Making money with shareholders, not off them
“We are here to make money with you, not off you.”
Investing
Warren Buffett's 1996 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
Mispriced stock transfers wealth between traders
“When the stock temporarily overperforms or underperforms the business, a limited number of shareholders - either sellers or buyers - receive outsized benefits at the expense of those they trade with.”
Fairness means price matches intrinsic value
“In a partnership, fairness requires that partnership interests be valued equitably when partners enter or exit; in a public company, fairness prevails when market price and intrinsic value are in sync.”
Long holding makes entry price matter less
“Of course, the longer a shareholder holds his shares, the more bearing Berkshire's business results will have on his financial experience - and the less it will matter what premium or discount to intrinsic value prevails when he buys and sells his stock.”
Float is money held but not owned
“To begin with, float is money we hold but don't own. In an insurance operation, float arises because premiums are received before losses are paid.”
Cheap float gives an insurer value
“An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds.”
A terrible catastrophe year is certain
“What you must understand, however, is that a truly terrible year in the super-cat business is not a possibility - it's a certainty. The only question is when it will come.”
Selling fine businesses on scary news
“Selling fine businesses on 'scary' news is usually a bad decision.”
A lumpy 15% beats a smooth 12%
“Gyrations in Berkshire's earnings don't bother us in the least: Charlie and I would much rather earn a lumpy 15% over time than a smooth 12%.”
Computer models breed false security
“In fact, [computer models] can lull decision-makers into a false sense of security and thereby increase their chances of making a really huge mistake.”
Sensible underwriting without perfect precision
“Even if perfection in assessing risks is unattainable, insurers can underwrite sensibly. After all, you need not know a man's precise age to know that he is old enough to vote nor know his exact weight to recognize his need to diet.”
Steering clear of intolerable consequences
“If we can't tolerate a possible consequence, remote though it may be, we steer clear of planting its seeds.”
Widening the price advantage, not the margin
“Our goal, however, is not to widen our profit margin but rather to enlarge the price advantage we offer customers.”
Quixotic payoffs undermine focused managers
“In our view, a system that produces quixotic payoffs will not only be wasteful for owners but may actually discourage the focused behavior we value in managers.”
Bonuses tied to each side's own work
“We think it foolish for an insurance company to pay bonuses that are tied to overall corporate results when great work on one side of the business - underwriting or investment - could conceivably be completely neutralized by bad work on the other.”
Large tax payments are entirely fitting
“Charlie and I believe that large tax payments by Berkshire are entirely fitting. The contribution we thus make to society's well-being is at most only proportional to its contribution to ours. Berkshire prospers in America as it would nowhere else.”
Report as you would wish to be told
“Our intent is to supply you with the financial information that we would wish you to give us if our positions were reversed.”
Inactivity as intelligent investing
“Our portfolio shows little change: We continue to make more money when snoring than when active. Inactivity strikes us as intelligent behavior.”
Buying stocks is like buying companies
“The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management.”
Fast-changing industries preclude certainty
“A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek.”
Applaud the endeavor, skip the ride
“As investors, however, our reaction to a fermenting industry is much like our attitude toward space exploration: We applaud the endeavor but prefer to skip the ride.”
Certain good results over hoped-for great ones
“Obviously many companies in high-tech businesses or embryonic industries will grow much faster in percentage terms than will The Inevitables. But I would rather be certain of a good result than hopeful of a great one.”
Leadership alone provides no certainties
“Leadership alone provides no certainties: Witness the shocks some years back at General Motors, IBM and Sears, all of which had enjoyed long periods of seeming invincibility.”
Few industries make leaders unassailable
“Though some industries or lines of business exhibit characteristics that endow leaders with virtually insurmountable advantages, and that tend to establish Survival of the Fattest as almost a natural law, most do not.”
Overpaying delays even great companies' returns
“Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.”
Neglecting the base business prolongs suffering
“A far more serious problem occurs when the management of a great company gets sidetracked and neglects its wonderful base business while purchasing other businesses that are so-so or worse. When that happens, the suffering of investors is often prolonged.”
Low-cost index funds suit most investors
“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees.”
Investing is simple but not easy
“Intelligent investing is not complex, though that is far from saying that it is easy.”
Knowing the circle's boundaries matters most
“You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
Finance theory is not required to invest
“To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these.”
Two courses an investor requires
“In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices.”
The investor's simple goal
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.”
Ten years or not ten minutes
“You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.”
Rising earnings lift portfolio value
“Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.”
History does not supply all answers
“(If history supplied all of the answers, the Forbes 400 would consist of librarians.)”
What can be sold will be sold
“(In the securities business, whatever can be sold will be sold.)”