Stock prices gravitate toward intrinsic value
“Over time, stock prices gravitate toward intrinsic value.”
Investing
Warren Buffett's 2016 letter to Berkshire shareholders, one of the letters in Berkshire Hathaway Shareholder Letters, 1971–2025.
Economic storms briefly rain gold
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”
A colonoscopy beats issuing Berkshire shares
“(Today, I would rather prep for a colonoscopy than issue Berkshire shares.)”
Defaults move wealth without destroying it
“If an owner defaults, however, his or her asset does not disappear or lose its usefulness. Rather, ownership customarily passes to an American lending institution that then disposes of it to an American buyer. Our nation’s wealth remains intact.”
Ordinary pioneers built a potential-unleashing system
“Early Americans, we should emphasize, were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it.”
Today's American babies are history's luckiest
“I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”
Gloom sells better than it invests
“Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.”
No one can time market declines
“No one can tell you when [major market declines] will occur – not me, not Charlie, not economists, not the media.”
Fear helps investors only when widespread
“During [market panics], you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted.”
Low-cost patience in American businesses pays
“Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”
Prospective returns fall as assets grow
“As for Berkshire, our size precludes a brilliant result: Prospective returns fall as assets increase.”
Buybacks pay only below intrinsic value
“For continuing shareholders, however, repurchases only make sense if the shares are bought at a price below intrinsic value. When that rule is followed, the remaining shares experience an immediate gain in intrinsic value.”
CEOs often ignore price in buybacks
“When CEOs or boards are buying a small part of their own company, though, they all too often seem oblivious to price.”
When others are constrained, choices expand
“The many alternatives available to us are always an advantage; occasionally, they offer us major opportunities. When others are constrained, our choices expand.”
Goodwill cost doesn't set its value
“The cost of the goodwill, however, has no bearing on its true value.”
Making hay while the sun sets
“GEICO’s reaction to the profit squeeze, however, was to accelerate its new-business efforts. We like to make hay while the sun sets, knowing that it will surely rise again.”
Inevitable errors and Charlie's saving no
“I will commit more errors; you can count on that. Fortunately, Charlie – never bashful – is around to say ‘no’ to my worst ideas.”
Surprises tempt numbers-driven CEOs to cheat
“In truth, business is too unpredictable for the numbers always to be met. Inevitably, surprises occur. When they do, a CEO whose focus is centered on Wall Street will be tempted to make up the numbers.”
Helping borrowers also helps the lender
“Since we lose significant sums on foreclosures – losses last year totaled $150 million – our assistance programs end up helping Clayton as well as its borrowers.”
Berkshire never counts on acquisition synergies
“At Berkshire, we never count on synergies when we acquire companies.”
Growth plus fewer shares rewards owners
“When a company grows and outstanding shares shrink, good things happen for shareholders.”
Offshore cash is worth less
“In other words, off-shore cash is simply not worth as much as cash held at home.”
Active investing piles cost upon cost
“Costs skyrocket when large annual fees, large performance fees, and active trading costs are all added to the active investor’s equation.”
Hedge fund intelligence cannot overcome costs
“A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors.”
Lower costs decide who wins
“If Group A (active investors) and Group B (do-nothing investors) comprise the total investing universe, and B is destined to achieve average results before costs, so, too, must A. Whichever group has the lower costs will win.”
Most managers trying to beat the market fail
“The problem simply is that the great majority of managers who attempt to over-perform will fail. The probability is also very high that the person soliciting your funds will not be the exception who does well.”
Good records attract money that weighs on returns
“First, a good record quickly attracts a torrent of money. Second, huge sums invariably act as an anchor on investment performance: What is easy with millions, struggles with billions (sob!).”
High-fee managers reap the outsized profits
“The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”
Recommending index funds is career suicide for consultants
“Can you imagine an investment consultant telling clients, year after year, to keep adding to an index fund replicating the S&P 500? That would be career suicide.”
Advisors get rich on the wealthy's expectations
“Human behavior won’t change. Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something ‘extra’ in investment advice. Those advisors who cleverly play to this expectation will get very rich.”
Salesmanship still sells on Wall Street
“Homer gave me a pitying look and said: ‘Warren, it’s not how you sell ‘em, it’s how you tell ‘em.’ What worked in the stockyards continues to work in Wall Street.”
No private briefings for big investors
“We do not follow the common practice of talking one-on-one with large institutional investors or analysts, treating them instead as we do all other shareholders.”
The small shareholder matters most
“There is no one more important to us than the shareholder of limited means who trusts us with a substantial portion of his or her savings.”
Managers work for the joy of home runs
“Most of our managers have no financial need to work. The joy of hitting business ‘home runs’ means as much to them as their paycheck.”