helped by strong industry trends: higher premiums finally began to translate into earnings. But Buffett warns it won’t last. Rising inflation and leveling-out premiums will create a tougher environment. The key? Discipline. Even if that means walking away from business that doesn’t offer a margin of safety.
Investments:
The investment side of Berkshire’s insurance companies grew quickly, nearly doubling in two years. This was driven by both high premium volume and retained earnings.
Buffett again stresses the long view. Market volatility doesn’t shake his belief in quality holdings. Whether Berkshire buys a whole company or just a piece of it through public markets, the approach remains the same: understand the business, trust the people running it, and make sure the price is right.
He highlights Capital Cities as an example — a fantastic company run so well that Berkshire benefits most by simply owning a minority stake and letting great management do what it does best.
This is a recurring theme in Buffett’s philosophy: you don’t need control to do well. Patience, understanding, and alignment with great managers matter more.
Banking:
Illinois National Bank, a smaller operation, was performing better than many of its larger competitors — strong returns, conservative lending, and good dividends. Buffett notes the founder, Gene Abegg, was looking to step down at age 80. It’s a nod to the importance of succession planning in any business.
Blue Chip Stamps and Subsidiaries:
Berkshire had increased its ownership here to around 36.5%. The group, including See’s Candies and Wesco, was profitable and efficiently run.
See’s, in particular, stood out. Since acquisition, its operating profits had tripled — all with very little capital investment. Buffett points to this as proof: when you combine a strong brand with disciplined management, you don’t need huge capital to outperform the industry.
What Can Investors Learn from the 1977 Letter?
Look beyond earnings per share.
Buffett urges investors to focus on return on equity — how effectively a company is using its capital — instead of just EPS growth. Bigger numbers don’t always mean better performance.
Great management can’t fix a bad business model.
Even the most skilled leaders struggle in industries with poor fundamentals. Berkshire’s experience in textiles proves this. Choose industries where conditions work with you, not against you.
Invest with integrity.
Buffett places a high value on honest, capable managers and considers the broader impact of business decisions — not just on profits, but on people and communities.
Patience pays off.
Some of Berkshire’s best investments are passive holdings in top-tier companies. There’s no need to micromanage when great management is already in place.
Market prices are not your scoreboard.
Buffett reminds us to judge investments based on how the underlying business performs over time — not on daily market swings or short-term earnings.
Growth must be smart and selective.
Berkshire doesn’t chase growth for its own sake. If the numbers don’t make sense, Buffett would rather walk away than write unprofitable business.
Final Thoughts
Warren Buffett’s 1977 letter is a great example of transparent, thoughtful leadership. He’s open about what worked and what didn’t. He gives credit where it’s due — especially to the managers and employees who run Berkshire’s many businesses with care and competence.
Most of all, his values shine through. He believes in investing with clarity, humility, and discipline. At Moat In You, these lessons resonate deeply — because great investing isn’t just about numbers. It’s about people, principles, and long-term thinking.
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