Each and every year the one business publication I look forward to receiving is a copy of the Berkshire annual report and this years report was no exception.
Inside Warren shares a wonderful letter his grandfather Ernst sent to his youngest son (Warren’s Uncle Fred) talking about life and debt.
The philosophy is simple, yet it is a practice I suspect few of us follow.
Here is the letter:
Dear Fred & Catherine:
Over a period of a good many years I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash. I have known people how have had to sacrifice some of their holdings in order to have money that was necessary at that time.
For a good many years your grandfather kept a certain amount of money where he could put his hands on it in very short notice.
For a number of years i have made it a point to keep a reserve, should some occasion come up where I would need money quickly, with out disturbing the money that I have in my business. There have been a couple occasions when I found it very convenient to go to this fund.
Thus, I feel that everyone should have a reserve. I hope it never happens to you, but the chances are that some day you will need money, and need it badly, and with this thought in view, I started a fund by placing $200.00 in an envelop, with your name on it, when you were married. Each year I added something to it, until there is now $1000.00 in the fund.
Ten years have elapsed since you were married, and this fund is now complete.
It is my wish that you place this envelope in your safety deposit box, and keep it for the purpose that it was created for. Should the time come when you need part, I would suggest that you use as little as possible, and replace it as soon as possible.
You might feel that this should be invested and bring you an income. Forget it — the mental satisfaction of having $1000 laid away where you can put your hands on it, is worth more than what interest it might bring, especially if you have the investment in something that you could not realize quickly.
If in after years you feel this has been a good idea, you might repeat it with your own children.
For your information, I might mention that there has never been a Buffet who ever left a very large estate, but there has never been one that didn’t leave something. They never spent all they made, but always saved part of what they made, and it has all worked out pretty well.
This letter is being written at the expiration of ten years after you were married.
Ernst Buffet’s simple but powerful recipe for survival (and in Berkshire’s case thriving) during times of hardship is one worth learning.
Thank you Mr. Buffet for another wonderful lesson and annual report.
The full letter is available here: