Berkshire adds nothing unless it beats the index
“Unless we achieve gains in per-share intrinsic value in the future that outdo the S&P, Charlie and I will be adding nothing to what you can accomplish on your own.”
Investing
Warren Buffett's 2004 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
Run each business as a century-long family asset
“My m essage to [our operating CEOs] is simple: Run your business as if it were the only asset your family will own over the next hundred years.”
Excitement and expenses are investors' enemies
“Investors should remember that excitement and expenses are their enemies.”
Reporting what owners would want to receive
“As managers, Charlie and I want to give our owners the financial information and commentary we would wish t o receive if our roles were re versed.”
The case for mono-linked chains
“Si nce a chai n is no stronger than its weakest link, it makes sense to look for – if you’ll excuse an oxymoron – mono-linked chains.”
Float is money held but not owned
“The source of our insurance funds is ‘float,’ which is money that doesn’t belong to us but that we temporarily hold.”
Insurers earn poorly by selling a commodity
“Insurers have generally ear ned poor ret urns f or a si mple reas on: They sel l a com modity-like product.”
The institutional imperative against shrinking
“Most American businesses harbor an ‘institutional imperative’ that rejects extended decreases in volume. What CEO wants to report to his shareholders that not only did business contract last year but that it will continue to drop?”
Hidden costs of bad pricing feed the urge to grow
“In insu rance, the urge to keep writing busi ness is also intensified because the consequences of foolishly-priced p olicies m ay not bec ome appare nt f or s ome t ime.”
Fear of layoffs breeds inadequate pricing
“To avoid pink slips, em ployees will ration alize in adequate pricin g, tellin g th emselves th at poorly-priced business must be tolerated in order to keep the organization intact and the distribution system happy.”
Indifference to underwriting profit persists
“An insurance organization that doesn’t care deeply about underwriting at a profit this year is unlikely to care next year either.”
No-layoff firms and good-times overstaffing
“Naturally, a business th at fo llows a n o-layoff policy m ust be especia lly careful to avoid overstaffing when times are good.”
Low-cost advantage calls for full speed
“For NICO, as we have seen, an ebb- and-flow b usiness m odel m akes se nse. But a c ompany hol ding a l ow-cost a dvantage m ust p ursue a n unrelenting foot-to-the-floor strategy.”
An insurance policy is simply a promise
“At bottom, any insurance policy is simply a promise, and as everyone knows, promises vary enormously in their quality.”
Reinsurer failures hit primary insurers hard
“The solvency risk in primary policies, however, pales in comparison to that lurking in reinsurance policies. When a reinsurer goes broke, staggering losses almost always strike the primary companies it has dealt with.”
Derivatives are easy to enter, hard to leave
“Like Hell, derivative trading is easy to enter but difficult to leave.”
Rapid growth can mask underlying problems
“Investors should und erstand that in all types of fin ancial institutions, rap id grow th sometimes masks major underlying problems (and occasionally fraud).”
The no-growth test of earning power
“The re al test of the earning power of a derivatives operation is what it ach ieves after operating for an extended period in a no-growth mode. You only learn who has been swimming naked when the tide goes out.”
Flying as a privilege for the competent
“Bruce shares Al’s conviction that flying an aircraft is a privilege to be extended only to people who re gularly receive the highest quality of traini ng a nd are undeniably com petent.”
A failed tycoon belongs in the back
“A few years ago, Charlie was asked to intervene with Al on behalf of a tycoon friend whom FlightSafety had flunked. Al’s reply to Charlie: ‘Tell your pal he belongs in the back of the plane, not the cockpit.’”
Choosing a flight provider like a surgeon
“I viewed the selection of a flight provider as akin to picking a brain surgeon: you simply want the best. (Let someone else experiment with the low bidder.)”
Business and market results often diverge
“On a year-to-year basis, however, the business and market performances have often diverged, sometimes to an extraordinary degree. During The Great Bubble, market-value gains far outstripped the performance of the businesses.”
Talking about overvaluation instead of acting
“Though I said at the tim e that certain of the stocks we held were priced ahead of themselves, I underestimated just how severe the overvaluation was. I talk ed when I should have walked.”
Selling decisions ignore reporting dates
“We have a huge amount of unrealized gains on our books, and our thinking about when, and if, to cash them depends not at all on a desire to report earnings at one specific time or anot her.”