Highly paid managers trail an unmanaged index
“The public batting average of [professional investment] highly-paid and widely respected talent indicates performance a shade below that of the Dow, an unmanaged index.”
Investing
Warren Buffett's 1964 letter to Buffett Partnership partners, one of the letters in Buffett Partnership Letters, 1957–1970.
Lagging managers rarely lack intellect or integrity
“In the great majority of cases the lack of performance exceeding or even matching an unmanaged index in no way reflects lack of either intellectual capacity or integrity.”
Investors avoid measuring their own skill
“People who watch their weight, golf scores, and fuel bills seem to shun quantitative evaluation of their investment management skills although it involves the most important client in the world - themselves.”
Conservatism comes from reasoning, not convention
“Neither a conventional nor an unconventional approach, per se, is conservative. Truly conservative actions arise from intelligent hypotheses, correct facts and sound reasoning.”
Agreement is no substitute for thought
“We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don't. A public opinion poll is no substitute for thought.”
Declining markets test investment conservatism
“In any event, evaluation of the conservatism of any investment program or management (including self-management) should be based upon rational objective standards, and I suggest performance in declining markets to be at least one meaningful test.”
Distress at drops rules out stocks
“If a 20% or 30% drop in the market value of your equity holdings (such as BPL) is going to produce emotional or financial distress, you should simply avoid common stock type investments.”
Prophecy exposes the prophet's frailties
“Of course, anything I might say is largely guesswork, and my own investment philosophy has developed around the theory that prophecy reveals far more of the frailties of the prophet than it reveals of the future.”
Without enough knowledge, he passes
“In the great majority of cases we simply do not know enough about the industry or company to come to sensible judgments -in that situation we pass.”
Control ties value to the enterprise
“The sine qua non of [a control situation] is an attractive purchase price. Once control is achieved, the value of our investment is determined by the value of the enterprise, not the oftentimes irrationalities of the market place.”
The Bigger Fool Theory is tenuous
“An investment operation that depends on the ultimate buyer making a bum deal (in Wall Street they call this the 'Bigger Fool Theory') is tenuous indeed.”
Taxes probably cause most investment sins
“More investment sins are probably committed by otherwise quite intelligent people because of 'tax considerations' than from any other cause.”
Forgetting the aim causes most errors
“One of my friends - a noted West Coast philosopher maintains that a majority of life's errors are caused by forgetting what one is really trying to do.”
The end is after-tax compounding
“Means and end should not be confused, however, and the end is to come away with the largest after-tax rate of compound.”
Performance gaps outweigh the tax
“Except in very unusual cases (I will readily admit there are some cases), the amount of the tax is of minor importance if the difference in expectable performance is significant.”