Performance is measured against the market
“Whether we do a good job or a poor job is to be measured against the general experience in securities.”
Business
Leaders who treat shareholders as patsies
“To their shame, [CEOs and promoters] view shareholders as patsies, not partners.”
Good insurers accept losing business
“[The winners] ignore market-share considerations and are sanguine about losing business to competitors that are offering foolish prices or policy conditions.”
Winning insurers hunt for hidden correlation
“[These insurers] ceaselessly search for possible correlation among seemingly-unrelated risks.”
Ignoring new exposures is costly
“Insurers have always found it costly to ignore new exposures. Doing that in the case of terrorism, however, could literally bankrupt the i ndustry.”
Tolerance for huge losses as an advantage
“Indeed, we have a major competitive advantage because of our tolerance for huge losses.”
Ignorance of true costs is dynamite
“Not knowing your costs will cause problems in any business. In long-ta il reinsurance, where years of unawareness will promote and prolong severe underpricing, ignorance of true costs is dynamite.”
Professionals struggle to curb competitive urges
“While all concerned may intend to underwrite with care, it is nonetheless difficult for able, hard-driving professionals to curb their urge to prevail over competitors.”
Discipline prevents foolish losses
“[Ajit's] extraordinary discipline, of course, does not eliminate losses; it does, however, prevent foolish losses.”
The tide reveals who is swimming naked
“After all, you only find out who is swimming naked when the tide goes out.”
Underreserving hid GEICO's true costs
“GEICO got into huge trouble in the early 1970s because for several years it severely underreserved, and therefore believed its product (insurance protection) was costing considerably less than was truly the case.”
Loss development masks an estimation error
“The truth, however, is that management made an error in estimation that in turn produced an error in the earnings previously reported.”
Insurance accounting is a self-graded exam
“In effect, insurance accounting is a self-graded exam, in that the insurer gives some figures to its auditing firm and generally doesn t get an argument.”
Struggling companies seldom grade themselves hard
“A company experienci ng financial difficulties of a kind that, if truly faced, could put it out of business seldom proves to be a tough grader.”
Good intentions do not make reserving easy
“Even when companies have the best of intentions, it s not easy to reserve properly.”
Reserving for every possibility is management's job
“Difficult as the job may be, it s mana gement s responsibility to adequately account for all possibilities.”
Insurance surprises are far from symmetrical
“Surprises in the insurance world have been far from symmetrical in their effect on earnings.”
Discounted reserves would worsen underreserving
“Discounting would exacerbate this already-serious situation a nd, additionally, w ould provide a new tool for the companies that are inclined to fudge.”
Buffett owns his Dexter mistakes
“I would like to lay [the three Dexter decisions] on Char lie (or anyone else, for that matter) but they were mine.”
EBITDA is not true earnings
“Those who believe that EBITDA is in any way equivalent to true earnings are welcome to pick up the tab.”
Markets merely tracking business may disappoint investors
“A market that no more than para llels business progress, however, is likely to leave many investors disappointed, particularly those relatively new to the game.”
Junk bonds unsuitable for the general public
“[Junk bonds] are not, we should emphasize, suitable investments for the general public, because too often these securities live up to their name.”
Berkshire treats debt as a dirty word
“(Debt is a four-letter word around Berkshire.)”
Shareholders, not Berkshire, choose the charities
“Shareholders name the charity; Berkshir e writes the check.”