Painting the bull's eye afterwards
“[An unbending standard] keeps us from the temptation of seeing where the arrow of performance lands and then painting the bull’s eye around it.”
Investing
Warren Buffett's 2009 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
A cheap index fund sets the bar
“Selecting the S&P 500 as our bogey was an easy choice because our shareholders, at virtually no cost, can match its performance by holding an index fund. Why should they pay us for merely duplicating that result?”
Start and end prices distort long records
“Even evaluations covering as long as a decade can be greatly distorted by foolishly high or low prices at the beginning or end of the measurement period.”
Book value as a crude proxy
“The ideal standard for measuring our yearly progress would be the change in Berkshire’s per-share intrinsic value. Alas, that value cannot be calculated with anything close to precision, so we instead use a crude proxy for it: per-share book value.”
Growing size shrinks the performance edge
“The big minus is that our performance advantage has shrunk dramatically as our size has grown, an unpleasant trend that is certain to continue.”
Exciting products, unknowable futures
“Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be.”
Industry growth does not reveal profits
“Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy.”
No reliance on the kindness of strangers
“We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire.”
Visible mistakes over invisible bureaucratic costs
“We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly – or not at all – because of a stifling bureaucracy.”
Commentary-driven investors are not wanted
“Investors who buy and sell based upon media or analyst commentary are not for us.”
Reporting as if positions were reversed
“Our goal is to tell you what we would like to know if our positions were reversed.”
Insurance float as investable money
“[The insurers'] collect-now, pay-later model leaves us holding large sums – money we call ‘float’ – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit.”
Cost-free float is rare in insurance
“Let me emphasize again that cost-free float is not a result to be expected for the P/C industry as a whole: In most years, premiums have been inadequate to cover claims plus expenses.”
Keeping our end of the regulatory bargain
“We shouldn’t expect our regulators to live up to their end of the bargain unless we live up to ours.”
High returns with little added investment
“Indeed, the best businesses by far for owners continue to be those that have high returns on capital and that require little incremental investment to grow.”
A social compact between public and railroad
“We see a ‘social compact’ existing between the public and our railroad business, just as is the case with our utilities. If either side shirks its obligations, both sides will inevitably suffer.”
Rising profits amid falling sales
“We had a number of companies at which profits improved even as sales contracted, always an exceptional managerial achievement.”
Raining gold calls for a bucket
“Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.”
Upbeat commentary costs investors dearly
“Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”
Price paid and future earnings decide returns
“In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.”
Risk control belongs to the CEO
“Charlie and I believe that a CEO must not delegate risk control. It’s simply too important.”
Boards answer for CEO risk responsibility
“In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control.”
Executives need sticks as well as carrots
“CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.”
Issuing undervalued stock sells the company cheaply
“If we wouldn’t dream of selling Berkshire in its entirety at the current market price, why in the world should we ‘sell’ a significant part of the company at that same inadequate price by issuing our stock in a merger?”
Undervalued shares make costly acquisition currency
“You simply can’t exchange an undervalued stock for a fully-valued one without hurting your shareholders.”
Overvalued stock favours the acquirer
“If an acquirer’s stock is overvalued, it’s a different story: Using it as a currency works to the acquirer’s advantage.”
Bankers ignore the value being given away
“In more than fifty years of board memberships, however, never have I heard the investment bankers (or management!) discuss the true value of what is being given.”
An advisor paid to oppose the deal
“Directors should hire a second advisor to make the case against the proposed acquisition, with its fee contingent on the deal not going through.”