Too much capital limits outsized returns
“Berkshire’s capital base is now simply too large to allow us to earn truly outsized returns.”
Business
Untroubled by large tax bills
“Writing checks to the IRS that include strings of zeros does not bother Charlie or me. Berkshire as a corporation, and we as individuals, have prospered in America as we would have in no other country.”
Measuring value created per dollar spent
“Our calculus i s different: We simply measure whether we are creating more than a dollar of value per dollar spent — and if tha t calculation is favorable, the more dollars we spend the happier I am.”
Telling outstanding CEOs how to run is foolish
“At Berkshire we feel that telling outstanding CEOs, such as Tony, how to run their companies would be the height of foolishness.”
What counts, not how it is counted
“We want our managers to think about what counts, not how it will be counted.”
Lifelong shareholders permit long-term management
“Indeed, a majority of our shares are held by investors who expect to die still holding them. We can therefore ask our CEOs t o manage for maximum long-term value, rather than for next quarter’s earnings.”
Current results never at strength's expense
“We certainly don’t ignore the current results of our businesses — in most cases, they are of great importance — but we never want them to be achieved at the expense of our building ever-greater competitive strengths.”
Earnings swings hurt ratings despite sound profits
“Wide swings in earnings hurt both credit ratings and p/e ratios, even when the business that produces such swings has an expectancy of satisfactory profits over time.”
Estimated losses obscure the true cost of float
“A caution is appropriate here: Because loss costs must be estimated, insurers have enormous latitude in figuring their underwriting results, and that makes it very difficult for investors to calculate a company's true cost of float.”
Costly float turns growth into a curse
“If [the cost of float] becomes too high, growth in float becomes a curse rather than a blessing.”
Profitable float outranks net worth
“As long as we can continue to achieve an underwriting profit, float will continue to outrank net worth in value.”
Activity does not correlate with achievement
“We have one excuse, though: In allocating capital, activity does not correlate with achievement. Indeed, in the fields of investments and acquisitions, frenetic behavior is often counterproductive.”
Holding cash beats handing it over
“Cash never makes us happy. But it’s better to have the money burning a hole in Berkshire’ s pocket than r esting comfortably in someone else’s.”
Silence on investments benefits owners
“Our never -comment-even-if-untrue policy in regard to investments may disappoint ‘piggybackers’ but wil l benefit owners: Your Berkshire shares would be worth less if we discussed what we are doing.”
Accounting lets option costs go uncounted
“In effect, accounting principles offer management a choice: Pay employees in one form and count the cost, or p ay them in another form and ignore the cost. Small wonder then that the use of options has mushroomed.”
Bad accounting drives out good
“Once such a n everybody’s-doing-it attitude takes hold, ethical misgivings vanish. Call this behavior Son of Gresham: Ba d accounting drives out good.”
Restructuring charges often manipulate earnings
“The distortion du jour is the ‘restructuring charge,’ an accounting entry that can, of course, be legitimate but that too often is a device for manipulating earnings.”
Mergers used to dishonestly swell earnings
“In the acq uisition arena, restructuring has been raised to an art form: Managements now frequently us e mergers to dishonestly rearrange the value of assets and liabilities in ways that will allow them to both smooth and swell future earnings.”
Auditors' nudges lead good people astray
“Indeed, at deal time, major auditing firms sometimes point out the possibilities for a little accounting magic (or for a lot). Getting this push from the pulpit, first-class people will frequently stoop to third-class tactics.”
Disappointing earnings beat disappointing accounting
“Berkshire has kept entirely clear of [this loss reserves boost]: If we are to disappoint you, we would rather it be with our earnings than with our accounting.”
Auditors serve those who pay them
“Though auditor s should regard the investing public as their client, they tend to kowtow instead to the managers who choose them and dole out their pay. (‘Whose bread I eat, his song I sing.’)”
Small shareholders equal large institutions
“At Berkshire, we regard the holder of one share of B stock as the equal of our large institutional investors.”