Lagging the index adds no value
“If we fail, however, our management will bring no value to our investors, who themselves can earn S&P returns by buying a low-cost index fund.”
Investing
Warren Buffett's 2012 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
Berkshire lags in strong markets
“Our relative performance, however, is almost certain to be better when the market is down or flat. In years when the market is particularly strong, expect us to fall short.”
Why bolt-on acquisitions appeal
“Charlie and I love [bolt-on acquisitions]: Usually they are low-risk, burden headquarters not at all, and expand the scope of our proven managers.”
Part of a wonderful business beats all of a so-so one
“At Berkshire we much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business.”
Investing large sums whatever pundits say
“Charlie and I love investing large sums in worthwhile projects, whatever the pundits are saying.”
Investing is a game stacked in your favor
“Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor.”
Uncertain tomorrows, clear American destiny
“Throughout [1941 to 2012], every tomorrow has been uncertain. America’s destiny, however, has always been clear: ever-increasing abundance.”
Float grows with the business
“Though individual policies and claims come and go, the amount of float we hold remains quite stable in relation to premium volume. Consequently, as our business grows, so does our float.”
Underwriting profit makes float better than free
“When [an underwriting profit] is earned, we enjoy the use of free money – and, better yet, get paid for holding it. That’s like your taking out a loan and having the bank pay you interest.”
Costless, lasting float is an overstated liability
“If float is both costless and long-enduring, which I believe Berkshire’s will be, the true value of [float] is dramatically less than the accounting liability.”
Energy and transport projects take years
“Energy and transportation projects can take many years to come to fruition; a growing country simply can’t afford to get behind the curve.”
Some intangibles deplete, others never lose value
“I won’t explain all of the adjustments – some are small and arcane – but serious investors should understand the disparate nature of intangible assets: Some truly deplete over time while others never lose value.”
Wonderful business at a fair price
“More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.”
Overpaying can spoil a great business
“Of course, a business with terrific economics can be a bad investment if the price paid is excessive.”
What news really is
“News, to put it simply, is what people don’t know that they want to know.”
Monopoly papers profited regardless of management
“As long as a newspaper was the only one in its community, its profits were certain to be extraordinary; whether it was managed well or poorly made little difference.”
Community papers remain indispensable
“Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.”
Reinvesting to widen the economic moat
“A company’s management should first examine reinvestment possibilities offered by its current business – projects to become more efficient, expand territorially, extend and improve product lines or to otherwise widen the economic moat separating the company from its competitors.”
Starting with the answer you want
“The usual cause of failure is that [managers] start with the answer they want and then work backwards to find a supporting rationale. Of course, the process is subconscious; that’s what makes it so dangerous.”
Wishing is poison in business
“I wanted [our textile business] to succeed and wished my way into a series of bad decisions. (I even bought another New England textile company.) But wishing makes dreams come true only in Disney movies; it’s poison in business.”
When share repurchases make sense
“The third use of funds – repurchases – is sensible for a company when its shares sell at a meaningful discount to conservatively calculated intrinsic value.”
Selling shares lets each owner choose
“The sell-off alternative, on the other hand, lets each shareholder make his own choice between cash receipts and capital build-up.”
Capricious dividend policy drives investors away
“Above all, dividend policy should always be clear, consistent and rational. A capricious policy will confuse owners and drive away would-be investors.”