Investing
Warren Buffett's 1979 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
“‘Earnings per share’ will rise constantly on a dormant savings account or on a U.S. Savings Bond bearing a fixed rate of return simply because ‘earnings’ (the stated interest rate) are continuously plowed back and added to the capital base.”
“The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc.) and not the achievement of consistent gains in earnings per share.”
“When [the investor's misery index] exceeds the rate of return earned on equity by the business, the investor’s purchasing power (real capital) shrinks even though he consumes nothing at all.”
“The rub has been that government has been exceptionally able in printing money and creating promises, but is unable to print gold or create oil.”
“We hear a great many insurance managers talk about being willing to reduce volume in order to underwrite profitably, but we find that very few actually do so.”
“We would rather have some slack in the organization from time to time than keep everyone terribly busy writing business on which we are going to lose money.”
“Present interest rates encourage the obtaining of business at underwriting loss levels formerly regarded as totally unacceptable. Managers decry the folly of underwriting at a loss to obtain investment income, but we believe that many will.”
“[Insurance] tends to magnify, to an unusual degree, human managerial talent - or the lack of it.”
“The very long-term bond contract has been the last major fixed price contract of extended duration still regularly initiated in an inflation-ridden world.”
“You do not adequately protect yourself by being half awake while others are sleeping.”
“Inflation is man-made; perhaps it can be man-mastered.”
“In large part, companies obtain the shareholder constituency that they seek and deserve.”
“You can’t be all things to all men, simultaneously seeking different owners whose primary interests run from high current yield to long-term capital growth to stock market pyrotechnics, etc.”
“[Delegation of operating authority] produces an occasional major mistake that might have been eliminated or minimized through closer operating controls. But it also eliminates large layers of costs and dramatically speeds decision-making.”