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Kindle Notes & Highlights
“Time is the enemy of the poor business, and it’s the friend of the great business.”
In investing, to paraphrase Keynes, it’s sufficient to be roughly right, especially if it helps to avoid the risk of being precisely wrong.
My deceased wife used to say, ‘You can’t accomplish much in one generation.’
As Yogi Berra said, ‘You can see a lot just by observing.’
“I had a great-grandfather; when he died, the preacher gave the talk, and he said, ‘None envied this man’s success, so fairly won and wisely used.’ That’s a very simple idea, but it’s exactly what Berkshire’s trying to do.
“In the end, it all goes back to Aesop, who said in 600 B.C. that a bird in the hand is worth two in the bush.
WB: “The ideal business is one that earns very high returns on capital and can keep using lots of capital at those high returns. That becomes a compounding machine.
“We’ve largely bought businesses that earn good returns on capital, but which have limited opportunities to earn anything like the returns on their base business with incremental capital.
WB: “If you’re interested in business, you ought to learn all the accounting you can. It is the language of business. That doesn’t mean it’s perfect, so you have to know the limitations.
“It’s like Charlie says: ‘All I want to know is where I’m going to die, so I’ll never go there.’
CM: “If you think your IQ is 160 and it’s 150, you’re a disaster. It’s much better to be a guy with a 130 IQ that’s operating well within himself.”
“The biggest thing is not how big your circle of competence is, but knowing where the perimeter is. You don’t have to be an expert on 90% of businesses, or 80%, 70%, or even 50%. But you do have to know something about the ones that you actually put your money into—and if that’s a very small part of the universe, that still is not a killer.
“If you’d followed Pete Kiewit around for ten years, you never would have seen him do anything dumb. It’s avoiding the dumb things. You really don’t have to be brilliant, but you have to avoid obvious mistakes.
WB: “If we lose confidence in management or in the durability of the competitive advantage, or if we recognize that we made a mistake, we sell. On the other hand, if you really get a wonderful business with outstanding management—mostly the wonderful business part—when in doubt, keep holding. But it’s not an inviolable rule.
CM: “Generally speaking, trying to dance in and out of the companies that you really love on a long-term basis has not been a good idea for most investors. We’re quite content to sit with our best holdings.”
“Forty years ago my sales were all because I found something I liked even better. I hated to sell, but I also didn’t want to borrow money, so I would reluctantly sell something that I thought was terribly cheap to buy something that was even cheaper.
‘Don’t ask the barber whether you need a haircut.’ It’s quite applicable to the projections of sellers of businesses.”
CM: “Declining businesses are not worth nearly as much as growing businesses, but they can still be quite valuable if a lot of cash is going to come out of them.”
In the stock market, you get a chance to buy businesses at foolish prices, and that is why we end up with a lot of money in marketable securities.
“We don’t worry about risk in the traditional sense. We look at riskiness, essentially, as being a go/no-go valve in terms of looking at the future businesses.
We feel that, once it passes a threshold test of being something about which we feel quite certain, the same discount factor tends to apply to everything.
CM: “The great emphasis on volatility in corporate finance we just regard as nonsense. Put it this way: As long as the odds are in our favor and we’re not risking the whole company on one throw, or anything close to it, we don’t mind volatility in results. What we want is the favorable odds. We figure the volatility, over time, will take care of itself at Berkshire.”
The business was fundamentally very nonvolatile in nature—TV stations and a strong, dominant newspaper, that’s a nonvolatile business—but it was a volatile stock. That is a great combination from our standpoint.”
Risk with us relates to several possibilities. One is the risk of a permanent capital loss. The other risk is just an inadequate return on the kind of capital we put in.
“People have always had this craving to know the future. The king used to hire the magician or the forecaster, and he’d look at sheep guts or something for an answer as to how to handle the next war. There’s always been a market for people who purport to know the future based on their expertise, and there’s a lot of that still going on.
If something is not very predictable, forget it. You don’t have to be right about every company. You have to make a few good decisions in your lifetime. The important thing is to know when you find one where you really do know which variables are important, and you think you’ve got a fix on them.
“We like to put a lot of money in things we feel strongly about. Diversification, as practiced generally, makes very little sense for anyone that knows what they’re doing. Diversification is protection against ignorance; if you want to make sure that nothing bad happens to you relative to the market, you own everything.
The whole secret of investment is to find places where it’s safe and wise to not diversify.
“We think first in terms of business risk. The key to Ben Graham’s approach to investing is not to think of stocks as part of a stock market; stocks are part of a business.
“It’s extremely difficult to get rich by owning a business that earns low returns on equity. We always look at what a business does in terms of what it earns on capital.
CM: “It’s not that much fun to buy a business where you really hope the sucker liquidates before it goes broke.”
CM: “I think you would better understand any presentation using the word EBITDA, if every time you saw that word, you just substituted the phrase, ‘bullshit earnings.’”
WB: “In airlines, you have to keep spending money like crazy. You have to spend money like crazy if it’s attractive to spend money, and you have to spend it the same way if it’s unattractive.
CM: “I’ve heard Warren say since very early in his life that the difference between a good business and a bad business is usually the good business just throws up one easy decision after another, whereas the bad business gives you a horrible choice where the decision is hard to make.
CM: “The mistakes that have been most extreme in Berkshire’s history are mistakes of omission. They don’t show up in our figures; they show up in opportunity costs. In other words, we have an opportunity and we almost do it.
So if somebody knows how to make money in cocoa beans or a software company and we miss that, that is not an error as far as we’re concerned. What’s an error is when it’s something we understand, and we stand there and stare at it, and we don’t do anything.
“We basically use long-term, risk-free/government bond-type interest rates to think back in terms of what we should discount future cash flows at. And that’s what the game of investing is all about.
WB: “You can really hold them at extraordinary levels … they’re too hard to find. You’re not going to find businesses that are as good. So then you have to say, ‘Am I going to get a chance to buy back the same business at a lot lower price? Or am I going to buy something that’s almost as good at a lot lower price?’
CM: “Sales that do happen, the ideal way is when you’ve found something you like immensely better. Isn’t it obvious that that’s the ideal way to sell?”
CM: “The investment game always involves considering both quality and price. The trick is to get more quality than you’re paying for in the price. It’s just that simple—but it’s not easy.”
CM: “A lot of the corporate compensation plans of the modern era work just about the way things would work for a farmer if you put a rat colony in the granary.”
WB: “There are more problems with having the wrong manager than with having the wrong compensation system. It is enormously important who runs Procter & Gamble, Coca-Cola, or American Express; any compensation sins are generally of minor importance compared to the sin of having somebody that’s mediocre running a huge company.”
WB: “The really great business is one that doesn’t require good management; that is a terrific business. And the poor business is one that can only succeed, or even survive, with great management.
‘To a man with a hammer, every problem looks pretty much like a nail.’
“I think our chief contribution to the businesses we acquire is what we don’t do.”
CM: “What on earth has caused Berkshire’s extreme record to go on for such a very long time? I would argue Warren, who was reading everything he could when he was ten years old, became a learning machine, and then he had a very long run when he kept learning.
WB: “The ideal business is one that takes no capital, but yet grows; there are a few businesses like that, and we own some. We’d love to find one that we could buy for $10, $20, or $30 billion, that was not capital intensive, and we may, but it’s harder.
We love buying stocks where we think the businesses are so solid, and have such economic advantage, that we can essentially ride with them forever.
CM: “We almost never sell an operating business. When it does happen, it’s usually because we’ve got some trouble we can’t fix.”
Charlie would say it’s not like having children, where the bad ones cause you more problems.”
