In the world of capital allocation, if you aren't going to produce new capital yourself, the next best idea is to team up with those who do it best.  For more than 40 years, Warren Buffett, the Chairman and largest shareholder of Berkshire Hathaway has been producing additional capital and annually compounding its growth at an impressive rate. The unprecedented record has been brought about by a two-pronged approach: first, purchase significant pro rata ownership in other highly successful businesses; and second, purchase entire businesses that generate outsized returns on invested capital.  Even more important for would-be partners of Warren Buffett, however, is the strategy that he and Charlie Munger developed in their treatment of fellow owners.  

Below are key indicators that distinguish Berkshire Hathaway (BRK) from most publicly-traded companies:
  
1) No stock options.  Berkshire does not compensate any employee through the manipulation-prone device of stock options, restricted stock, or other non-cash, market-price-dependent compensation arrangements.  Here is one way to view stock options that are tied to market price: "if an employee can increase his or her personal compensation by exerting an undue influence on the market price, too many of them in our society, as it is, will choose to do so."  The manager-employee may be seeking personal fortune, but in manipulating the stock price, he or she causes financial havoc for others who rely on the market price not to be manipulated.   BRK does not permit itself to be put into this dubious situation.
 
2) No Earnings guidance.  Berkshire does not predict future earnings; and thereby, it does not contribute to speculative run-ups of its stock price.  Too often, earnings guidance issued by the typical company is ill-conceived, at best; and, under circumstances that become painfully clear later, sometimes knowingly fraudulent.  Earnings estimates simply give TV- financial journalists, among many others, a shallow justification for a job.  BRK doesn't permit itself the opportunity to manipulate its share price, based on others' speculation about an "earnings estimate."

3) No stock splits.  Berkshire doesn't engage in stock splits; and because of this, the per-share price has risen from approximately $18 in 1965 to more than $80,000 over the past 44 years.  Although it may not be the case every time, stock splits are often knowingly used as an artifice to create market action.  That is, under the pseudo-scientific explanation of "creating liquidity", many corporations generate market action by issuing two new shares of common stock in exchange for stockholders' surrender of one current share.  The proffered explanation of why this is a wise policy (and not merely a casino sleight-of-hand) should be tested against the availability of "liquidity" in 2008 for shareholders of Fannie Mae, Freddy Mac, Merrill Lynch, Bear Sterns, Wachovia Bank, Countrywide, CitiCorp, ad nauseum.  Liquidity for shareholders sounds good . . . as long as shareholders don't suddenly need to sell.  However, the entire concept of "liquidity" rests on the premise of being able to sell quickly.  That is, an asset is considered "illiquid" for the very reason that it cannot be sold quickly.  Alternatively, some people think that a stock should be split when it becomes "just too expensive" (like going above $100 per share).  Baloney. If a person actually believes that $160 is too much money for one share of a company, then he or she should consider closely the wisdom of paying $40 per share the week after a company split its stock 4 for 1. The total profits of the company and its net worth remain unchanged.  Buffett has said that all a company accomplishes is to take a whole pizza and put into four slices; however, you have exactly the same amount of cheese (net worth, etc.).  It's simply packaged differently.  BRK plays the question of price per share straight up; others would do well to emulate it. 

4) Clear communications.  For BRK, the legal form is corporate, but the management treats the organization as a partnership.  The difference between the typical corporate management's view of fellow equity holders as "investor [speculators]" to be kept at bay; and, where possible, kept in the dark, differs drastically from BRK's view of the same individuals as partners who are owed a fiduciary duty in a large firm.   

5) Long-term gains in business value are paramount.  The consummate capitalist, by his or her very nature, seeks very healthy gains in business value of an enterprise.  If real, demonstrable business value is added to an enterprise, the capital markets, sooner or later, will respond accordingly in upgrading the trading price.  Berkshire Hathaway increased per share book value (a rough measure of its change in business value) by an astounding 362,319% between 1965 and 2009.  During the same period, the S&P 500 Index, including the reinvestment of dividends, increased a mere 4,276%. 


** Disclosure: The author owns common stock in Berkshire Hathaway.   Additionally, a zealous advocation for why Berkshire Hathaway is an outstanding business enterprise is not an endorsement to purchase the stock at any price.  At times, speculative "professionals" on Wall Street, among others, have caused its price to fluctuate far above and far below its intrinsic value.  A good capitalist must first determine a company's intrinsic business value, and then decide at what price it should be had.

Angela's Comments:
If only companies that did any (much less all) of these things were more common!!!