Berkshire's mistakes are unforced errors
“At Berkshire, neither history nor the demands of owners impede intelligent decision-making. When Charlie and I make mistakes, they are – in tennis parlance – unforced errors.”
Investing
Warren Buffett's 2003 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
Businesses preferred over stocks at equal prices
“When valuations are similar, we strongly prefer owning businesses to owning stocks.”
Managers profit more from gathering assets
“(Investment managers often profit far more from piling up assets than from handling those assets well. So when one tells you that increased funds won’t hurt his investment performance, step back: His nose is about to grow.)”
Tiny base years flatter growth rates
“For example, if earnings are tiny in a beginning year, a long-term performance that was only mediocre can be made to appear sensational.”
Idle capital hurts less than stupidity
“Our capital is underutilized now, but that will happen periodically. It’s a painful condition to be in – but not as painful as doing something stupid.”
His class is winning the class war
“If class warfare is being waged in America, my class is clearly winning.”
Rising taxes welcome if all pay
“We hope our taxes continue to rise in the future – it will mean we are prospering – but we also hope that the rest of Corporate America antes up along with us.”
CEO pay is reform's acid test
“In judging whether Corporate America is serious about reforming itself, CEO pay remains the acid test.”
Consultants fear offending potential clients
“As one compensation consultant commented: ‘There are two classes of clients you don’t want to offend – actual and potential.’”
What motivates director independence is neglected
“In proposals for reforming [compensation packages], the cry has been for ‘independent’ directors. But the question of what truly motivates independence has largely been neglected.”
A board's two key tasks
“[Board members'] two all-important functions are, first, to obtain (or retain) an able and honest manager and then to compensate that manager fairly.”
Boardroom atmosphere sedates fiduciary genes
“Despite the lapdog behavior of independent fund directors, we did not conclude that they are bad people. They’re not. But sadly, ‘boardroom atmosphere’ almost invariably sedates their fiduciary genes.”
Current rules fail to produce independent directors
“The reality is that neither the decades-old rules regulating invest ment company directors nor the new rules bearing down on Corporate America foster the elec tion of truly independent directors.”
Directors work for owners or managers
“Like directors throughout Corporate America, [fund directors] must now decide whether their job is to work for owners or for managers.”
Independence found among heavily aligned owners
“The place to look for [true independence] is among high-grade people whose interests are in line with those of rank-and-file shareholders – and are in line in a very big way.”
Nobody washes a rental car
“Charlie and I love [directors'] honest-to-God ownership. After all, who ever washes a rental car?”
Directors win big, lose big
“The bottom line for our directors: You win, they win big; you lose, they lose big.”
Smart, admired people may lack business sense
“Many people wh o are smart, articulate and admired have no real understanding of business. That’s no sin; they may shine elsewhere. But they don’t belong on corporate boards.”
Valueless data obscures the important facts
“We will not, however, inundate you with data that has no r eal value in calculating Berkshire’s intrinsic value. Doing so would likely obfuscate the most important f acts.”
Berkshire is a movie, not a snapshot
“One warning: When analyzing Berkshire, be sure to remember that the company should be viewed as an unfolding movie, not as a still photograph.”
Float is only as good as its cost
“Float is wonderful – if it doesn’t come at a high price. The cost of float is determined by underwriting results, meaning how lo sses and expenses paid compare with premiums received.”
Insurers compete on managerial brains and integrity
“No installed base, key patents, critical real estate or natural resource position protects an insurer’s competitive position. Typically, brands do not mean much either. The critical variables, therefore, are managerial brains, discipline and integrity.”
Reinsurance buys a promise tested decades later
“When insurers purchase reinsurance, they buy only a promise – one whose validity may not be tested for decades – and there are no prom ises in the reinsurance world equaling those offered by Gen Re and National Indemnity.”
Insurers misstate liabilities, sometimes on purpose
“Too often the industry has re ported wildly inaccurate figures by misstating liabilities. Most of the mistakes have be en innocent. Sometimes, however, they have been intentional, their object being to fool investors and regulators.”
Derivatives disclosures hide the real risks
“No matter how fi nancially sophisticated you are, you can’t possibly learn from reading the disclosure documents of a derivatives-intensive company what risks lurk in its positions.”
Troubled derivatives drain capital when opportunity peaks
“In other words, if the derivatives business were ever to need shoring up, it would commandeer the capital and credit of Berkshire at just the time we could otherwise deploy those resources to huge advantage.”
Dithering made the exit far costlier
“Charlie would have moved swiftly to close dow n Gen Re Securities – no question about that. I, however, dithered. As a consequence, our shareholders are paying a far higher price than was necessary to exit this business.”
A rich parent can breed sloppy decisions
“We believe that any subsidiary lending money should pay an appropriate rate for the funds needed to carry its receivables and should not be subsidized by its parent. Otherwise, having a rich daddy can lead to sloppy decisions.”
The lowest price draws customers anywhere
“One piece of wisdom [Rose Blumkin] imparted to the gene rations following her was, ‘If you have the lowest price, customers will find you at the bottom of a river.’”
Realized gains are meaningless for analysis
“We’ve repeatedly emphasized that realized gain s at Berkshire are meaningless for analytical purposes.”
Macro forecasters rarely succeed for long
“I should note that the cemetery for seers has a huge section set aside for macro forecasters. We have in fact made few macro forecasts at Berkshire, and we have seldom seen others make them with sustained success.”
Even small risks deserve adequate compensation
“Charlie and I detest taking even small risks unless we feel we are being adequately co mpensated for doing so.”
Nothing charitable in harming decent people
“Indeed, Charlie and I see nothing charitable in harming decent, hard-working people just so we and other shareholders can gain some minor tax efficiencies.”