Gains judged against the capital used
“Economic gains must be evaluated by comparison with the capital that produces them.”
Investing
Warren Buffett's 1984 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
Per-share intrinsic value is what counts
“As we discussed last year, the gain in per-share intrinsic business value is the economic measurement that really counts.”
One year's capital gains mean little
“(We regard any annual figure for realized capital gains or losses as meaningless, but we regard the aggregate realized and unrealized capital gains over a period of years as very important.)”
Repurchases below value serve shareholders surely
“When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases.”
Greenmail exploits an innocent third party
“In [greenmail repurchases], two parties achieve their personal ends by exploitation of an innocent and unconsulted third party.”
Buybacks can get $2 for $1
“When companies purchase their own stock, they often find it easy to get $2 of present value for $1.”
Pro-shareholder managers merit a higher price
“Investors should pay more for a business that is lodged in the hands of a manager with demonstrated pro-shareholder leanings than for one in the hands of a self-interested manager marching to a different drummer.”
Doing nothing is the hardest task
“We try to avoid compromise of [price and value standards], although we find doing nothing the most difficult task of all.”
A $55 million check for her word
“We gave Mrs. Ba check for $55 million and she gave us her word. That made for an even exchange.”
Dominant papers profit whatever their quality
“While first-class newspapers make excellent profits, the profits of third-rate papers are as good or better - as long as either class of paper is dominant within its community.”
Even poor newspapers command attention
“A poor product, however, will still remain essential to most citizens, and what commands their attention will command the attention of advertisers.”
Management sets standards the market does not
“Since high standards are not imposed by the marketplace, management must impose its own.”
Insurance promises appraised against adversity
“The buyer of insurance receives only a promise in exchange for his cash. The value of that promise should be appraised against the possibility of adversity, not prosperity.”
Business performance first, the market follows
“In GEICO’s case, as in all of our investments, we look to business performance, not market performance. If we are correct in expectations regarding the business, the market eventually will follow along.”
Sustainable advantage is rare in financial services
“In its core business - low-cost auto and homeowners insurance - GEICO has a major, sustainable competitive advantage. That is a rare asset in business generally, and it’s almost non-existent in the field of financial services.”
Insurer accounts are a rough draft
“Phil Graham, when publisher of the Washington Post, described the daily newspaper as ‘a first rough draft of history’. Unfortunately, the financial statements of a property/casualty insurer provide, at best, only a first rough draft of earnings and financial condition.”
Estimates guarantee some error in earnings
“The necessarily-extensive use of estimates in assembling the figures that appear in such deceptively precise form in the income statement of property/casualty companies means that some error must seep in, no matter how proper the intentions of management.”
Courts increasingly make deep pockets pay
“In our direct business, we have far underestimated the mushrooming tendency of juries and courts to make the ‘deep pocket’ pay, regardless of the factual situation and the past precedents for establishment of liability.”
The corpse files the death certificate
“If liabilities of an insurer, correctly stated, would exceed assets, it falls to the insurer to volunteer this morbid information. In other words, the corpse is supposed to file the death certificate.”
Insurers can be broke but flush
“In most businesses, of course, insolvent companies run out of cash. Insurance is different: you can be broke but flush.”
Insolvent insurers write at any price
“In fact, [insolvent insurers] often redouble their efforts to write business, accepting almost any price or risk, simply to keep the cash flowing in.”
Stocks bought on whole-business criteria
“As you know, we buy marketable stocks for our insurance companies based upon the criteria we would apply in the purchase of an entire business.”
Risking looking foolish in any year
“Even though our long-term results may turn out fine, in any given year we run a risk that we will look extraordinarily foolish.”
Managers' lopsided odds on unconventional decisions
“[Managers’] personal gain/loss ratio is all too obvious: if an unconventional decision works out well, they get a pat on the back and, if it works out poorly, they get a pink slip.”
Failing conventionally is the safe route
“(Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.)”
Weak capital cannot survive big errors
“[Other insurers’] capital positions are not strong enough to withstand a big error, no matter how attractive an investment opportunity might appear when analyzed on the basis of probabilities.”
Financial strength lets us concentrate holdings
“With our financial strength we can own large blocks of a few securities that we have thought hard about and bought at attractive prices.”
Added competition makes buying securities costly
“The buying and selling of securities is a competitive business, and even a modest amount of added competition on either side can cost us a great deal of money.”
Runaway inflation hits bonds hardest
“In [runaway inflation], a diversified stock portfolio would almost surely suffer an enormous loss in real value. But bonds already outstanding would suffer far more.”
Dividend policy is seldom explained
“Dividend policy is often reported to shareholders, but seldom explained.”
Inflation makes some earnings ersatz
“The first point to understand is that all earnings are not created equal. In many businesses particularly those that have high asset/profit ratios - inflation causes some or all of the reported earnings to become ersatz.”
Strong core businesses hide bad allocation
“[Many corporations’] marvelous core businesses, however, whose earnings grow year after year, camouflage repeated failures in capital allocation elsewhere (usually involving high-priced acquisitions of businesses that have inherently mediocre economics).”
Managers answer for low-return reinvestment
“Managers of high-return businesses who consistently employ much of the cash thrown off by those businesses in other ventures with low returns should be held to account for those allocation decisions, regardless of how profitable the overall enterprise is.”
Dividend patterns track the long-term outlook
“Since the long-term corporate outlook changes only infrequently, dividend patterns should change no more often.”
Unwise retention reflects on managers
“If earnings have been unwisely retained, it is likely that managers, too, have been unwisely retained.”