Berkshire Hathaway Letters to Shareholders: 1965-2024

by Warren Buffett

Charlie and I have the easy jobs at Berkshire: We do very little except allocate capital. And, even then, we are not all that energetic. We have one excuse, though: In allocating capital, activity does not correlate with achievement.

Cash never makes us happy. But it’s better to have the money burning a hole in Berkshire’s pocket than resting comfortably in someone else’s.

Incidentally, we should warn you that media speculation about our investment moves continues in most cases to be incorrect. People who rely on such commentary do so at their own peril.

Over time, of course, the performance of the stock must roughly match the performance of the business.

the S&P will do far less well in the next decade or two than it has done since 1982. A recent article in Fortune expressed my views as to why this is inevitable,

independently wealthy, having made fortunes in the businesses that they run. They work neither because they need the money nor because they are contractually obligated to — we have no contracts at Berkshire. Rather, they work long and hard because they love their businesses.

remarkable managers who have no financial need to work but thrive on helping their companies grow and excel.

With his customary tact, Charlie responded: “I’ll pay $2.5 million not to read it.”

Our investees often have the opportunity to reinvest earnings at high rates of return. So why should we want them paid out?

If the choice is between a questionable business at a comfortable price or a comfortable business at a questionable price, we much prefer the latter.

If investor expectations become more realistic — and they almost certainly will — the market adjustment is apt to be severe, particularly in sectors in which speculation has been concentrated.

However, I can’t help but feel that too often today’s repurchases are dictated by management’s desire to “show confidence” or be in fashion rather than by a desire to enhance per-share value.

But the decisions of other people are sometimes affected by the near-term outlook, which can both spur sellers and temper the enthusiasm of purchasers who might otherwise compete with us.

We find it meaningful when an owner cares about whom he sells to. We like to do business with someone who loves his company, not just the money that a sale will bring him (though we certainly understand why he likes that as well).

Market commentators and investment managers who glibly refer to “growth” and “value” styles as contrasting approaches to investment are displaying their ignorance, not their sophistication.

Now, speculation — in which the focus is not on what an asset will produce but rather on what the next fellow will pay for it — is neither illegal, immoral nor un-American.

Nothing sedates rationality like large doses of effortless money.

There’s a problem, though: They are dancing in a room in which the clocks have no hands.

It was as if some virus, racing wildly among investment professionals as well as amateurs, induced hallucinations in which the values of stocks in certain sectors became decoupled from the values of the businesses that underlay them.

What actually occurs in these cases is wealth transfer, often on a massive scale. By shamelessly merchandising birdless bushes, promoters have in recent years moved billions of dollars from the pockets of the public to their own purses (and to those of their friends and associates).

Really juicy results from negotiated deals can be anticipated only when capital markets are severely constrained and the whole business world is pessimistic. We are 180 degrees from that point.

Indeed, it had become virtually standard practice for major corporations to “guide” analysts or large holders to earnings expectations that were intended either to be on the nose or a tiny bit below what the company truly expected to earn.

15% annually is to court trouble. That’s true because a growth rate of that magnitude can only be maintained by a very small percentage of large businesses.

I would wager you a very significant sum that fewer than 10 of the 200 most profitable companies in 2000 will attain 15% annual growth in earnings-per-share over the next 20 years.

After all, you only find out who is swimming naked when the tide goes out.

An uncompromising insistence on delivering only the best to his customers is embedded in the DNA

American business will do fine over time but think that today’s equity prices presage only moderate returns for investors. The market outperformed business for a very long period, and that phenomenon had to end.

“Except for” losses will forever be part of the insurance business, and they will forever be paid with shareholders’ money.

hooking up with the cream of those on the playing field.

As long as we are paid appropriately, we love taking on short-term volatility that others wish to shed. At Berkshire, we would rather earn a lumpy 15% over time than a smooth 12%.

Essentially, these instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices or currency values. If, for example, you are either long or short an S&P 500 futures contract, you are a party to a very simple derivatives transaction — with your gain or loss derived from movements in the index.

History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times.

In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

With short-term money returning less than 1% after-tax, sitting it out is no fun.

In stocks, we expect every commitment to work out well because we concentrate on conservatively financed businesses with strong competitive strengths, run by able and honest people. If we buy into these companies at sensible prices, losses should be rare.

today it would be easy for institutional managers to exert their will on problem situations.

(If you can’t tell whose side someone is on, they are not on yours.)

Berkshire’s special culture will be nurtured when I’m succeeded by other CEOs.

Today, many large corporations — run by CEOs whose fiddle-playing talents make your Chairman look like he is all thumbs — pay nothing close to the stated federal tax rate of 35%.

We hope our taxes continue to rise in the future — it will mean we are prospering

those index funds that are very low-cost (such as Vanguard’s) are investor-friendly by definition and are the best selection for most of those who wish to own equities.

After all, who ever washes a rental car?

paying very substantial taxes earlier than was necessary. Aaarrrggghh.

“Ignorance more frequently begets confidence than does knowledge.”

You may wonder why we borrow money while sitting on a mountain of cash.

I made a big mistake in not selling several of our larger holdings during The Great Bubble.

Yesterday’s weeds are today being priced as flowers.

I should note that the cemetery for seers has a huge section set aside for macro forecasters.

Charlie and I detest taking even small risks unless we feel we are being adequately compensated for doing so. About as far as we will go down that path is to occasionally eat cottage cheese a day after the expiration date on the carton.

A 2003 book that investors can learn much from is Bull! by Maggie Mahar. Two other books I’d recommend are The Smartest Guys in the Room by Bethany McLean and Peter Elkind, and In an Uncertain World by Bob Rubin.