Tom Murphy's rule for discussing problems
“When discussing problems at specific subsidiaries, we do, however, try to follow the advice Tom Murphy gave to me 60 years ago: ‘praise by name, criticize by category.’”
Business
Disloyal managers hurt like a failed marriage
“At other times, I’ve made mistakes when assessing the abilities or fidelity of the managers Berkshire is hiring. The fidelity disappointments can hurt beyond their financial impact, a pain that can approach that of a failed marriage.”
A decent batting average on people
“A decent batting average in personnel decisions is all that can be hoped for.”
Delaying correction of mistakes is the cardinal sin
“The cardinal sin is delaying the correction of mistakes or what Charlie Munger called ‘thumb-sucking.’ Problems, he would tell me, cannot be wished away.”
Great managers without prestigious schooling
“Of course, there are great managers who attended the most famous schools. But there are plenty such as Pete who may have benefitted by attending a less prestigious institution or even by not bothering to finish school.”
Business talent is largely innate
“I’ve observed, however, that a very large portion of business talent is innate with nature swamping nurture.”
EBITDA is a flawed Wall Street favorite
“EBITDA, a flawed favorite of Wall Street, is not for us.”
A cheap price on a dying business
“Charlie, I should emphasize, spotted my obvious error immediately: Though the price I paid for Berkshire looked cheap, its business – a large northern textile operation – was headed for extinction.”
Fractions of gems trade every weekday
“Understandably, really outstanding businesses are very seldom offered in their entirety, but small fractions of these gems can be purchased Monday through Friday on Wall Street and, very occasionally, they sell at bargain prices.”
Compelling opportunities come rarely and in bunches
“Often, nothing looks compelling; very infrequently we find ourselves knee-deep in opportunities.”
Size reduces the freedom to change course
“With marketable equities, it is easier to change course when I make a mistake. Berkshire’s present size, it should be underscored, diminishes this valuable option. We can’t come and go on a dime.”
Holding on to controlled businesses attracts sellers
“In reality, Berkshire almost never sells controlled businesses unless we face what we believe to be unending problems. An offset is that some business owners seek out Berkshire because of our steadfast behavior.”
Good businesses over cash equivalents
“Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.”
Fiscal folly can erode paper money
“Paper money can see its value evaporate if fiscal folly prevails.”
Desired goods and skills survive runaway currency
“Fixed-coupon bonds provide no protection against runaway currency. Businesses, as well as individuals with desired talents, however, will usually find a way to cope with monetary instability as long as their goods or services are desired by the country’s citizenry.”
Consuming everything means spinning your wheels
“If America had consumed all that it produced, the country would have been spinning its wheels.”
Old age itself does not kill companies
“Companies die for many reasons but, unlike the fate of humans, old age itself is not lethal.”
Insurers learn their costs decades later
“When writing P/C insurance, we receive payment upfront and much later learn what our product has cost us – sometimes a moment of truth that is delayed as much as 30 or more years.”
Long-tail insurance can hide fictitious profits
“In ‘long-tail’ lines, a P/C insurer may report large but fictitious profits to its owners and regulators for many years – even decades. The accounting can be particularly dangerous if the CEO is an optimist or a crook.”
No one-sided pay for Berkshire's leaders
“We do not use options or other one-sided forms of compensation; if you lose money, so do we.”
Ten-year catastrophe policies would be madness
“Property damage arising from hurricanes, tornadoes and wildfires is massive, growing and increasingly unpredictable in their patterns and eventual costs. It would be foolish – make that madness – to write ten-year policies for these coverages, but we believe one-year assumption of such risks is generally manageable.”
Underpricing to stay in the game is suicide
“We must never write inadequately-priced policies in order to stay in the game. That policy is corporate suicide.”
Insurance pricing is no business for optimists
“Properly pricing P/C insurance is part art, part science and is definitely not a business for optimists.”
No currency view, so seek neutrality
“Greg and I have no view on future foreign exchange rates and therefore seek a position approximating currency-neutrality.”