Book value usually misstates intrinsic value
“In past reports I have noted that book value at most companies differs widely from intrinsic business value - the number that really counts for owners.”
Business
Contributing by staying out of the way
“[The managers] were managerial stars long before they knew us, and our main contribution has been to not get in their way.”
Wealthy managers who work for love
“Some of our key managers are independently wealthy (we hope they all become so), but that poses no threat to their continued interest: they work because they love what they do and relish the thrill of outstanding performance.”
Right players make almost any manager shine
“Charlie and I know that the right players will make almost any team manager look good.”
Able, passionate managers widen span of control
“When you have able managers of high character running businesses about which they are passionate, you can have a dozen or more reporting to you and still have time for an afternoon nap.”
Working only with people we admire
“We intend to continue our practice of working only with people whom we like and admire. This policy not only maximizes our chances for good results, it also ensures us an extraordinarily good time.”
Retained earnings magnify capital allocation's weight
“Obviously, the future results of a business earning 23% annually and retaining it all are far more affected by today’s capital allocations than are the results of a business earning 10% and distributing half of that to shareholders.”
Certain market change at unknown times
“Markets will change significantly - you can be sure of that and some day we will again get our turn at bat. However, we haven’t the faintest idea when that might happen.”
GAAP not necessarily most useful
“The GAAP figures, of course, are the ones used in our consolidated financial statements. But, in our view, the GAAP figures are not necessarily the most useful ones for investors or managers.”
Minority stakes hinge on economics and integrity
“[Purchases of stock blocks] appeal to us only when we are very comfortable with both the economics of the business and the ability and integrity of the people running the operation.”
Commodity insurance profits only in shortages
“Pricing behavior in the insurance industry continues to be exactly what can be expected in a commodity-type business. Only under shortage conditions are high profits achieved, and such conditions don’t last long.”
Not more statesmen, but less corn
“[Insurance leaders'] calls for improved behavior have all of the efficacy of those made by a Nebraska corn grower asking his fellow growers, worldwide, to market their corn with more statesmanship. What’s needed is not more statesmen, but less corn.”
Layoff fears produce business through thin
“Employees who fear that large layoffs will accompany sizable reductions in premium volume will understandably produce scads of business through thick and thin (mostly thin).”
Bargain stocks that together approach risk-free
“Lou has consistently invested in undervalued common stocks that, individually, were unlikely to present him with a permanent loss and that, collectively, were close to risk-free.”
Fear and greed recur unpredictably
“What we do know, however, is that occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable.”
Fearful when others are greedy
“Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Investors earn less than their businesses
“If American business, in aggregate, earns about 12% on equity annually, investors must end up earning significantly less. Bull markets can obscure mathematical laws, but they cannot repeal them.”
Legislators determine a currency's behavior
“Over time, the behavior of our currency will be determined by the behavior of our legislators. This relationship poses a continuing threat to currency stability - and a corresponding threat to the owners of long-term bonds.”
Reason finds reasons for what we want
“I’m afraid Ben Franklin had my number. Said he: 'So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one has a mind to do.'”
Owner earnings, not GAAP, determine value
“Despite [(c) being a guess], we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes - both for investors in buying stocks and for managers in buying entire businesses.”
Sales brochures picture businesses as Pyramids
“[Investment bankers' sales brochures] imply that the business being offered is the commercial counterpart of the Pyramids - forever state-of-the-art, never needing to be replaced, improved or refurbished.”
Accounting aids business thinking, not replaces it
“Managers and owners need to remember, however, that accounting is but an aid to business thinking, never a substitute for it.”