Buffett: The Making of an American Capitalist

by Roger Lowenstein

“Save your credit, for that is better than money.”

Market is very obliging indeed. Every day he tells you what he thinks your interest is worth. BENJAMIN GRAHAM, THE INTELLIGENT INVESTOR

“The singular feature of the great crash,” as John Kenneth Galbraith observed, “was that the worst continued to worsen.”

“You are neither right nor wrong because the crowd disagrees with you.”

“Ultimately,” he reasoned, there were only three ways to avoid a tax: (1) to give the asset away, (2) to lose back the gain, and (3) to die with the asset—“and that’s a little too ultimate for me—even the zealots would have to view this ‘cure’ with mixed emotions.”16

In Munger’s view, it was better to pay a fair price for a good business than a cut rate for a stinker.

“There is no such thing as a bad risk. There are only bad rates.”

Buffett’s reaction was instinctive: Be greedy when others are fearful.

To Buffett, the lack of assets was a plus, because the profits flowed directly to the owners.

We are believers in Carlyle’s Prescription, that the job a man is to do is the job at hand and not see what lies dimly in the distance.

“Like virginity, a stable price level seems capable of maintenance, but not of restoration.”

That was insurance: if you figured out the odds of a hurricane, or a three-car fatal, and priced your policies accordingly, you were playing with loaded dice.

It is natural to wonder why every insurer didn’t adopt such an approach. Their shareholders, and their managements, had been schooled on the principle of “steady” growth. To turn down business would violate the culture.

Buffett likened them to Mark Twain’s cat: “Having once sat on a hot stove, it never did so again—but it never again sat on a cold stove, either.”11

But a bull market is a bit like falling in love. When you are in one, it has never happened to anyone before.

“I learned that when you start charging people for their capital, all sorts of [good] things happen.”

“Only two people understand that. Both of them live in Switzerland. However, they’re diametrically opposed to each other.”

“Why should it be easy to do something that, if done well two or three times, will make your family rich for life?”

He had understood the dynamics of airlines—lots of competition, high fixed costs—but invested anyway.

Buffett’s repeated exhortation—“Good profits simply are not inconsistent with good behavior”