Berkshire Hathaway Quotes

If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But, if each of us hires people who are bigger than we are, we shall become a company of giants.

Culture, more than rule books, determines how an organization behaves.

But then it dawned on me that the opinion of someone who is always wrong has its own special utility to decision-makers.

stocks of companies selling commodity-like products should come with a warning label: “Competition may prove hazardous to human wealth.

On the Ideal Business - Buffett: “Something that costs a penny, sells for a dollar and is habit forming.

If your employees, including your CEO, wish to give to their alma maters or other institutions to which they feel a personal attachment, we believe they should use their own money, not yours.

Many shall be restored that now are fallen and many shall fall that are now in honor.

If investors only had to study the past, the richest people would be librarians.

After you have enough for daily life, all that matters is your health and those you love.

our experience with newly-minted MBAs has not been that great. Their academic records always look terrific and the candidates always know just what to say; but too often they are short on personal commitment to the company and general business savvy. It’s difficult to teach a new dog old tricks.

Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.

One of Buffett’s annual themes is the value of learning. He noted that life properly lived is learning, learning, learning all the time. He observed that being wrong is when he learns the most.

Talking to Time Magazine a few years back, Peter Drucker got to the heart of things: “I will tell you a secret: Dealmaking beats working. Dealmaking is exciting and fun, and working is grubby. Running anything is primarily an enormous amount of grubby detail work . . . dealmaking is romantic, sexy. That’s why you have deals that make no sense.

Yet the industry asks for more money from investors every year. The idea is to find investments that give you money, not take it.

People are trying to be smart—all I am trying to do is not to be idiotic, but it’s harder than most people think.

The right manager can have an absolutely huge impact. Find people with brains, energy and integrity,

(Don’t ask the barber whether you need a haircut.)

Charlie’s dictum: “All I want to know is where I’m going to die so I’ll never go there.

There is no tougher job in corporate America than running an airline: Despite the huge amounts of equity capital that have been injected into it, the industry, in aggregate, has posted a net loss since its birth after Kitty Hawk. Airline managers need brains, guts, and experience—and

Ben Franklin’s advice: “Keep your eyes wide open before marriage and half shut thereafter.

Value is what a business is worth. Price is what you have to pay to get it.

The danger of relying on historical statistics or formulas is that you end up betting on a 14-year-old horse with a great record but is now ready for the glue factory.

Munger claimed that it is because professors are so enamored by modern portfolio theory. For the man with a hammer, every problem looks like a nail.

Despite our policy of candor, we will discuss our activities in marketable securities only to the extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are.

Warren recommended doing what turns you on. Munger agreed, saying he’d never done anything really well that he didn’t like to do.

We’d buy great businesses with excellent management at a fair to bargain price and leave them alone.

Tom Murphy, CEO of Capital Cities/ABC and considered by Buffett to be the best business manager in the country, prays every day to be humble.

Buffett continued, saying that MPT has no utility. It is elaborate with lots of little Greek letters to make you feel you are in the big leagues. The

Munger noted that high profits on capital often rely on information inefficiencies.

To finish first you have to first finish.

Buffett pointed out that when the investment tide goes out, you will see who has been swimming naked.

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.

Buffett gave two criteria for evaluating the performance of management: 1) How well do they run the business? and 2) How well do they treat the owners?

Buffett noted that he likes to put a lot of money in things he feels strongly about. Diversification makes no sense for someone who knows what they are doing.

Alas, my “fiddle playing” will not get me to Carnegie Hall — or even to a high school recital. Berkshire, on your behalf and mine, will send the Treasury $3.3 billion for tax on its 2003 income, a sum equaling 2½% of the total income tax paid by all U.S. corporations in fiscal 2003.

students need only two well-taught courses—How to Value a Business, and How to Think About Market Prices. Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards—so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value. Though it’s seldom recognized, this is the exact approach

There are essentially five things public corporations can do with a dollar earned: reinvest in the business, acquire other businesses or assets, pay down debt, pay dividends, and/or buy in shares. Deciding

In modern portfolio theory, beta is used as a measure of the volatility and, thus, the risk of an investment. However, Buffett sees the use of beta as nonsense, emphatically stating, “Volatility is no measure of risk to us.

Buffett also noted that book value is seldom meaningful in analyzing the value of a business. Book value simply records what was put into the business. The key to calculating value is determining what will come out of the business.

From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won’t do; it’s mindboggling screw-ups that are required.

Charlie Munger, vice chairman of Berkshire Hathaway, is a major proponent of this idea. “You’re not entitled to take a view,” he cautions, “unless and until you can argue better against that view than the smartest guy who holds that opposite view.

occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. As

Munger contends that by selling quality merchandise very close to cost, the stores built such a loyal customer base that it qualifies as a franchise. "If you get hooked on going to Costco with your family, you'll go for the rest of your life," he said.22

There’s a widespread conviction, spoken and unspoken, that the road to riches is trimmed in Ivy and the reins of power held by those who’ve donned Harvard’s crimson, Yale’s blue and Princeton’s orange, not just on their chests but in their souls. No one told that to the Fortune 500. They’re the American corporations with the highest gross revenues. The list is revised yearly. As I write this paragraph in the summer of 2014, the top ten are, in order, Wal-Mart, Exxon Mobil, Chevron, Berkshire Hathaway, Apple, Phillips 66, General Motors, Ford Motor, General Electric and Valero Energy. And here’s the list, in the same order, of schools where their chief executives got their undergraduate degrees: the University of Arkansas; the University of Texas; the University of California, Davis; the University of Nebraska; Auburn; Texas A&M; the General Motors Institute (now called Kettering University); the University of Kansas; Dartmouth College and the University of Missouri–St. Louis. Just one Ivy League school shows up.

Warren Buffett, the legendary investor and one of the wealthiest men in the world, has used exactly the attributes we’ve explored in this chapter—intellectual persistence, prudent thinking, and the ability to see and act on warning signs—to make billions of dollars for himself and the shareholders in his company, Berkshire Hathaway. Buffett is known for thinking carefully when those around him lose their heads. “Success in investing doesn’t correlate with IQ,” he has said. “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

The first $100,000 is a bitch, but you gotta do it. I don't care what you have to do—if it means walking everywhere and not eating anything that wasn't purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.” ​— ​Charlie Munger, Vice Chairman Berkshire Hathaway

good quality corporate bonds yielding 10% or better with great call protection.

automatically compound. If you need cash, you can sell stock and pay capital gains tax at a lower rate than a dividend would be taxed.

So instead of copying, understand why they made the decisions they did. Then apply those insights to your own decisions and your own position.

The key to calculating value is determining what will come out of the business.

Every year Buffett explains that he wants Berkshire to have great long-term shareholders and that splitting the stock would only work against that.

What matters most to him are micro factors, as opposed to the macro factors that so often get all the attention. He loves to know all the details of a business.

I think that one should recognize reality even when one doesn’t like it; indeed, especially when one doesn’t like it.

We set no volume goals in our insurance business generally—and certainly not in reinsurance—as virtually any volume can be achieved if profitability standards are ignored.

the single biggest outcome of the Internet has been little understood: buyers are the winners.

Buffett quoted Marshall Fields: “We waste half of the money we spend on advertising . . . the problem is we just don’t know which half.” From

Being able to think and invest very long term and not worry about current earnings or Wall Street analysts can be a major competitive advantage in certain businesses. Acquire

Buffett observed that they do have filters. A key one is whether they have a good idea of how the business is going to do over the next five or 10 years.

the real key is to be able to figure out what the average profitability of the business will be over the long term and how strong the business moat may be. Buffett’s

One ratio that Buffett is known to track is the total market cap to GDP. Recently, it was at 125%, which is a level approached in 1999 during the Internet bubble. Another

with others, are likely to experience such a year.

In insurance, as elsewhere, the reaction of weak managements to weak operations is often weak accounting. (“It’s difficult for an empty sack to stand upright.”)

While investors and managers must place their feet in the future, their memories and nervous systems often remain plugged into the past. 

Munger concluded, “If a thing is not worth doing at all, it’s not worth doing well.

Instead, he takes those coupons from his low-return bond and—if inclined to reinvest—looks for the highest return with safety currently available.  Good money is not thrown after bad.

The difference between a good business and a bad business is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time.

At their best, conglomerates enable the tax efficient transfer of cash from businesses that cannot use the money intelligently to those that can. Berkshire is a very rational conglomerate.

Warren Buffett, chairman of Berkshire Hathaway and investor of legendary repute: "Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks.

At the same time, he held firm that it doesn’t serve to make decisions in anger. He quoted Berkshire board member Tom Murphy: “You can always tell a man to go to hell tomorrow if it’s such a good idea.

When Charlie and I finish reading the long footnotes detailing the derivatives activities of major banks, the only thing we understand is that we don’t understand how much risk the institution is running.

He recommended realism in defining one’s circle of competence and discipline to stay within the circle. He added that it helps to insulate yourself from popular opinions. You’re better off sitting and thinking.6 Coping

Our advantage, rather, was attitude: we had learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.

Buffett reminded folks that to buy a stock is to buy part ownership of a business. Don’t get hung up on daily price quotes. Instead, think about business performance and what you would pay for the business, just as you would a farm.

Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day. At the end of the day—if you live long enough—most people get what they deserve.

He said he doesn’t really care whether they’re buying into raw-material-intensive businesses, people-intensive businesses or capital-intensive businesses. The key is to understand a company’s costs and why it’s got a sustainable edge against its competitors.

Buffett believes that real risk comes from the nature of certain kinds of businesses, by the simple economics of the business and from not knowing what you’re doing. If you understand the economics and you know the people, then you’re not taking much risk. For

financial markets will become divorced from reality — you can count on that. More Jimmy Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will fight for their business. What they are saying will recently have “worked.” Their early followers will be feeling very clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is ---zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices.

Buffett also shared some of his classic bits of wisdom about growing wealth. Spend less than what you make. Know and stay within your circle of competence. The only businesses that matter are the ones you put your money in. Keep learning over time. Don’t lose. Insist on a margin of safety.

As a value investor, your ideal situation is to find a company increasing its intrinsic value. Ideally, the company would be one with a declining stock price, thus creating an even better bargain as time unfolds. No one has employed these principles more effectively than Buffett and Munger.

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.

But it is Charlie's philosophy that a first-rate man should be willing to take at least some difficult jobs with a high chance of failure. And just as he decries making money "with lily white hands," he believes that giving time, talent, and risking his reputation is just as important as contributing money.

I thought of my favorite business analogy—the mouse who says let me out of the trap, I've decided I don't want the cheese.' There are a million business traps. You can get sloppy, you can get alcoholic, you can get megalomania, you can not understand your own limitations. There are a million ways to gum it up.

don't remember when Berkshire started growing to a point at which he was in a different league," said Emilie. "I think my parents were really private. They didn't want publicity. My dad was a creature of habit so everything was exactly the same. We never had a feeling we were growing up in some rich household.

Witness the tenacity with which almost all clung to the theory of efficient markets throughout the 1970s and 1980s, dismissively calling powerful facts that refuted it “anomalies.” (I always love explanations of that kind: The Flat Earth Society probably views a ship’s circling of the globe as an annoying, but inconsequential, anomaly.)

A few major opportunities clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past."5

What Charlie finds interesting when thinking back about all this progress is how few big business decisions were involved in creating billions of dollars out of less than $40 million, fewer than one every three years. "1 think the record shows the advantage of a peculiar mind-set-not seeking action for its own sake, but instead combining extreme patience with extreme decisiveness.

I do wish, however, that Ms. Olson would give me some credit for the progress I’ve already made. In 1944, I filed my first 1040, reporting my income as a thirteen-year-old newspaper carrier. The return covered three pages. After I claimed the appropriate business deductions, such as $35 for a bicycle, my tax bill was $7. I sent my check to the Treasury and it — without comment — promptly cashed it. We lived in peace.

The hiring rules are strictly followed, no matter who the applicant. Not long after she graduated from Harvard, Molly Munger applied at Munger, Tolles for an associate's position. She interviewed with Carla Hills, but Hills did not offer her a job, allegedly because Molly had not made the Harvard Law Review. Apparently in Hills estimation, that meant Molly's credentials weren't quite up to Munger, Tolles's standards.4

Year-to-year variances, however, cannot consistently be in our favor. Even if our partially-owned businesses continue to perform well in an economic sense, there will be years when they perform poorly in the market. At such times our net worth could shrink significantly. We will not be distressed by such a shrinkage; if the businesses continue to look attractive and we have cash available, we simply will add to our holdings at even more favorable prices.

Munger replied: People are always saying to Berkshire, 'Gee, why don't you write a lot more volume in relation to capital? Everyone else is doing it. The rating agencies say that you can write twice as much in annual volume as you have capital.' And they look at our $10 billion in insurance capital and say, 'That's $20 billion a year. What are you doing writing only $1 billion?' But then . . . somebody else comes in and asks, 'Why did everybody get killed last year but you?' Maybe the questions are related.

Marshall recalled that one evening he needed to talk to Charlie about a business situation, so he went over to the Mungers' June Street home. Marshall had five children of his own so he knew what a busy household was like, but even he was surprised that Charlie could concentrate under the circumstances. Charlie was sitting in a big chair, and "One kid was climbing on his shoulder, another was pulling his arm. Another was yelling. It was bedlam, but he didn't send them out or correct them. It didn't bother him a bit.

In a revealing aside, Buffett admitted that years ago he was terrified of public speaking. He got physically ill at the thought. He said he even signed up for a $100 Dale Carnegie course but cancelled the check when he got home. Later, he did a communication course in Omaha. Doing it with others in the same boat helped him to “get outside of himself.” He’s very glad he did it, noting that effective communication is under taught, and recommended that many could benefit by forcing themselves to learn public speaking at an early age.

We prefer: large purchases (at least $5 million of after-tax  earnings), demonstrated consistent earning power (future projections are of little interest to us, nor are “turn-around” situations), businesses earning good returns on equity while employing little or no debt, management in place (we can’t supply it), simple businesses (if there’s lots of technology, we won’t understand it), an offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).

The accountants' job is to record, not to evaluate. The evaluation job falls to investors and managers. Accounting numbers, of course, are the language of business and are of enormous help to anyone evaluating the worth of a business and tracking its progress. Charlie and I would be lost without these numbers: they invariably are the starting point for us in evaluating our own businesses and those of others. Managers and owners need to remember, however, that accounting is but an aid to business thinking, never a substitute for it. p198

We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be (1) one we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price. We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term. In fact, if their business experience continues to satisfy us, we welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price. 1977

When he met Buffett, Munger had already formed strong opinions about the chasms between good businesses and bad. He served as a director of an International Harvester dealership in Bakersfield and saw how difficult it was to fix up an intrinsically mediocre business; as an Angeleno, he observed the splendid prosperity of the Los Angeles Times; in his head he did not carry a creed about "bargains" that had to be unlearned. So in conversations with Buffett over the years he preached the virtues of good businesses. By 1972, Blue Chip Stamps, a Berkshire affiliate that has since been merged into the parent, was paying three times book value to buy See's Candies, and the good-business era was launched.7

Most institutional investors in the early 1970s, on the other hand, regarded business value as of only minor relevance when they were deciding the prices at which they would buy or sell. This now seems hard to believe. However, these institutions were then under the spell of academics at prestigious business schools who were preaching a newly-fashioned theory: the stock market was totally efficient, and therefore calculations of business value—and even thought, itself—were of no importance in investment activities. (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?)

Buffett was asked why he hadn't bought more Costco shares, considering that Munger owns shares and is on the board of directors. "Yeah, you hit on a good one here," Buffett replied. "We should've owned more Costco, and probably if Charlie had been sitting in Omaha, we would've owned more Costco. Charlie was constantly telling me about this terrific method of distribution, and after 10 years or so I started catching on to what he was saying, and we bought a little of Costco at Berkshire. "We actually negotiated to buy more. I made the most common mistake that I make . . . We started buying it, and the price went up, and instead of following it up and continuing to buy more. . . . If Costco had stayed at $15 a share or so, where we were buying it, we would've bought a lot more. But instead it went to 15⅛ and who could pay 15⅛ when they'd been paying $15—it wasn't quite that bad. But I have made that mistake a lot of times, and it's very irritating."23

Eventually, Charlie and Rick became fifty-fifty owners of a controlling block of stock in the company, with its management owning the rest. After some time passed, a situation arose where Guerin needed to cash out of the investment. "I still was very poor. We had an informal understanding that one would take the other out if either needed to get out. I went to Charlie and said I need to use that money elsewhere. He said fine, figure out what you want." Guerin looked over the accounting statements and thought about it. "I told him it was worth $200,000. Charlie said 'No, you're wrong about that.' I said to myself, Oh darn,' because I needed $200,000. He said, 'It's worth $300,000.' And he pulled out a check and wrote it. I would have been delighted with $200,000. I would have been the happiest man on earth. It was an opportunity for him to show me how stupid I was," Guerin said with a chuckle. "Charlie has a saying, 'Think about it a little more and you will agree with me because you're smart and I'm right.