Partners chosen for a shared yardstick
“The outstanding item of importance in my selection of partners, as well as in my subsequent relations with them, has been the determination that we use the same yardstick.”
Investing
Warren Buffett's 1961 letter to Buffett Partnership partners, one of the letters in Buffett Partnership Letters, 1957–1970.
Yardsticks fixed in advance resist hindsight
“I believe in establishing yardsticks prior to the act; retrospectively, almost anything can be made to look good in relation to something or other.”
The Dow is no pushover
“I present [the above tabulations] to indicate the Dow as an investment competitor is no pushover, and the great bulk of investment funds in the country are going to have difficulty in bettering, or perhaps even matching, its performance.”
Excess value creates a margin of safety
“A lot of value can be obtained for the price paid. This substantial excess of value creates a comfortable margin of safety in each transaction.”
Cheap stocks can still go down
“Just because something is cheap does not mean it is not going to go down.”
Betting on multiples is not conservative
“There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy and capricious public will put on earnings.”
Agreement does not make you right
“You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you.”
True conservatism rests on knowledge and reason
“You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct, and your reasoning is correct. True conservatism is only possible through knowledge and reason.”
Unconventional proves nothing about conservatism
“I might add that in no way does the fact that our portfolio is not conventional prove that we are more conservative or less conservative than standard methods of investing.”
Down markets test conservatism best
“I feel the most objective test as to just how conservative our manner of investing is arises through evaluation of performance in down markets.”
No forecasts for the next year or two
“I am certainly not going to predict what general business or the stock market are going to do in the next year or two since I don't have the faintest idea.”
Yearly advantage over the Dow is the job
“Our job is to pile up yearly advantages over the performance of the Dow without worrying too much about whether the absolute results in a given year are a plus or a minus.”