Business
“Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
“Our second conclusion - that an increased capital base will act as an anchor on our relative performance - seems incontestable. The only open question is whether we can drag the anchor along at some tolerable, though slowed, pace.”
“We not only accept [volatility in annual results] but welcome it: A tolerance for short-term swings improves our long-term prospects. In baseball lingo, our performance yardstick is slugging percentage, not batting average.”
“In the search, we adopt the same attitude one might find appropriate in looking for a spouse: It pays to be active, interested and open-minded, but it does not pay to be in a hurry.”
“In the past, I've observed that many acquisition-hungry managers were apparently mesmerized by their childhood reading of the story about the frog-kissing princess. Remembering her success, they pay dearly for the right to kiss corporate toads, expecting wondrous transfigurations.”
“Standing knee-deep in unresponsive toads, [the manager] then announces an enormous 'restructuring' charge. In this corporate equivalent of a Head Start program, the CEO receives the education but the stockholders pay the tuition.”
“Said the pro: 'Practice doesn't make perfect; practice makes permanent.' And thereafter I revised my strategy and tried to buy good businesses at fair prices rather than fair businesses at good prices.”
“In [add-on acquisitions], we enlarge the domain of managers we already know to be outstanding - and that's a low-risk and high-return proposition.”
“We do not, however, see this long-term focus as eliminating the need for us to achieve decent short-term results as well.”
“If plantings made confidently are repeatedly followed by disappointing harvests, something is wrong with the farmer. (Or perhaps with the farm: Investors should understand that for certain companies, and even for some industries, there simply is no good long-term strategy.)”
“Beyond [a few small insurers], [Hurricane Andrew] awakened some larger companies to the fact that their reinsurance protection against catastrophes was far from adequate. (It's only when the tide goes out that you learn who's been swimming naked.)”
“The saying, 'a fool and his money are soon invited everywhere,' applies in spades in reinsurance, and we actually reject more than 98% of the business we are offered.”
“In addition, we think the very term 'value investing' is redundant. What is 'investing' if it is not the act of seeking value at least sufficient to justify the amount paid?”
“Consciously paying more for a stock than its calculated value - in the hope that it can soon be sold for a still-higher price - should be labeled speculation (which is neither illegal, immoral nor - in our view - financially fattening).”
“Growth benefits investors only when the business in point can invest at incremental returns that are enticing - in other words, only when each dollar used to finance the growth creates over a dollar of long-term market value.”
“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.”
“If a business is complex or subject to constant change, we're not smart enough to predict future cash flows.”
“What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know.”
“An investor needs to do very few things right as long as he or she avoids big mistakes.”
“If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success.”
“Indeed, in the case of common-stock offerings, selling shareholders are often motivated to unload only when they feel the market is overpaying.”
“A competitively-beset business such as USAir requires far more managerial skill than does a business with fine economics. Unfortunately, though, the near-term reward for skill in the airline business is simply survival, not prosperity.”
“In health-care, open-ended promises have created open-ended liabilities that in a few cases loom so large as to threaten the global competitiveness of major American industries.”
“Shareholders should understand that companies incur costs when they deliver something of value to another party and not just when cash changes hands.”
“If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where in the world should they go?”
“At some companies, corporate expense runs 10% or more of operating earnings. The tithing that operations thus makes to headquarters not only hurts earnings, but more importantly slashes capital values.”
“Charlie and I have observed no correlation between high corporate costs and good corporate performance. In fact, we see the simpler, low-cost operation as more likely to operate effectively than its bureaucratic brethren.”
“In general, we continue to have an aversion to debt, particularly the short-term kind. But we are willing to incur modest amounts of debt when it is both properly structured and of significant benefit to shareholders.”