Mixed consolidation tends to obscure reality
“[Full consolidation] of Balance Sheet and Earnings items - some wholly owned, some partly owned - tends to obscure economic reality more than illuminate it.”
Business
Capital gains belong to the long-term record
“While we believe it is improper to include capital gains or losses in evaluating the performance of a single year, they are an important component of the longer term record.”
Short-term stock prices defy forecasting
“We make no attempt to predict how security markets will behave; successfully forecasting short term stock price movements is something we think neither we nor anyone else can do.”
Commodity producers prosper only in shortages
“The textile industry illustrates in textbook style how producers of relatively undifferentiated goods in capital intensive businesses must earn inadequate returns except under conditions of tight supply or real shortage.”
Big rivals' cost ignorance hits all
“If major factors in the market don’t know their true costs, the competitive ‘fall-out’ hits all - even those with adequate cost knowledge.”
Every insurer expects to beat the rest
“Our present thinking is that our underwriting performance relative to the industry will improve somewhat in 1979, but every other insurance management probably views its relative prospects with similar optimism - someone is going to be disappointed.”
Four tests before a big stock commitment
“We get excited enough to commit a big percentage of insurance company net worth to equities only when we find (1) businesses we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) priced very attractively.”
Auction markets offer outstanding businesses cheaply
“We continue to find for our insurance portfolios small portions of really outstanding businesses that are available, through the auction pricing mechanism of security markets, at prices dramatically cheaper than the valuations inferior businesses command on negotiated sales.”
Buying in size only when convinced
“We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.”
Passive stakes in excellent management lose little
“While there may be less excitement and prestige in sitting back and letting others do the work, we think that is all one loses by accepting a passive participation in excellent management.”
Well-used retained earnings can exceed face value
“In fact, SAFECO’s retained earnings (or those of other well-run companies if they have opportunities to employ additional capital advantageously) may well eventually have a value to shareholders greater than 100 cents on the dollar.”