Berkshire Hathaway Letters to Shareholders: 1965-2024

by Warren Buffett

instead resulted from its devotion to quality. This mind-set has caused it to consistently focus its energies on coming up with something better,

trying to sell something without advertising is like winking at a girl in the dark.)

“When the phone don’t ring, you’ll know it’s me.”

the valuations of these two companies rose far faster than their earnings. In effect, we got a double-dip benefit, delivered partly by the excellent earnings growth and even more so by the market’s reappraisal of these stocks.

We also believe that investors can benefit by focusing on their own look-through earnings. To calculate these, they should determine the underlying earnings attributable to the shares they hold in their portfolio and total these. The goal of each investor should be to create a portfolio (in effect, a “company”) that will deliver him or her the highest possible look-through earnings a decade or so from now.

Like most of our managers, he has no financial need to work but does so because he loves the game and likes to excel.

Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.

Charlie and I are simply not smart enough, considering the large sums we work with, to get great results by adroitly buying and selling portions of far-from-great businesses. Nor do we think many others can achieve long-term investment success by flitting from flower to flower. Indeed, we believe that according the name “investors” to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic.

try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price. I certainly would not wish to own an equal part of every business in town.

Our motto is: “If at first you do succeed, quit trying.”

Berkshire Fine Spinning Associates, which merged with Hathaway Manufacturing Co. in 1955 to form our present company.

However, it is clear that stocks cannot forever overperform their underlying businesses, as they have so dramatically done for some time, and that fact makes us quite confident of our forecast that the rewards from investing in stocks over the next decade will be significantly smaller than they were in the last.

A tolerance for short-term swings improves our long-term prospects.

There is no job in the world that is more fun than running Berkshire and I count myself lucky to be where I am.

Munger, Tolles & Olson,

“Practice doesn’t make perfect; practice makes permanent.” And thereafter I revised my strategy and tried to buy good businesses at fair prices rather than fair businesses at good prices.

Our look-through earnings in 1992 were $604 million, and they will need to grow to more than $1.8 billion by the year 2000 if we are to meet that 15% goal. For us to get there, our operating subsidiaries and investees must deliver excellent performances, and we must exercise some skill in capital allocation as well.

Someday, a U.S. earthquake occurring far from California will cause enormous losses for insurers.

The value of any stock, bond or business today is determined by the cash inflows and outflows—discounted at an appropriate interest rate—that can be expected to occur during the remaining life of the asset.

If a business is complex or subject to constant change, we’re not smart enough to predict future cash flows.

We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success.

The new-issue market, on the other hand, is ruled by controlling stockholders and corporations, who can usually select the timing of offerings or, if the market looks unfavorable, can avoid an offering altogether. Understandably, these sellers are not going to offer any bargains, either by way of a public offering or in a negotiated transaction:

Abraham Lincoln’s favorite riddles: “How many legs does a dog have if you call his tail a leg?” The answer: “Four, because calling a tail a leg does not make it a leg.”

staying on as a consultant, and though that job description is often a euphemism, in this case it has real meaning.

It’s hard to teach a new dog old tricks.

because of corporate overhead. Charlie and I have observed no correlation between high corporate costs and good corporate performance. In fact, we see the simpler, low-cost operation as more likely to operate effectively than its bureaucratic brethren.

While there, stop at the See’s Candy Cart and find out for yourself why Charlie and I are a good bit wider than we were back in 1972 when we bought See’s.

Book value is an accounting term that measures the capital, including retained earnings, that has been put into a business. Intrinsic value is a present-value estimate of the cash that can be taken out of a business during its remaining life.

Over time, of course, market price and intrinsic value will arrive at about the same destination.

As Ben Graham said: “In the short-run, the market is a voting machine—reflecting a voter-registration test that requires only money, not intelligence or emotional stability—but in the long-run, the market is a weighing machine.”

Indeed, we think it’s usually poison for a corporate giant’s shareholders if it embarks upon new ventures pursuant to some grand vision.

Right now, markets are difficult, but they can—and will—change in unexpected ways and at unexpected times. In the meantime, we’ll try to resist the temptation to do something marginal simply because we are long on cash. There’s no use running if you’re on the wrong road.

investors will realize a far, far greater sum from a single investment that compounds internally at a given rate than from a succession of investments compounding at the same rate. But I suspect many Berkshire shareholders figured that out long ago.

Academics, however, like to define investment “risk” differently, averring that it is the relative volatility of a stock or portfolio of stocks—that is, their volatility as compared to that of a large universe of stocks. Employing data bases and statistical skills, these academics compute with precision the “beta” of a stock—its relative volatility in the past—and then build arcane investment and capital-allocation theories around this calculation.

It is better to be approximately right than precisely wrong.

If significant risk exists in a single transaction, overall risk should be reduced by making that purchase one of many mutually-independent commitments.

“If something is not worth doing at all, it’s not worth doing well.”)

Fear is the foe of the faddist, but the friend of the fundamentalist.

We define intrinsic value as the discounted value of the cash that can be taken out of a business during its remaining life. Anyone calculating intrinsic value necessarily comes up with a highly subjective figure that will change both as estimates of future cash flows are revised and as interest rates move. Despite its fuzziness, however, intrinsic value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.

In corporate transactions, it’s equally silly for the would-be purchaser to focus on current earnings when the prospective acquiree has either different prospects, different amounts of non-operating assets, or a different capital structure.

The sad fact is that most major acquisitions display an egregious imbalance: They are a bonanza for the shareholders of the acquiree; they increase the income and status of the acquirer’s management; and they are a honey pot for the investment bankers and other professionals on both sides. But, alas, they usually reduce the wealth of the acquirer’s shareholders, often to a substantial extent. That happens because the acquirer typically gives up more intrinsic value than it receives.

When such a CEO is encouraged by his advisors to make deals, he responds much as would a teenage boy who is encouraged by his father to have a normal sex life. It’s not a push he needs.

Many “alignment” plans flunk this basic test, being artful forms of “heads I win, tails you lose.”

This arrangement embodies a few very simple ideas—not the kind of terms favored by consultants who cannot easily send a large bill unless they have established that you have a large problem (and one, of course, that requires an annual review).

We have carefully designed both the company and our jobs so that we do things we enjoy with people we like. Equally important, we are forced to do very few boring or unpleasant tasks.

Ronald Reagan’s creed: “It’s probably true that hard work never killed anyone, but I figure why take the chance.”

Typically, the premiums that an insurer takes in do not cover the losses and expenses it must pay. That leaves it running an “underwriting loss”—and that loss is the cost of float.

a $50 billion windstorm loss on Long Island or an earthquake of similar cost in California—to be absolutely certain. But that same insurer knows that the disaster making it dependent on a large

By accepting the prospect of volatility, we expect to earn higher long-term returns than we would by pursuing predictability.

We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?