This article appeared in the April 11, 1988 issue of Fortune.
Warren Buffett, chairman of Berkshire Hathaway, calls the conglomerate his "canvas," and shortly, when its annual report comes out, the world will learn precisely what kind of picture this legendary investor painted in the tumultuous year of 1987. A preview: As a work of art, the year was not a minor Buffett. Berkshire—whose shareholders, I wish to say quickly and happily, have long included me—chalked up a $464 million gain in net worth, an advance of no less than 19.5%. That is somewhat below the 23.1% annual average that Buffett has recorded since taking over the company 23 years ago. But in a year in which many professional investors had their heads handed to them, this latest example of Buffett brushwork has to rank as one more masterpiece.
The annual report, which readers always comb for Buffett's once-a-year revelations about what he has been doing in the securities markets, will carry two special pieces of news. First, Buffett, who bought $700 million of Salomon Inc. redeemable convertible preferred stock for Berkshire just before the October crash, makes it clear in his chairman's letter that he is solidly behind the investment bank's chairman, John Gutfreund. That should put an end to the persistent rumors about divisions between the two men. Second, Buffett reveals that Berkshire began buying short-term Texaco bonds last year after the company went into bankruptcy, at a point when many other investors were bailing out of the bonds. At year-end Berkshire had an unrealized profit in the Texaco securities. But both that holding and the Salomon preferred (which Buffett figures to have been worth about $685 million at year-end) are carried at cost on Berkshire's books and were nonevents as far as the company's 1987 record is concerned.
