“One of the lessons your management has learned - and, unfortunately, sometimes re-learned - is the importance of being in businesses where tailwinds prevail rather than headwinds.”
-1977 letter
* * *
“Overall, we opt for Polonius (slightly restated): ‘Neither a short-term borrower nor a long-term lender be.’ ”
-1979 letter
* * *
“In the end, major additional investment in a terrible industry usually is about as rewarding as struggling in quicksand.”
-1983 letter
* * *
On See’s Candy Shops:
“In effect, raw material costs are largely beyond our control since we will, as a matter of course, buy the finest ingredients that we can, regardless of changes in their price levels. We regard product quality as sacred.”
-1983 letter
* * *
“Price and value can differ; price is what you give, value is what you get.”
-1983 letter
* * *
“Mrs. B (Rose Blumkin) boils it down to ‘sell cheap and tell the truth’ ”
-1984 letter
* * *
“Who says “you can’t lose ‘em all”?”
-1984 letter
* * *
“No matter how attractive the prospects of their business. We've never succeeded in making a good deal with a bad person.”
-1989 letter
* * *
“We’ve always found a telephone call to be more productive than a half-day committee meeting.”
-1982 letter
* * *
“Our view, we warn you, is non-conventional.”
-1980 letter
* * *
“Our gain in net worth during the year was $613.6 million, or 48.2%. It is fitting that the visit of Halley’s Comet coincided with this percentage gain: neither will be seen again in my lifetime.”
-1985 letter
* * *
“An iron law of business is that growth eventually dampens exceptional economics.”
-1985
* * *
“Economic gains must be evaluated by comparison with the capital that produces them.”
-1984 letter
* * *
“As our history indicates, we are comfortable both with total ownership of businesses and with marketable securities representing small portions of businesses. We continually look for ways to employ large sums in each area. (But we try to avoid small commitments - ‘If something’s not worth doing at all, it’s not worth doing well.’) ”
-1981 letter
* * *
“This devastating outcome for the shareholders indicates what can happen when much brain power and energy are applied to a faulty premise. The situation is suggestive of Samuel Johnson’s horse: ‘A horse that can count to ten 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.”
-1985 letter
* * *
“My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). Some years ago I wrote: ‘When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.’ Nothing has since changed my point of view on that matter. Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
-1985 letter
* * *
“We neither understand the adding of unneeded people or activities because profits are booming, nor the cutting of essential people or activities because profitability is shrinking. That kind of yo-yo approach is neither business-like nor humane.”
-1987 letter
* * *
On estimating past versus future business value:
“The rear-view mirror is one thing; the windshield is another.”
-1989 letter
* * *
“Capital outlays at a business can be skipped, of course, in any given month, just as a human can skip a day or even a week of eating. But if the skipping becomes routine and is not made up, the body weakens and eventually dies. Furthermore, a start-and-stop feeding policy will over time produce a less healthy organism, human or corporate, than that produced by a steady diet. As businessmen, Charlie and I relish having competitors who are unable to fund capital expenditures.”
-1989 letter
* * *
“Five years ago we had no thought of getting into shoes. Now we have 7,200 employees in that industry, and I sing ‘There's No Business Like Shoe Business’ as I drive to work. So much for strategic plans.
At Berkshire, we have no view of the future that dictates what businesses or industries we will enter. Indeed, we think it's usually poison for a corporate giant's shareholders if it embarks upon new ventures pursuant to some grand vision. We prefer instead to focus on the economic characteristics of businesses that we wish to own and the personal characteristics of managers with whom we wish to associate - and then to hope we get lucky in finding the two in combination.”
-1993 letter
* * *
“In 1994, Coca-Cola sold about 280 billion 8-ounce servings and earned a little less than a penny on each. But pennies add up.”
-1994 letter
* * *
On owning minority shares in another company:
“It's far better to own a significant portion of the Hope diamond than 100% of a rhinestone”
-1994 letter
* * *
“R.C. Willey is an amazing story. Bill took over the business from his father-in-law in 1954 when sales were about $250,000. From this tiny base, Bill employed Mae West's philosophy: ‘It's not what you've got - it's what you do with what you've got.’ ”
-1995 letter
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“ In business, I look for economic castles protected by unbreachable ‘moats.’ ”
-1995 letter
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“(By the year 2021), I wouldn’t be surprised to see our share of Coke’s annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful business.”
-2010 letter
* * *
“(New Berkshire investment manager Todd Combs) will be paid a salary plus a contingent payment based on his performance relative to the S&P. Todd initially will manage funds in the range of one to three billion dollars, an amount he can reset annually. His focus will be equities but he is not restricted to that form of investment. (Fund consultants like to require style boxes such as "long-short," "macro," "international equities." At Berkshire our only style box is "smart.") ”
-2010 letter
* * *
“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.”
-1985 letter
* * *
“Good jockeys will do well on good horses, but not on broken-down nags.”
-1989 letter
* * *
“...value is in no way affected by the inclusion or non-inclusion of those retained earnings in our own reported operating earnings. If a tree grows in a forest partially owned by us, but we don’t record the growth in our financial statements, we still own part of the tree.”
-1980 letter
* * *
The Insurance Business
“Finally, some (‘super-catastrophic’ insurance policies Berkshire writes) are triggered only by a catastrophe of a specific type, such as an earthquake. Our exposures are large: We have one policy that calls for us to pay $100 million to the policyholder if a specified catastrophe occurs. (Now you know why I suffer eyestrain: from watching The Weather Channel.)”
-1992 letter
* * *
On 1994 California Northridge earthquake losses:
“...The Northridge quake of 1994 laid homeowners' losses on insurers that greatly exceeded what computer models had told them to expect. Yet the intensity of that quake was mild compared to the ‘worst-case’ possibility for California. Understandably, insurers became - ahem - shaken and started contemplating a retreat from writing earthquake coverage into their homeowners' policies.”
-1996 letter
* * *
“One thing, though, we have learned – the hard way – after many years in the business: Surprises in insurance are far from symmetrical. You are lucky if you get one that is pleasant for every ten that go the other way. Too often, however, insurers react to looming loss problems with optimism. They behave like the fellow in a switchblade fight who, after his opponent has taken a mighty swipe at his throat, exclaimed, ‘You never touched me.’ His adversary’s reply: ‘Just wait until you try to shake your head.’ ”
-2005 letter
* * *
“We would rather have some slack in the organization (i.e., too many insurance employees for the current business volume) from time to time than keep everyone terribly busy writing business on which we are going to lose money.”
-1979 letter
* * *
“I heard a story recently that is applicable to our insurance accounting problems: a man was traveling abroad when he received a call from his sister informing him that their father had died unexpectedly. It was physically impossible for the brother to get back home for the funeral, but he told his sister to take care of the funeral arrangements and to send the bill to him. After returning home he received a bill for several thousand dollars, which he promptly paid. The following month another bill came along for $15, and he paid that too. Another month followed, with a similar bill. When, in the next month, a third bill for $15 was presented, he called his sister to ask what was going on. “Oh”, she said. “I forgot to tell you. We buried Dad in a rented suit.
If you’ve been in the insurance business in recent years - particularly the reinsurance business - this story hurts. We have tried to include all of our “rented suit” liabilities in our current financial statement, but our record of past error should make us humble, and you suspicious. I will continue to report to you the errors, plus or minus, that surface each year.”
-1984 letter
* * *
“When shortages exist, however, even commodity businesses flourish. The insurance industry enjoyed that kind of climate for a while but it is now gone. One of the ironies of capitalism is that most managers in commodity industries abhor shortage conditions - even though those are the only circumstances permitting them good returns. Whenever shortages appear, the typical manager simply can't wait to expand capacity and thereby plug the hole through which money is showering upon him.”
-1987 letter
* * *
“(Other insurance companies) do not want to expose themselves to an embarrassing single-quarter loss, even if the managerial strategy that causes the loss promises, over time, to produce superior results. I can understand their thinking: What is best for their owners is not necessarily best for the managers. Fortunately Charlie and I have both total job security and financial interests that are identical with those of our shareholders. We are willing to look foolish as long as we don't feel we have acted foolishly.”
-1989 letter
* * *
“Despite the difficulties we have had in reserving and the commodity economics of the (insurance) industry, we expect our insurance business to both grow and make significant amounts of money - but progress will be distinctly irregular and there will be major unpleasant surprises from time to time. It’s a treacherous business and a wary attitude is essential. We must heed Woody Allen: ‘While the lamb may lie down with the lion, the lamb shouldn’t count on getting a whole lot of sleep.’ ”
-1986 letter
* * *
“Our insurance volume over the next few years is likely to run very low, since business with a reasonable potential for profit will almost certainly be scarce. So be it. At Berkshire, we simply will not write policies at rates that carry the expectation of economic loss. We encounter enough troubles when we expect a gain. … At some point - we don’t know when - we will be deluged with insurance business. The cause will probably be some major physical or financial catastrophe. But we could also experience an explosion in business, as we did in 1985, because large and increasing underwriting losses at other companies coincide with their recognition that they are far underreserved. in the meantime, we will retain our talented professionals, protect our capital, and try not to make major mistakes.”
-1988 letter
* * *
The Airline Industry
“It should be no surprise to anyone that those airline employees who contractually receive above-market salaries will resist any reduction in these as long as their checks continue to clear”
-1994 letter
* * *
“When Richard Branson, the wealthy owner of Virgin Atlantic Airways, was asked how to become a millionaire, he had a quick answer: ‘There's really nothing to it. Start as a billionaire and then buy an airline.’ ”
-1996 letter
* * *