A fat wallet hurts investment results
“A fat wallet, however, is the enemy of superior investment results.”
Business
Forecasts are an expensive distraction
“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen.”
Best purchases come amid macro fear
“Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.”
Shareholders fare as the managers do
“What we promise you - along with more modest gains - is that during your ownership of Berkshire, you will fare just as Charlie and I do. If you suffer, we will suffer; if we prosper, so will you.”
Managers keep their fortunes in Berkshire
“We further promise you that our personal fortunes will remain overwhelmingly concentrated in Berkshire shares: We will not ask you to invest with us and then put our own money elsewhere.”
Paid for home runs others hit
“Casey Stengel described managing a baseball team as 'getting paid for home runs other fellows hit.' That's my formula at Berkshire, also.”
Prices swing, good businesses grow
“Stock prices will continue to fluctuate - sometimes sharply - and the economy will have its ups and down. Over time, however, we believe it highly probable that the sort of businesses we own will continue to increase in value at a satisfactory rate.”
Intrinsic value as discounted future cash
“We define intrinsic value as the discounted value of the cash that can be taken out of a business during its remaining life.”
Book value says nothing about intrinsic value
“In all cases, what is clear is that book value is meaningless as an indicator of intrinsic value.”
Extraordinary results without extraordinary deeds
“Ben Graham taught me 45 years ago that in investing it is not necessary to do extraordinary things to get extraordinary results.”
Capital allocation and per-share intrinsic value
“When managers are making capital allocation decisions - including decisions to repurchase shares - it's vital that they act in ways that increase per-share intrinsic value and avoid moves that decrease it.”
Rejecting deals that cut intrinsic value
“At Berkshire, we have rejected many merger and purchase opportunities that would have boosted current and near-term earnings but that would have reduced per-share intrinsic value.”
Capital allocation skill shapes enterprise value
“Over time, the skill with which a company's managers allocate capital has an enormous impact on the enterprise's value.”
CEO ego compounds the acquisition problem
“The acquisition problem is often compounded by a biological bias: Many CEO's attain their positions in part because they possess an abundance of animal spirits and ego.”
Understandable businesses run by trusted managers
“Our goal will be to acquire either part or all of businesses that we believe we understand, that have good, sustainable underlying economics, and that are run by managers whom we like, admire and trust.”
Large rewards tied to controllable results
“In setting compensation, we like to hold out the promise of large carrots, but make sure their delivery is tied directly to results in the area that a manager controls.”
Charging managers for the capital they use
“When capital invested in an operation is significant, we also both charge managers a high rate for incremental capital they employ and credit them at an equally high rate for capital they release.”
Alignment means partnership in both directions
“In our book, alignment means being a partner in both directions, not just on the upside. Many 'alignment' plans flunk this basic test, being artful forms of 'heads I win, tails you lose.'”
Ten-year options reward treading water
“Indeed, the combination of a ten-year option, a low dividend payout, and compound interest can provide lush gains to a manager who has done no more than tread water in his job.”
Reporting what he would want as a shareholder
“Our intent is to supply you with the financial information that we would wish you to give us if our positions were reversed.”
What insurance float is
“Float is money we hold but don't own.”
Float cheaper than borrowing means profit
“An insurance business is profitable over time if its cost of float is less than the cost the company would otherwise incur to obtain funds.”
Rare catastrophes mean lumpy insurance profits
“Since truly major catastrophes occur infrequently, our super-cat business can be expected to show large profits in most years but occasionally to record a huge loss.”
Coverage that vanishes in disaster
“There's not much sense in paying premiums for coverage that will evaporate precisely when it is needed.”
Accepting volatility for higher returns
“By accepting the prospect of volatility, we expect to earn higher long-term returns than we would by pursuing predictability.”
Big investment ideas fit a paragraph
“Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph.”
Durable advantages run by owner-minded people
“We like a business with enduring competitive advantages that is run by able and owner-oriented people.”
Degree of difficulty doesn't count
“Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn't count.”
Market worries versus predictable great businesses
“In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable.”
Adding to old holdings before new ones
“Before looking at new investments, we consider adding to old ones. If a business is attractive enough to buy once, it may well pay to repeat the process.”
Recouping a loss by a different route
“Whatever the outcome, we will heed a prime rule of investing: You don't have to make it back the way that you lost it.”