Book value and business value often diverge
“What counts, of course, is the rate of gain in per-share business value, not book value. In many cases, a corporation's book value and business value are almost totally unrelated.”
Investing
Warren Buffett's 1987 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
Informed applause as the owner's contribution
“Our major contribution to the operations of our subsidiaries is applause. But it is not the indiscriminate applause of a Pollyanna. Rather it is informed applause based upon the two long careers we have spent intensively observing business performance and managerial behavior.”
Severe change and exceptional returns rarely mix
“Severe change and exceptional returns usually don't mix.”
Really good businesses usually don't need to borrow
“Really good businesses usually don't need to borrow.”
Extraordinary results from ordinary things done well
“Our managers have produced extraordinary results by doing rather ordinary things - but doing them exceptionally well.”
What makes a newspaper indispensable
“To be indispensable, a paper must promptly tell its readers many things they want to know but won't otherwise learn until much later, if ever.”
Spending that swings with profits is neither businesslike nor humane
“We neither understand the adding of unneeded people or activities because profits are booming, nor the cutting of essential people or activities because profitability is shrinking. That kind of yo-yo approach is neither business-like nor humane.”
Commodity managers abhor their only profitable conditions
“One of the ironies of capitalism is that most managers in commodity industries abhor shortage conditions - even though those are the only circumstances permitting them good returns.”
Pricing on exposure, not on competition
“We follow a price-based-on-exposure, not-on-competition policy because it makes sense for our shareholders. But we're happy to report that it is also pro-social.”
Insurer earnings figures deserve suspicion
“You should be very suspicious of any earnings figures reported by insurers (including our own, as we have unfortunately proved to you in the past).”
Auditors' fault is not admitting their limits
“We want to emphasize that we are not faulting auditors for their inability to accurately assess loss reserves (and therefore earnings). We fault them only for failing to publicly acknowledge that they can't do this job.”
Pen-made earnings attract the dishonest
“Where 'earnings' can be created by the stroke of a pen, the dishonest will gather. For them, long-tail insurance is heaven.”
Buying stocks like buying a private business
“Whenever Charlie and I buy common stocks for Berkshire's insurance companies (leaving aside arbitrage purchases, discussed later) we approach the transaction as if we were buying into a private business.”
Investors as business analysts
“When investing, we view ourselves as business analysts - not as market analysts, not as macroeconomic analysts, and not even as security analysts.”
The business's fate decides the owner's
“Eventually, our economic fate will be determined by the economic fate of the business we own, whether our ownership is partial or total.”
Falling under Mr. Market's influence is disastrous
“If [Mr. Market] shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.”
Understanding value better than the market
“Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game.”
Operating results, not quotations, judge success
“Following Ben's teachings, Charlie and I let our marketable equities tell us by their operating results - not by their daily, or even yearly, price quotations - whether our investments are successful.”
The market eventually confirms business success
“The market may ignore business success for a while, but eventually will confirm it.”
Delayed recognition as a buying chance
“In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.”
Gains alone are no reason to sell
“We need to emphasize, however, that we do not sell holdings just because they have appreciated or because we have held them for a long time.”
Three conditions for holding a stock indefinitely
“We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.”
Admired associates over a higher return
“For [the way we live], we would rather achieve a return of X while associating with people whom we strongly like and admire than realize 110% of X by exchanging these relationships for uninteresting or unpleasant ones.”
Outstanding businesses at sensible prices
“Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price.”
Good businesses run by likeable managers
“In making both control purchases and stock purchases, we try to buy not only good businesses, but ones run by high-grade, talented and likeable managers.”
New CEOs face an unfamiliar capital job
“Once [most bosses] become CEOs, they face new responsibilities. They now must make capital allocation decisions, a critical job that they may have never tackled and that is not easily mastered.”
Outside help often worsens capital allocation
“On balance, we feel [help from consultants] is more likely to accentuate the capital-allocation problem than to solve it.”
Future earning power over GAAP figures
“Our mental approach to this accounting schizophrenia is to ignore GAAP figures and to focus solely on the future earning power of both our controlled and non-controlled businesses.”
Eventual net worth over reported earnings
“Our criteria have nothing to do with maximizing immediately reportable earnings; our goal, rather, is to maximize eventual net worth.”
Money managers watching each other, not businesses
“We have 'professional' investors, those who manage many billions, to thank for most of this turmoil. Instead of focusing on what businesses will do in the years ahead, many prestigious money managers now focus on what they expect other money managers to do in the days ahead.”
Irrational volatility gives true investors chances
“Volatility caused by money managers who speculate irrationally with huge sums will offer the true investor more chances to make intelligent investment moves.”
Bonds are only as good as their currency
“Bonds are no better than the currency in which they are denominated, and nothing we have seen in the past year - or past decade - makes us enthusiastic about the long-term future of U.S. currency.”
Debtors who print money face inflation's pull
“When the claim checks outstanding grow sufficiently numerous and when the issuing party can unilaterally determine their purchasing power, the pressure on the issuer to dilute their value by inflating the currency becomes almost irresistible.”
Prestige does not predict press accuracy
“Interestingly, there has been no correlation between the size and prestige of the publication and the accuracy of the report.”
Why deny no rumors at all
“If we were to deny the incorrect reports and refuse comment on the correct ones, we would in effect be commenting on all.”
Big investment ideas are kept private
“In a world in which big investment ideas are both limited and valuable, we have no interest in telling potential competitors what we are doing except to the extent required by law.”
Good decisions succeed without leverage
“Good business or investment decisions will eventually produce quite satisfactory economic results, with no aid from leverage.”
Financing in anticipation of need
“One further aspect of our debt policy deserves comment: Unlike many in the business world, we prefer to finance in anticipation of need rather than in reaction to it.”
Nobody can forecast interest rates
“We have no ability to forecast interest rates and - maintaining our usual open-minded spirit - believe that no one else can.”
Corporate giving reflecting owners' preferences
“We continue to believe that contributions, aside from those with quite clear direct benefits to the company, should reflect the charitable preferences of owners rather than those of officers and directors.”