Berkshire’s business model was hit by tax reforms:
- Corporate capital gains tax rates have been increased from
28% to 34%, effective in 1987. - all corporations will be taxed on 20% of the dividends
they receive from other domestic corporations, up from 15% under
the old law; additional 15% tax on the residual 80% for property/casualty companies if the stocks were purchased after August 7, 1986. - interest on bonds purchased by only to property/casualty companies after August 7, 1986 will only be 85% tax-exempt
There was little Buffett can do, but to accept the marginally lower after-tax result. Oh the company bought a jet!
In terms of philosophy, Buffett emphasized it as – “we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.