Part 4 in our illuminating series on the mind of Warren Buffett through his annual letter to the shareholders of Berkshire Hathaway.

The year: 1980.

This is the least interesting of the letters thus far, but a few nuggets to be had...

The hamburger analogy, which relates to 12% inflation and taxes (this was still the day of the 50 percent tax bracket):

If you (a) forego ten hamburgers to purchase an investment; (b) receive dividends which, after tax, buy two hamburgers; and (c) receive, upon sale of your holdings, after-tax proceeds that will buy eight hamburgers, then (d) you have had no real income from your investment, no matter how much it appreciated in dollars. You may feel richer, but you won't eat richer.

Berkshire Hathaway increased its investment holdings in Geico to an extent it actually owned 33% of the company at the end of 1980, but it hadn't made the move to completely acquire Geico yet.

An analogy on the reinsurance business (which you don't have to understand to appreciate):

Reinsurance is characterized by extreme ease of entry, large premium payments in advance, and much-delayed loss reports and loss payments. Initially, the morning mail brings lots of cash and few claims.
This state of affairs can produce a blissful, almost Euphoric, feeling akin to that experienced by an innocent upon receipt of his first credit card.

Bershire feels the beginning of the end in textile manufacturing in the U.S.:

During the past year we have cut back the scope of our textile business. Operations at Waumbec Mills have been terminated, reluctantly but necessarily. Some equipment was transferred to New Bedford but most has been sold, or will be, along with real estate. Your Chairman made a costly mistake in not facing the realities of this situation sooner.