I’ve been slowly reading(and still am) all of Warren Buffet’s shareholder letters for Berkshire Hathaway. They are nothing short of incredible. It blows me away these things are just free to download.

After reading a bunch of them you start to see patterns emerge. The things that were important to Buffet and Berkshire in the 1980s still get mentioned in the late 2010s. The consistent focus on the long term over any short term The striking level of humilitiy – even in the years with >30% returns. You read these things and it makes you question what everyone else is seeing.

Another unexpected thing was how funny Buffet was. There were multiple moments where I found myself laughing. Shareholder letters are probably not thought of as a reliable source for humor but I think it just goes to show who Buffet(and Munger are). Take your ideas very seriously, but never yourself.

There is so much to learn from these letters. Below I’ve compiled all of the notes that I’ve taken. I like to think my notes are of a higher quality than what chatGPT could come up with. There might be some side comments from me here or there, but for the most part I’ve tried to copy them verbatim.

Table of Contents

• 1981
• 1982
• 1983
• 1984
• 1985
• 1987
• 1990
• 1996
• 2007
• 2009
• 2012
• 2017

1981

• We would rather buy 10% of Wonderful Business T at X per share than 100% of T at 2x per share. Most corporate managers prefer just the reverse, and have no shortages of stated rationales for their behavior
• Leaders, business or otherwise, seldom are deficient in animal spirits and often relish increased activity and challenge
  • Interventionistas, Incentives Rule Everything Around Me(IREAM)
• most organizations, measure themselves, are measured by others, and compensate their managers far more by the yardstick of size than by any other yardstick
  • IREAM
• many managements apparently were overexposed in impressionable childhood years to the story in which the imprisoined handsome prince is released from a toad’s body by a kiss from a beautiful princess. Consequently, they are certain their managerial kiss will do wonders for the profitability of Company T
  • overconfidence
• in other words, investors can always buy toads at the going price for toads. If investors instead bankroll princessess who wish to pay double for the right to kiss the toad, those kisses had better pack some real dynamite. We’ve observed many kisses but very few miralces. Nevertheless, many managerial princesses remain serenely confident about the future potency of their kisses — even after their corporate backyards are knee-deep in unresponsive toads
  • responsible corporate allocation
• your chairman, unfortunately, does not qualify for Category 2. And, despite a reasonably good understanding of the economic factors compelling concentration in Category 1, our actual acquisition activity in that cateogry has been sporadic and inadequate. Our preaching was better than our performance.(We neglected the Noah principle: predicting rain doesn’t count, building arks does)
  • category 2: managerial superstars, who can recognize princes disguised as toads
• However, the price finally demanded, considering alternative uses for the funds involved, would have left our owners worse off than before the purchase. The empire would have been larger, but the citizenry would have been poorer
• we have made plenty of such mistakes — both in the purchase of non-controlling and controlling interests in business. Category(2) miscalculations are the most common. Of course, it is necessary to dig deep into our history to find illustrations of such mistakes — sometimes as deep as two or three months. For example, last year your Chairman volunteered his expert opinion on the rosy future of the aluminum business. Several minor adjustments to the opinion — now aggregating approximately 180 degrees — have since been required
• It is much easier for investors to utilize historic p/e ratios or for managers to utilize historic business valuation yardsticks than it is for either group to rethink their premises daily
• But the facts do not cease to exist, either because they are unpleasant or because they are ignored
• Beware of ‘dividends’ that can be paid out only if someone promises to replace the capital distributed
• It would be a bit humiliating to have our corporate value-added turn negative. But it can happen here as it has elsewhere, either from events outside anyone’s control. or from poor relative adaptation on our part
• It would be a bit humiliating to have our corporate value-added turn negative. But it can happen here as it has elsewhere, either from events outside anyone’s control or from poor relative adaptation on our part
• “Forecasts”, said Sam Goldwyn, “are dangerous, particularly those about the future”
• and of course the twin inflations, monetary and ‘social’(the tendancy of courts and juries to stretch the coverage of policies beyond what insurers, relying upon contract terminology and precedent had expected), are unstoppable. Costs of repairing both property and people — and the extent to which these repairs are deemed to be the responsibility of the insurer — will advance relentlessly
• This pressure continues unabated and adds a new motivation to the others that drive many insurance managers to the push for business; worship of size over profitability, and the feat that market share surrendered never can be regained
• Irrespective of titles, Charlie and I work as partners in managing all controlled companies. To almost a sinful degree, we enjoy our work as managing partners

1982

• It was only a few years ago that we told you that the operating earnings/equity capital percentage, with proper allowance for a few other variables, was the most important yardstick of single-year managerial performance. While we still believe this to be the case with the vast majority of companies, we believe its utility in our own case has greatly diminished. You should be suspicious of such an assertion. Yardsticks seldom are discarded while yielding favorable readings. But when results deteriorate, most managers favor disposition of the yardstick rather than disposition of the manager
• to mangers faced with such deterioration, a more flexible system often suggests itself: just shoot the arrow of business performance into a blank canvas and then carefully draw the bullseye around the implanted arrow. We generally believe in pre-set, long-lived and small bullseyes.
  • Akin to some of the post-hoc problems I have with analytics
• as we look the major acquisitions that others made during 1982, our reaction is not envy, but relief that we were non-participants. For in many of these acquisitions, managerial intellect wilted in competition with managerial adrenaline. The thrill of the chase blinded the pursuers to the consequences of the catch. Pascal’s observation seems apt: “It has struck me that all men’s misfortunes spring from the single cause that they are unable to stay quietly in one room”
  • commentary on both attention span and interventionistas
• Berkshire’s economic goal remains to produce a long-term rate of return well above the return achieved by the average large American corporation. Our willingness to purchase either partial or total ownership positions in favorably-suited businesses, coupled with reasonable discipline about the prices we are willing to pay, should give us a good chance of achieving our goal
  • obvious adams
• but in the insurance business, to return to that subject, capacity can be instantly created by capital plus an underwriter’s willingness to sign his name. (Even capital is less important in a world in which state-sponsored guaranty funds protect many policyholders against insurer insolvency) Under almost all conditions except that of fear for survival — produced, perhaps, by a stock market debacle or a truly major natural disaster — the insurance industry operates under the competitive sword of substantial overcapacity
• Future profitability of the industry will be determined by current competitive characteristics, not past ones. Many managers have been slow to recognize this. It’s not only generals that prefer to fight the last war. Most business and investment analysis also comes from the rear-view mirror
• Jack Byrne and Bill Snyder are achieving the most elusive of human goals — keeping thing simple and remembering what you set out to do
• Yogi Berra, “You can observe a lot just by watching”
• partial sale of itself — and that is what the issuance of shares to make an acquisition amounts to
• if, however, the thirst for size and action is strong enough, the acquirer’s manager will find ample rationalizations for such a value-destroying issuance of stock. Friendly investment bankers will reassure him as to the soundness of his actions(Don’t ask the barber whether you need a haircut)
• rationalizations by stock issuing managers
  • “we have to grow” (who, it might be asked, is the ‘we’? For present shareholders, the reality is that all existing businesses shrink when shares are issued. If 1) your family owns a 120- acre farm and 2) you invite a neighbor with a 60 acre farm of comparable land to merge his farm into an equal partnership — with you to be managing partner, then 3) your managerial domain will have grown to 180 acres but you will have permanently shrunk by 25% your family’s ownership interest in both acreage and crops. Managers who want to expand their domain at the expense of owners might better consider a career in government
• a man is not charmed if a spaniel defaces his lawn, just because it’s a spaniel and not a Saint Bernard. And the wishes of sellers can’t be the determinant of the best interests of the buyers — what would happen if, heaven forbid, the seller insisted that as a condition of the merger the CEO of the acquirer be replaced?
• the language utilized in mergers tends to confuse the issues and wncourage irrational actions by managers. For example, ‘dilution’ is usally carefully calculated on a pro forma basis for both book value and current earnings per share. PArticular emphasis is given to the latter item. When that calculation is negative(dilutive) from the acquiring company’s standpoint, a justifying explanation will be made(internally, if not elsewhere) that the lines will cross favorably at some point in the future. (While deals often fail in practice, they never fail in projections — if the CEO is visibly painting over a prospective acquisition, subordinates and consultants requisite projections to rationalize any price) Should the calculation produce numbers that are immediately positive — that is, anti-dilutive — for the acquirer, no comment is thought to be necessary
• if corporate pregnancy is going to be the consequence of corporate mating, the time to face that fact is before the moment of ecstasy
• Managers and directors might sharpen their thinking by asking themselves if they would sell 100% of their business on the same basis they are being asked to sell part of it. And if it isn’t smart to sell all on such a basis, they should ask themselves why it is smart to sell a portion. A cumulation of small managerial stupidities will produce a major stupidity — not a major triumph. (Las Vegas has been built upon the wealth transfers that occur when people engage in seemingly-small disadvantageous capital transactions
• They like to acquire businesses with demonstrated consistent earning power(future projections are of little interest to them, nor are ‘turn-around’ situations
• A compact organization lets all of us spend time managing the business rather than managing each other
• Charlie Munger, my partner in management, will continue to operate from Los Angeles wether or not the Blue Chip merger occurs. Charlie and I are interchangeable in business decisions. Distance impedes us not at all: we’ve always found a telephone call to be more productive than a half-day committee meeting

1983

• Business Principles
  • our attitude is partnership
  • we eat our own cooking
  • we will reject interesting opportunities rather than over-leverage our balance sheet
  • and we react with great caution to suggestions that our poor businesses can be restored to satisfactory profitability by major capital expenditures.(The projections will be dazzling — the advocates will be sincere — but, in the end, major additional investment in a terrible industry usually is about as rewarding asa struggling in quicksand
  • Our guideline is to tell you the business facts that we would want to know if our positions were reversed
  • The CEO who misleads others in public may eventually mislead himself in private
• After a year with 32% increase in the book per-share value: We never take the one-year figure very seriously. After all, why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off? Instead, we recommend not less than a 5 year test as a rough yardstick of economic performance.

Then goes on to say how they might have down years: Watch out for our explanation if that occurs as Goethe observed, “When ideas fail, words come in very handy”

• Book value is an accounting concept, intrinsic business value is an economic concept
  • an analogy will suggest the difference. Assume you spend identical amounts putting each of 2 children through college. The book value(measured by financial input) of each child’s education would be the same. But the present value of the future payoff(the intrinsic business value) might vary enormously — from zero to many times the cost of the education. So, also, do businesses having equal financial input end up with wide variations in value
• You can live a full and rewarding life without ever thinking about Goodwill and its amortization. but students of investment and management should understand the nuances of the subject
  • economic Goodwill is the concept of having to discount the cost of a company on your balance sheet if the book value of the company and what you bought it for differ. This is covered extensively in the appendix to this letter
• a hyperactive stock market is the pickpocket of enterprise
• hyperactive equity markets subvert rational capital allocation and act as pie shrinkers. Adam Smith felt that all non-collusive acts in a free market were guided by an invisible hand that led an economy to maximum progress; our view is that casino-type market and hair-trigger investment management act as an invisible foot that trips up and slows down a forward moving economy

1984

• Accomplishing this will require a few big ideas — small ones just won’t do. Charlie Munger, my partner in general management, and I do not have any such ideas at present, but our experience has been that they popup occasionally. (how’s that for a strategic plan?)
• We try to avoid compromise of these standards, although we find doing nothing the most difficult task of all.(One English statesman attributed his country’s greatness in the 19th century to a policy of ‘masterly inactivity’. This is a strategy that is far easier for historians to commend than for participants to follow)
• operated at a gross margin of 44.4%(that is, on average, customers paid it $100 for merchandise that had cost it $55.60 to buy)
• our evaluation of the integrity of Mrs. B and her family was demonstrated when we purchased 90% of the business: NFM had never. had an audit and we did not request one; we did not take an inventory nor verify the receivable; we did not check property titles. We gave Mrs. B a check for $55 million and she gave us her word. That made for an even exchange
• In Geico’s case, as in all of our investments, we look to business performance, not market performance. If we are correct in expectations regarding the business, the market eventually will follow along
• At Berkshire, we have added what we thought were appropriate supplemental reserves but in recent years they have not been adequate. It is important that you understand the magnitude of the errors that have been involved in our reserving. You can thus see for yourselves just how imprecise the process is, and also judge whether we may have some systemic bias that should make you wary of our current and future figures
• As you can see from reviewing the table, my errors in reporting to you have been substantial
  • my errors is a high integrity phrasing
• Companies that would be out of business if they realistically appraised their loss costs have, in some cases, simply preferred to take an extraordinary optimistic view about these yet-to-be-paid sums. Others have engaged in various transactions to hide true current loss costs. Both of these approaches can ‘work’ for a considerable time: external auditors cannot effectively police the financial statements of property/casualty insurers. If liabilities of an insurer, correctly stated, would exceed assets, it falls to the insurer to volunteer this morbid information. In other words, the corpse is supposed to file the death certificate. Under this ‘honor system’ of mortality, the corpse sometimes gives itself the benefit of the doubt
• Even if they don’t get lucky, the penalty to managers is usually no greater for a $100 million shortfall than one of $10 million; in the meantime, while the losses mount, the managers keep their jobs and perquisites
• In Intelligent Investor, the last section of the last chapter begins with, “Investment is most intelligent when it is most businesslike” This section is called “A Final Word”, and it is appropriately titled
• Most managers have very little incentive to make the intelligent-but-with-some-chance-of-looking-like-an-idiot decision. Their personal gain/loss ratio is all too obvious: if an unconventional decision works out well, they get a pat on the back and, if it works out poorly, they get a pink slip. (Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.)
• we view the long term outlook for dollars as dismal. We believe substantial inflation lies ahead, although we have no idea what the average rate will turn out to be. Furthermore, we think there is a small, but not insignificant, chance of runaway inflation
• But we believe that present fiscal policy — featuring a huge deficit — is both extremely dangerous and difficult to reverse. (So far, most politicians in both parties have followed Charlie Brown’s advice: “No problem is so big that it can’t be run away from”) Without a reversal, high rates of inflation may be delayed(perhaps for a long time), but will not be avoided. If high rates materialize, they bring with them the potential for a runaway upward spiral
• The managers at fault periodically report on the lessons they have learned from the latest disappointment. They then usually seek out future lessons. (Failure seems to go to their heads.)
• Only by committing available funds to much better businesses were we able to overcome these origins. (It’s been like overcoming a misspent youth.) Clearly, diversification has served us well

1985

• 48.2% gain in net worth over the year. Same year as Hailey’s comet, neither will be seen again in my lifetime
• management cannot determine market prices, although it can, by its disclosures and policies, encourage rational behavior by market participants
• But long periods of substantial undervaluation and/or overvaluation will cause the gains of the business to be inequitably distributed among various owners, with the investment result of any given owner largely depending upon how lucky, shrewed, or foolish he happens to be
• security profits in a given year bear similarities to a college graduation ceremony in which the knowledge gained over four yers is recognized on a day when nothing further is learned
• Our Vice Chairman, Charlie Munger, has always emphasized the study of mistakes rather than successes, both in business and other aspects of life. He does so in the spirit of the man who said: “All I want to know if where I’m going to die so I’ll never go there” You’ll immediately see why we make a good team: Charlie likes to study errors and I have generated ample material for him, particularly in our textile and insurance businesses
• I won’t close down businesses of sub-normal profitability merely to add a fraction of a point to our corporate rate of return. However, I also feel it inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect. Adam Smith would disagree with my first proposition, and Karl Marx would disagree with my second; the middle ground is the only position that leaves me comfortable
• We also made a major acquisition, Waumbec Mills, with the expectation of important synergy( a term widely used in business to explain an acquisition that otherwise makes no sense)
• Viewed individually, each company’s capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neutralized each other and were irrational(just as happens when each person watching a parade decides he can see a little better if he stands on his tiptoes). After each round of investment, all the platers had more money in the fame and returns remained anemic
• the situation is suggestive of Samuel Johnson’s horse: “a horse that can count to 10 is a remarkable horse — not a remarkable mathematician” Likewise, a textile company that allocates capital brilliantly within its industry is a remarkable textile company - but not a remarkable business
• when returns on capital are ordinary, an earn-more-by-putting-up-more record is no great managerial achievement. You can get the same result personally while operating from your rocking chair. Just quadruple the capital you commit to a savings account and you will quadruple your earnings. You would hardly expect hosannas for that particular accomplishment. Yet, retirement announcements regularly sing the praises of CEOs, who have, say, quadrupled earnings of their widget company during their reign — with no one examining whether this gain was attributable simply t many years of retained earnings and the workings of compound interest
• In fact, the business project in which you would wish to have an option frequently is a project in which you would reject ownership. (I’ll be happy to accept a lottery ticket as a gift — but I’ll never buy one)
• We believe, further, that such factors as seniority and age should not affect incentive compensation(though they sometimes influence basic compensation) A 20 year old who can hit .300 is as valuable to us as a 40 year old performing as well
• In past reports, I have told you that Berkshire’s strong capital position — the best in the industry — should one day allow us to claim a distinct competitive advantage in the insurance market. With the tightening of the market, that day arrived. Our premium volume more than tripled last year, following a long period of stagnation. Berkshire’s financial strength(and our record of maintaining unusual strength through thick and thin) s now a major asset for us in securing good business
• we correctly foresaw a flight to quality by many large buyers of insurance and reinsurance who belatedly recognized that a policy is only an IOU - and who, in 1985, could not collect on many of their IOUs. These buyers today are attracted to Berkshire because of its strong capital position. But, in a development we did not foresee, we also are finding buyers drawn to us because our ability to insure substantial risks sets us apart from the crowd
• a few years such as this, and even slow-witted reinsurers can lose interest, particularly in explosive lines where the proper split in premium between issuer and reinsurer remain impossible to even roughly estimate. The behavior of reinsurers finally becomes like that of 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
• At Berkshire we have never played the lay-it-off-at-a-profit game and until recently, that put us at a severe disadvantage in certain lines. Now the table are turned: we have the price to be right, we are willing to write a net line larger than that of any but the largest insurers
• This explanation, however, recalls all too well a story told me many years ago by the then Chairman of General Reinsurance company. He said that ever year his managers told him that ‘except for the Florida hurricane’ or ‘except for Midwestern tornadoes’ they would have had a terrific year. Finally he called the group together and suggested that they form a new operation — the Except-for-Insurance company — in which they would henceforth place all of the business that they later wouldn’t want to count
• In any business, insurance or otherwise, ‘except for’ should be excised from the lexicon. If you are going to play the game, you must count the runs scored against you in all nine innings. Any manager who consistently says ‘except for’ and then reports on the lessons he has learned from his mistakes may be missing the only important lesson — namely, that the real mistake is not the act, but the actor
• Inevitably, of course, business errors will occur and the wise manager will try to find the proper lessons in them. But the trick is to learn most lessons from the experience of others. Managers who have learned much from personal experience in the past usually are destined to learn much from personal experience in the future
• We are enormously indebted to those academics: what could be more advantageous in an intellectual contest — whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy
• Today, corporate instability is an inevitable consequence of widely-diffused ownership of voting stock. At any time a major holder can surface, usually mouthing reassuring rhetoric but frequently harboring uncivil intentions. By circumscribing our blocks of stock as we often do, we intend to promote stability where it otherwise might be lacking. That kind of certainty, combined with a good manager and a good business, provides excellent soil for a rich financial harvest. That’s the economic case for our arrangement
• On October 10, well after the ESOP deal had fallen through, I wrote a short letter to Ralph, whom I did not know. I said we admired the company’s record and asked if he might like to talk. Charlie and I met Ralph for dinner in Chicago on October 22 and signed an acquisition contract the following week
• The Scott Fetzer purchase illustrates our somewhat haphazard approach to acquisitions. We have no master strategy, no corporate planners delivering us insights about socioeconomic trends, and no staff to investigate a multitude of ideas presented by promoters and intermediaries. Instead, we simply hope that something sensible comes along — and, when it does, we act
• I hope you come to this year’s meeting, which will be held on May 20 in Omaha. There will be only one change: after 48 years of allegiance to another soft drink, your Chairman, in an unprecedented display of behavioral flexibility, has converted to the new Cherry Coke. Henceforth, it will be the Official Drink of the Berkshire Hathaway Annual Meeting

1987

• what counts of course is the rate of gain in per-share business value, not book value. In many cases, a corporation’s book value and business value are almost totally unrelated
  • chatgpt says: By business value, Buffett is referring to the intrinsic value of the company, which includes all aspects of the business that contribute to its ability to generate earnings and cash flow in the future. This can include tangible assets like property and equipment, as well as intangible factors like brand strength, management quality, market position, and so on. Buffett is emphasizing that book value is an accounting measure that may not always reflect the true economic value or potential of a business.
• their premium of business value to book value has widened for 2 simple reasons: we own some remarkable businesses and they are run by even more remarkable managers
  • you have a right to question that second assertion. After all, CEOs seldom tell their shareholders that they have assembled a bunch of turkeys to run things
• For good reasons, we had very high expectations when we joined with these managers. In every case, however, our experience has greatly exceeded those expectations. We have received far more than we deserve, but we are willing to accept such inequities. (We subscribe to the view Jack Benny expressed upon receiving an acting award: “I don’t deserve this, but then, I have arthritis and I don’t deserve that either.”)
• With managers like ours, my partner, Charlie Munger, and I have little to do with operations. in fact, it is probably fair to say that if we did more, less would be accomplished. We have no corporate meetings, no corporate budgets, and no performance reviews (though our managers, of course, oftentimes find such procedures useful at their operating units).

1990

• Berkshire’s 26-year record is meaningless in forecasting future results; so also, we hope, is the 1 year record. We continue to aim for a 15% average annual gain in intrinsic value. But, as we never tire in telling you, this goal becomes ever more difficult to reach as our equity base, now $5.3 billion, increases
• intrinsic value is necessarily an estimate; Charlie and I might, in fact, differ by 10% in our appraisals
• My own role in operations may be best illustrated by a small tale concerning my granddaughter, Emily, and her 4th birthday party last fall. Attending were other children, adoring relatives, and Beemer the clown, a local entertainer who includes magic tricks in his act. Beginning these, Beemer asked Emily to help him by waving a ‘magic wand’ over ‘the box of wonders’. Green handkerchiefs went into the box, Emily waved the wand, and Beemer removed blue ones. Loose handkerchiefs went in and, upon a magisterial wave by Emily, ermerged knotted. After four such transformations each more amazing than its predecssor, Emily was unable to contain herself. Her face aglow, she exulted, “Gee I’m really good at this”. And that sums up my contributions to the performance of Berkshire’s business magicians
• In reality, however, earnings can be as pliable as putty when a charlatan heads the company reporting them. Eventually truth will surface, but in the meantime a lot of money can change hands
• We care not whether the auditors hear a tree fall in the forest; we do care who owns the tree and what’s next done with it
• When coca-Cola uses retained earnings to repurchase its shares, the company increases our percentage ownership in what I regard to be the most valuable franchise in the world. (Coke, also, of course, ses retained earnings in many other value-enhancing ways). Instead of repurchasing stock, Coke could pay those funds to us in dividends, which we could then use to purchase more Coke shares. That would be a less efficient scenario: Because of taxes we would pay on dividend income, we would not be able to increase our proportionate ownership to the degree that Coke can, acting for us. If this less efficient procedure were followed, however, Berkshire would report far greater ‘earnings’
• Ike’s crew always includes son Alan and son-in-law Marin Cohn and Donald Yale. And when things are busy — that’s often — they are joined by Ike’s wife, Roz, and his daughters. Janis and Susie. In addition, Fran Blumkin, wife of Louie(Chairman of Nebraska Furniture Mart and Ike’s cousin), regularly pitches in. Finally, you’ll find Ike’s 89 year old mother, Rebecca, in the store most afternoons, Wall Street Journal, in hand. Given a family commitment like this, is it any surprise that Borsheim’s runs rings around competitors whose managers are thinking about how soon 5 o’clock will arrive?
• Since I didn’t predict what has happened, you may question the value of my prediction about what will happen. Nevertheless, I’ll proffer a judgement
  • reminds me the “we proceed” line from the Lessons of History
• our business in primary property insurance is small and we believe that Berkshire shareholders, if properly informed, can handle unusual volatility in profits so long as the swings carry with them the prospect of superior long-term results(Charlie and I always have preferred a lumpy 15% return to a smooth 12%)
• Our expectations can be based on little more than subjective judgments — for this kind of insurance, historical loss data are of very limited value to us as we decide what rates to charge today
  • Taleb’s extremistan domain
• Finally, both stick with what they understand and let their abilities, not their egos, determine what they attempt(Thomas Watson Sr of IBM followed the same rule: “I’m no genius”, he said “I’m smart in spots - but I stay around those spots”
• Wells Fargo is big — it has 56 billion in assets — and has been earning more than 20% on equity and 1.25% on assets. Our purchase of one-tenth of the bank may be thought of as roughly equivalent to our buying 100% of a 5 billion bank with identical financial characteristics. But were we to make such a purchase, we would have to pay about twice the 290 million we paid for Wells Fargo. Moreover, that 5 billion bank, commanding a premium price, would present us with another problem: We would not be able to find a Carl Reichardt to run it
• Investors who expect to be ongoing buyers of investments throughout their lifetimes should adopt a similar attitude toward market fluctuations; instead many illogically become euphoric when stock prices rise and unhappy when they fall. they show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling prices and deplore price increases
• Identical reasoning guides our thinking about Berkshire’s investments. We will be buying businesses — or small parts of a businesses, called stocks — year in, year out as long as I live(and longer, if Berkshire’s directors attend the seances I have scheduled) Given these intentions, declining prices for businesses benefit us, and rising prices hurt us
• The most common cause of low prices is pessimism — some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer
• None of this means, however, that a business or stock in an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What’s required is thinking rather than polling. Unfortunately, Bertrand Russell’s observation about life in general applies with unusual force in the financial world: “Most men would rather die than think. Many do”
• The roads of businesses are riddled with potholes; a plan that requires dodging them all is a plan for disaster
• In the final chapter of The Intelligent Investor Ben Graham forcefully rejected the dagger thesis, “Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety” Forty-two years after reading that, I still think those are the right three words. The failure of investors to heed this simple message caused them staggering losses as the 1990s began
• In a business selling a commodity-type product, it’s impossible to be a lot smarter than your dumbest competitor
• Any good ad salesman will tell you that trying to sell something without advertising is like winking at a girl in the dark
• Charlie and I frequently get approached about acquisitions that don’t come close to meeting our tests: We’ve found that if you advertise an interest in buying collies, a lot of people will call hoping to sell you their cocker spaniels. A line from a country song expresses our feeling about new ventures, turnarounds, or auction-like sales: “When the phone don’t ring, you’ll know it’s me”
• Were I to die tomorrow, you could be sure of three things: 1, none of my stock would have to be sold; 2, both a controlling shareholder and a manager with philosophies similar to mine would follow me; and 3, Berkshire’s earnings would increase by $1 million annually, since Charlie would immediately sell our corporate jet, The Indefensible(ignoring my wish that it be buried with me)
• includes an example of a letter he sent to a business owner with whom he was interested in purchasing their business. Well worth the read but i won’t retype it here

1996

• I have repeatedly told you, what counts at Berkshire is intrinsic value, not book value
  • they set forth their economic principles in their Owner’s Manual
• after tax headquarters expense amounts to less than 2bp. Even so, Charlie used to think this expense percentage outrageously high
• Seriously, costs matter.
  • For example, mutual funds incur corporate expenses — largely payments to the funds’ managers — that average about 100bp, a levy likely to cut the returns their investors earn by 10% or more over time. Charlie and I make no promises about Berkshire’s results. We do promise you, however, that virtually all of the gains Berkshire makes will end up with shareholders. We are here to make money with you, not off you
• over time, the aggregate gains made by Berkshire shareholders must of necessity match the business gains of the company. When the stock temporarily overperforms or underperforms the business, a limited number of shareholders — either the sellers or the buyers — receive outsized benefits at the expense of those they trade with. Generally, the sophisticated have an edge over the innocents in the game
• We made two acquisitions in 1996, both possessing exactly the qualities we seek — excellent business economics and an outstanding manager
• Though the music was loud — Why must bands play as if they will be paid by the decibel
• Therefore, to get a job with us, just employ the tactic of the 76-year-old who persuaded a dazzling beauty of 25 to marry him. “How did you ever get her to accept?” ask his envious contemporaries. The comeback: “I told her i was 86”
• In other words, the attractiveness of our super-cat business will take a great many years to measure. What you must understand, however, is that a truly terrible year in the super-cat business is not a possibility — it’s a certainty. The only question is when it will come. I emphasize this lugubrious point because I would not want you to panic and sell your Berkshire stock upon hearing that some large catastrophe had cost us significant amount. If you would tend to react that way, you should not own Berkshire shares now
• So what are the true odds of our having to make a payout during the policy’s term? We don’t know — nor do we think computer models will help us, since we believe the precision they project is chimera. In fact, such models can lull decision-makers into a false sense of security and thereby increase their chances of making a really huge mistake
• In Lou’s part of Geico’s operation, we again tie compensation to performance — but to investment performance over a 4 year period, not to underwriting results nor to the performance of Geico as a whole. We think it foolish for an insurance company to pay bonuses that are tied to overall corporate results when great work on one side of the business — underwriting or investment — could conceivably be completely neutralized by bad work on the other
  • Lou is the CFO
• In 1961, President Kennedy said that we should not ask what our country can do for us, but rather ask what we can do for our country. Last year we decided to give his suggestion a try — and who says it never hurts to ask? We were told to mail $860M in income taxes to the Us Treasury. Here’s a little perspective on that figure: If an equal amount had been paid by only 2000 other taxpayers, the government would have had a balanced budget in 1996 without needing a dime of taxes — income or Social Security or what have you — from any other American. Berkshire shareholders can truly say “I gave at the office” Charlie and I believe that the large tax payments by Berkshire are entirely fitting. The contribution we thus make to society’s well-being is at most only proportional to its contribution to ours. Berkshire prospers in America as it would nowhere else
• the reasons why people today buy boxed chocolates, and the reason they buy them from us rather from someone else, are virtually unchanged from what they were in the 1920s when the See family was building the business. Moreover, these motivations are not likely to change over the next 20 years, or even 50
• I was recently studying the 1896 report of Coke( and you think that you are behind in your reading!)
• I can’t resist one more Candler quote: “Beginning this year about March 1st… we employed ten traveling salesmen by means of which, with systematic correspondence from the office, we covered almost the territory of the Union” That’s my kind of sales force
  • quote from 1896
• Companies such as Coca-Cola and Gillette might well be labeled “The Inevitables”
  • obviously many companies in high-tech business or embryonic industries will gorw much faster in percentage terms than will The Inevitables. But I would rather be certain of a good result than hopeful of a great one
• For every inevitable, there are dozens of imposters, companies now riding high but vulnerable to competitive attacks
• Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid
• Loss of focus is what most worries Charlie and me when we contemplate investing in businesses that in general look outstanding. All to often, we’ve seen value stagnate in the presence of hubris or of boredom that caused the attention of the managers to wander
• Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note the word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
• In our view, though, investment students need only 2 well-taught courses — How to Value a Business, and How to Think About Market Prices
• If you aren’t willing to own a stock for ten years, don’t even think about owning it for 10 minutes
• if history supplied all of the answers, the Forbes 400 would consist of librarians
• early in 1996, before any accrued dividends had been paid. I tried once more to unload our holdings — this time for about 335M. You’re lucky: I again failed in my attempt to snatch defeat from the jaws of victory. In another context, a friend once asked me: “If you’re so rich, why aren’t you smart?” After reviewing my sorry performance with USAir, you may conclude he had a point

2007

• John Stumpf, CEO of Wells Fargo, aptly dissected the recent behavior of many lenders: “it is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine”
• people who thought house price appreciation would continue and cure all problems. The country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out — and what we are witnessing at some of our largest financial institutions is an ugly sight
• Their CEO’s scorecards for success are not whether they obtain his job but instead are the long-term perfomances of their businesses. Their decisions flow froma. here-today, here-forever mindset. I think our rare and hard-to-replicate managerial structure gives Berkshire a real advantage
• in the 1988 annual report he explains arbitrage
• With the Pritzkers, as with Berkshire, a deal is a deal
• Charlie and Warren trust Byron Trott completely
• Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren’t available, though, we are also happy to simply buy small portions of great businesses by way of stockmarket purchases. It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone.
• A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns
• Our criterion of “enduring” causes us to rule out companies in industries prone to rapid and continuous change. Though capitalism’s “creative destruction” is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all. Additionally, this criterion eliminates the business whose success depends on having a great manager.
• There’s no rule that you have to invest money where you earned it. It’s a mistake to do so: Truly great businesses, earning huge returns on tangible assets, can’t for any extended period reinvest a large portion of their earnings internally at high rates of return
• Just as Adam and Eve kickstarted an activity that led to 6B humans, See’s has given birth to multiple new streams of cash for us(the biblical command to ‘be fruitful and multiply ’is one they take seriously at Berkshire)
• The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
  • hilarious
• To sum up, think of three types of “savings accounts.” The great one pays an extraordinarily high interest rate that will rise as the years pass. The good one pays an attractive rate of interest that will be earned also on deposits that are added. Finally, the gruesome account both pays an inadequate interest rate and requires you to keep adding money at those disappointing returns.
• Why did I say “no”? The only explanation is that my brain had gone on vacation and forgot to notify me. (My behavior resembled that of a politician Molly Ivins once described: “If his I.Q. was any lower, you would have to water him twice a day.”)
• A line from Bobby Bare’s country song explains what too often happens with acquisitions: “I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.”
• But, finally, they caught me in a moment of weakness, and I caved, telling them I would go to $35.05. With that, I explained, they could tell their client they had wrung the last nickel out of me. At the time, it hurt.
• Susan came to Borsheims 25 years ago as a $4-an-hour saleswoman. Though she lacked a managerial background, I did not hesitate to make her CEO in 1994. She’s smart, she loves the business, and she loves her associates. That beats having an MBA degree any time. (An aside: Charlie and I are not big fans of resumes. Instead, we focus on brains, passion and integrity.
• In the strange world department, note that American Express and Wells Fargo were both organized by Henry Wells and William Fargo, Amex in 1850 and Wells in 1852. P&G and Coke began business in 1837 and 1886 respectively. Start-ups are not our game
• I should emphasize that we do not measure the progress of our investments by what their market prices do during any given year. Rather, we evaluate their performance by the two methods we apply to the businesses we own. The first test is improvement in earnings, with our making due allowance for industry conditions. The second test, more subjective, is whether their “moats” – a metaphor for the superiorities they possess that make life difficult for their competitors – have widened during the year. All of the “big four” scored positively on that test.
• A footnote: We paid the IRS tax of $1.2 billion on our PetroChina gain. This sum paid all costs of the U.S. government – defense, social security, you name it – for about four hours.
• talking about sold option contracts on their books: We are certain to make many more payments
• The U.S. dollar weakened further in 2007 against major currencies, and it’s no mystery why: Americans like buying products made elsewhere more than the rest of the world likes buying products made in the U.S. Inevitably, that causes America to ship about $2 billion of IOUs and assets daily to the rest of the world. And over time, that puts pressure on the dollar
• When the dollar falls, it both makes our products cheaper for foreigners to buy and their products more expensive for U.S. citizens. That’s why a falling currency is supposed to cure a trade deficit. Indeed, the U.S. deficit has undoubtedly been tempered by the large drop in the dollar. But ponder this: In 2002 when the Euro averaged 94.6¢, our trade deficit with Germany (the fifth largest of our trading partners) was $36 billion, whereas in 2007, with the Euro averaging $1.37, our deficit with Germany was up to $45 billion. Similarly, the Canadian dollar averaged 64¢ in 2002 and 93¢ in 2007. Yet our trade deficit with Canada rose as well, from $50 billion in 2002 to $64 billion in 2007. So far, at least, a plunging dollar has not done much to bring our trade activity into balance. There’s been much talk recently of sovereign wealth funds and how they are buying large pieces of American businesses. This is our doing, not some nefarious plot by foreign governments. Our trade equation guarantees massive foreign investment in the U.S. When we force-feed $2 billion daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds? Our country’s weakening currency is not the fault of OPEC, China, etc. Other developed countries rely on imported oil and compete against Chinese imports just as we do. In developing a sensible trade policy, the U.S. should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behavior that will reduce America’s exports, true trade that benefits both our country and the rest of the world.
• At the time, Amazon bonds were priced as “junk” credits, though they were anything but. (Yes, Virginia, you can occasionally find markets that are ridiculously inefficient – or at least you can find them anywhere except at the finance departments of some leading business schools.)
• Despite our country’s many imperfections and unrelenting problems of one sort or another, America’s rule of law, market-responsive economic system, and belief in meritocracy are almost certain to produce evergrowing prosperity for its citizens.
• (I’ve reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term “thinking outside the box.”)
• Former Senator Alan Simpson famously said: “Those who travel the high road in Washington need not fear heavy traffic.” If he had sought truly deserted streets, however, the Senator should have looked to Corporate America’s accounting.
• It’s amusing that commentators regularly hyperventilate at the prospect of the Dow crossing an even number of thousands, such as 14,000 or 15,000. If they keep reacting that way, a 5.3% annual gain for the century will mean they experience at least 1,986 seizures during the next 92 years. While anything is possible, does anyone really believe this is the most likely outcome?
• Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees
• After decades of pushing the envelope – or worse – in its attempt to report the highest number possible for current earnings, Corporate America should ease up. It should listen to my partner, Charlie: “If you’ve hit three balls out of bounds to the left, aim a little to the right on the next swing.”
• A story I told you some years back illustrates our problem in accurately estimating our loss liability: A fellow was on an important business trip in Europe when his sister called to tell him that their dad had died. Her brother explained that he couldn’t get back but said to spare nothing on the funeral, whose cost he would cover. When he returned, his sister told him that the service had been beautiful and presented him with bills totaling $8,000. He paid up but a month later received a bill from the mortuary for $10. He paid that, too – and still another $10 charge he received a month later. When a third $10 invoice was sent to him the following month, the perplexed man called his sister to ask what was going on. “Oh,” she replied, “I forgot to tell you. We buried Dad in a rented suit.”
• At 84 and 77, Charlie and I remain lucky beyond our dreams. We were born in America; had terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a “business” gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society’s well-being. Moreover, we have long had jobs that we love, in which we are helped in countless ways by talented and cheerful associates. Every day is exciting to us; no wonder we tap-dance to work. But nothing is more fun for us than getting together with our shareholder-partners at Berkshire’s annual meeting. So join us on May 3rd at the Qwest for our annual Woodstock for Capitalists. We’ll see you there.

2009

• We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that both operating and capital decisions are occasionally made with which Charlie and I would have disagreed had we been consulted. Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner-oriented attitude that is invaluable and too seldom found in huge organizations. We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly – or not at all – because of a stifling bureaucracy.
• talks about Ajit Jain and how he runs an insurance business
  • if Charlie, I, and Ajit are ever in a sinking boat — and you can only save on of us — swim to Ajit
• he eats crow for pushing Geico to start up a credit card. They lost 100M+
• talking about managing the risks that come with derivatives: If Berkshire ever gets in trouble, it will be my fault. It will not be because of misjudgments made by a Risk Committee or Chief Risk Officer
  • Charlie and Him believe a CEO must not delegate risk control
• Our recommendation in respect to the use of advisors remains: “Don’t ask the barber whether you need a haircut
• he makes a few jokes in here that are hilarious

2012

• Charlie and I love investing large sums in worthwhile projects, whatever the pundits are saying. We instead heed the words from Gary Allan’s new country song, “Every Storm Runs Out of Rain.”
• A thought for my fellow CEOs: Of course, the immediate future is uncertain; America has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful).
• If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you.
• As much as Charlie and I talk about intrinsic business value, we cannot tell you precisely what that number is for Berkshire shares (or, for that matter, any other stock)
• Property-casualty (“P/C”) insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. Though individual policies and claims come and go, the amount of float we hold remains quite stable in relation to premium volume. Consequently, as our business grows, so does our float
• First by float size is the Berkshire Hathaway Reinsurance Group, run by Ajit Jain. Ajit insures risks that no one else has the desire or the capital to take on. His operation combines capacity, speed, decisiveness and, most important, brains in a manner unique in the insurance business. Yet he never exposes Berkshire to risks that are inappropriate in relation to our resources. Indeed, we are far more conservative in avoiding risk than most large insurers. For example, if the insurance industry should experience a $250 billion loss from some mega-catastrophe – a loss about triple anything it has ever experienced – Berkshire as a whole would likely record a significant profit for the year because it has so many streams of earnings. All other major insurers and reinsurers would meanwhile be far in the red, with some facing insolvency.
  • talebian
• a sound insurance operation needs to adhere to four disciplines. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium can’t be obtained.
• That old line, “The other guy is doing it, so we must as well,” spells trouble in any business, but none more so than insurance
• they view EBITDA as deeply flawed
• Markets can behave in extraordinary ways, and we have no interest in exposing Berkshire to some out-of-the-blue event in the financial world that might require our posting mountains of cash on a moment’s notice.
• Charlie and I believe in operating with many redundant layers of liquidity, and we avoid any sort of obligation that could drain our cash in a material way. That reduces our returns in 99 years out of 100. But we will survive in the 100th while many others fail. And we will sleep well in all 100
• Examining when dividends make sense: A company’s management should first examine reinvestment possibilities offered by its current business – projects to become more efficient, expand territorially, extend and improve product lines or to otherwise widen the economic moat separating the company from its competitors
• The third use of funds – repurchases – is sensible for a company when its shares sell at a meaningful discount to conservatively calculated intrinsic value
• Value is destroyed when purchases are made above intrinsic value
• Provides a great example on how dividends may or may not make sense for a company on page 20
• Above all, dividend policy should always be clear, consistent and rational. A capricious policy will confuse owners and drive away would-be investors. Phil Fisher put it wonderfully 54 years ago in Chapter 7 of his Common Stocks and Uncommon Profits, a book that ranks behind only The Intelligent Investor and the 1940 edition of Security Analysis in the all-time-best list for the serious investor. Phil explained that you can successfully run a restaurant that serves hamburgers or, alternatively, one that features Chinese food. But you can’t switch capriciously between the two and retain the fans of either.
• recommends The Outsiders by William Thorndike, The Clash of Cultures by Jack Bogle, and Investing Between the Lines by Laura Rittenhouse

2017

• once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning, enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well. (don’t ask the barber whether you need a haircut) If the historical performance of the target falls short of validating its acquisition, large ‘synergies’ will be forecast. Spreadsheets never disappoint
• Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need
• The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own
• Charlie and I never will operate Berkshire in a manner that depends on the kindness of strangers
• A well-known analyst VJ Dowling has pointed out, the loss reserves of an insurer are similar to a self-graded exam. Ignorance, wishful thinking, or occasionally, downright fraud can deliver inaccurate figures about an insurer’s financial condition for a very long time
• Almost 90% of our investments are made in the US. America’s economic soil remains fertile
• Ben Graham’s oft-quoted maxim proves true: “In the short run, the market is a voting machine; in the long run, however, it becomes a weighing machine”
• in the next 53 years our shares(and others) will experience declines resembling those in the table. No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow. When major declines occur, however, they offer extraordinary opportunities to those who are not handicapped by debt. That’s the time to heed these lines from Kipling’s IF: If you can keep you head when all about you are losing theirs…if you can wait and not be tired by waiting…if you can think — and not make thoughts your aim… if you can trust yourself when all men doubt you..Yours is the Earth and everything that’s in it
• What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period — or even to look foolish — is also essential