Size tends to make organizations smug
“Size seems to make many organizations slow-thinking, resistant to change and smug. In Churchill’s words: ‘We shape our buildings, and afterwards our buildings shape us.’”
Investing
Warren Buffett's 2006 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
No single measure captures Berkshire's value
“No single criterion is effective in doing [measuring Berkshire's value], and even an avalanche of statistics will not capture some factors that are important.”
Profit by making customers more money
“Th e result: ISCAR makes money because it enables its customers to make more money. There is no better recipe for continued success.”
Assuming benign climate change is a mistake
“We do know that it would be a huge mistake to bet that evolving atmospheric changes are benign in their implications for insurers.”
Inappropriate prices guarantee eventual losses
“We are not willing, though, to take on even very small exposures at prices that don’t reflect our evaluation of loss probabilities. Appropriate prices don’t guarantee profits in any given year, but inappropriate prices most certainly guarantee eventual losses.”
Fearful when others are greedy
“Our behavior [in the super-cat field] parallels that which we employ in financial markets: Be fearful when others are greedy, and be greedy when others are fearful.”
Baffling footnotes invite suspicion
“We sometimes encounter accounting footnotes about important transactions that leave us baffled, and we go away suspicious that the reporting company wished it that way.”
Crumbling economics overwhelm managerial brilliance
“When an industry’s underlying economics are crumbling, talented management may slow the rate of decline. Eventually, though, eroding fundamentals will overwhelm managerial br illiance.”
Few defaults when nothing is required
“Naturally, there are few defaults when virtually nothing is required of a borrower. As a cynic has said, ‘A rolling loan gathers no loss.’”
America consumed more than it produced
“Like a very wealthy but self-indulgent family, [the U.S.] peeled off a bit of what we owned in order to consume more than we produced.”
National debt brings reverse compounding
“And, like everyone who gets in hock, the U.S. will now experience ‘reverse compounding’ as we pay ever-increasing amounts of interest on interest.”
Derivatives are sometimes wildly mispriced
“Why, you may wonder, are we fooling around with such potentially toxic material? The answer is that derivatives, just like stocks and bonds, are sometimes wildly mispriced.”
One big mistake can erase many successes
“Over time, markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of successes.”
Common financial models miss certain perils
“Certain perils that lurk in investment strategies cannot be spotted by use of the models commonly employed today by financial institutions.”
Temperament is vital to investment success
“Independent thinking, emotional stability, and a keen understanding of both human and ins titutional behavior is vital to long-t erm investment success. I’ve seen a lot of very smart people who have lacked these virtues.”
Four criteria for choosing directors
“In selecting a new director, we were guided by our long-standing criteria, which are that board members be owner-oriented, business-savvy, interested and truly independent.”
Fee-dependent directors are not truly independent
“I say ‘truly’ because many directors who are now deemed independent by various authorities and observers are far from that, relying heavily as they do on directors’ fees to maintain their standard of living.”
Nobody asks if directors think like owners
“Over the years I’ve been queried many times about potential directors and have yet to hear anyone ask, ‘Does he think like an intelligent owner?’”
Incentives tied to results a CEO controls
“When we use incentives – and these can be large – they are always tied to the operating results for which a given CEO has authority. We issue no lottery tickets that carry payoffs unrelated to business performance.”
Pay reform hinges on large institutional shareholders
“Compensation reform will only occur if the largest institutional shareh olders – it would only take a few – demand a fresh look at the whole system.”
The living allocate better than the dead
“Even if the people above ground make their decisions imperfectly, they should be able to allocate funds more rationally than a decedent six feet under will have ordained decades earlie r.”
Buying cheap instead of complex theory
“When Walter and Edwin were asked in 1989 by Outstanding Investors Digest, ‘How would you summarize your approach?’ Edwin replied, ‘We try to buy stocks cheap.’ So much for Modern Portfolio Theory, technical analysis, macroeconomic thoughts and complex algorithms.”
Real risk is permanent loss of capital
“Following a strategy that involved no real risk – defined as permanent loss of capital – Walter produced results over his 47 partnership years that dramatically surpassed those of the S&P 500.”
Competitors taught bad theory are an advantage
“After all, if you are in the shipping business, it’s helpful to have all of your potential competitors be taught that the earth is flat.”