Market prices track business value over time
“While market values track business values quite well over long periods, in any given year the relationship can gyrate capriciously.”
Investing
Warren Buffett's 1981 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
Great businesses are cheaper in pieces
“Small portions of exceptionally good businesses are usually available in the securities markets at reasonable prices. But such businesses are available for purchase in their entirety only rarely, and then almost always at high prices.”
Economic substance over accounting appearance
“Our acquisition decisions will be aimed at maximizing real economic benefits, not at maximizing either managerial domain or reported numbers for accounting purposes. (In the long run, managements stressing accounting appearance over economic substance usually achieve little of either.)”
Cheaper fractions over costly whole businesses
“Regardless of the impact upon immediately reportable earnings, we would rather buy 10% of Wonderful Business T at X per share than 100% of T at 2X per share.”
Leaders relish the thrill of acquisitions
“(1) Leaders, business or otherwise, seldom are deficient in animal spirits and often relish increased activity and challenge. At Berkshire, the corporate pulse never beats faster than when an acquisition is in prospect.”
Organizations measure managers by size
“(2) Most organizations, business or otherwise, measure themselves, are measured by others, and compensate their managers far more by the yardstick of size than by any other yardstick.”
Premium takeovers rarely deliver miracles
“If investors instead bankroll princesses who wish to pay double for the right to kiss the toad, those kisses had better pack some real dynamite. We’ve observed many kisses but very few miracles.”
Building arks counts, not predicting rain
“Our preaching was better than our performance. (We neglected the Noah principle: predicting rain doesn’t count, building arks does.)”
Price stability seems unrestorable once lost
“Like virginity, a stable price level seems capable of maintenance, but not of restoration.”
Memories stay plugged into the past
“While investors and managers must place their feet in the future, their memories and nervous systems often remain plugged into the past.”
Rapid change makes old assumptions costly
“When change is slow, constant rethinking is actually undesirable; it achieves little and slows response time. But when change is great, yesterday’s assumptions can be retained only at great cost.”
Unpleasant facts persist when ignored
“[Passive returns outstrip active] is an unpleasant fact for both investors and corporate managers and, therefore, one they may wish to ignore. But facts do not cease to exist, either because they are unpleasant or because they are ignored.”
Retention suits high-return companies
“Logically, a company with historic and prospective high returns on equity should retain much or all of its earnings so that shareholders can earn premium returns on enhanced capital.”
Rising prices force bad businesses to retain
“When prices continuously rise, the ‘bad’ business must retain every nickel that it can.”
Inflation's tapeworm cleans the plate
“Under present conditions, a business earning 8% or 10% on equity often has no leftovers for expansion, debt reduction or ‘real’ dividends. The tapeworm of inflation simply cleans the plate.”