Berkshire Quotes

We were talking of DRAGONS, Tolkien and I In a Berkshire bar. The big workman Who had sat silent and sucked his pipe All the evening, from his empty mug With gleaming eye glanced towards us: "I seen 'em myself!" he said fiercely.

In 1945, peace broke out. It was the end of the Joke. Joke warfare was banned at a special session of the Geneva Convention, and in 1950 the last remaining copy of the joke was laid to rest here in the Berkshire countryside, never to be told again.

In middle school, my friends decided I was weird, and they didn’t like my hair. They ditched me and talked behind my back, which is cool — I’m over it. [laughs] One time I called them and said, “Hey, do you want to go to the Berkshire Mall?” They all gave me excuses and said no. So I go to the mall with my mom, and don’t you know, we run into all of them. Together. Shopping. My mom could see I was about to cry, so she said, “You know what? We’re going to the King of Prussia mall,” which was the mecca.

It's not that you have lost touch with these people. You haven't. It's just that they have kept in such close touch with each other. When scrolling through your cell phone, you generally let their numbers be highlighted for a second, hovering, and then move along to people you have spoken to within the last month. It's not that you're a bad friend to these people. It's just that you're not a great one. They know the names of each other's coworkers and the blow-by-blow nature of each other's dramas; they go camping in the Berkshires together and have such sentences in their conversational arsenal as "you left your lip gloss in my bathroom." You have no such sentences. Your connection to your friends is half-baked and you are starting to forget their siblings' names, never mind their coworkers. But you're still in the play even if you're no longer a main character.

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.

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

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

The reason we avoid the word "synergy" is because people generally claim more synergistic benefits than will come. Yes, it exists, but there are so many false promises. Berkshire is full of synergies - we don't avoid synergies, just claims of synergies.

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

Buffett's methodology was straightforward, and in that sense 'simple.' It was not simple in the sense of being easy to execute. Valuing companies such as Coca-Cola took a wisdom forged by years of experience; even then, there was a highly subjective element. A Berkshire stockholder once complained that there were no more franchises like Coca-Cola left. Munger tartly rebuked him. 'Why should it be easy to do something that, if done well two or three times, will make your family rich for life?

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.

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.

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.

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

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.

All we can infer (from the archaeological shards dug up in Berkshire, Devon and Yorkshire) is that the first Britons, whoever they were and however they came, arrived from elsewhere. The land (Britain) was once utterly uninhibited. Then people came.

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

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

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.

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.

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

The bigger things get the smaller and duller or flatter the globe gets. It is getting to be all one blasted little provincial suburb. When they have introduced American sanitation, morale-pep, feminism, and mass production throughout the Near East, Middle East, Far East, U.S.S.R., the Pampas, el Gran Chaco, the Danubian Basin, Equatorial Africa, Hirther Further and Inner Mumbo-land, Gondhwannaland, Lhasas, and the villages of darkest Berkshire, how happy we shall be . At any rate it out to cut down travel. There will be nowhere to go. So people will (I opine) go all the faster. (leter 53)

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

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

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

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

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.

Even his sleep was full of dreams. He dreamt as he had not dreamt since the old days at Three Mile Cross — of hares starting from the long grass; of pheasants rocketing up with long tails streaming, of partridges rising with a whirr from the stubble. He dreamt that he was hunting, that he was chasing some spotted spaniel, who fled, who escaped him. He was in Spain; he was in Wales; he was in Berkshire; he was flying before park-keepers’ truncheons in Regent’s Park. Then he opened his eyes. There were no hares, and no partridges; no whips cracking and no black men crying “Span! Span!” There was only Mr. Browning in the armchair talking to Miss Barrett on the sofa.

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.

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

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.

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.

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

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?

To finish first you have to first finish.

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

Buffett emphasized that the ability to generate cash and reinvest is critical. He noted that it is the ability to generate cash that gives Berkshire its value.

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.

Buffett wanted to make sure that Nebraska got their sales tax. He was adamant about making sure that Berkshire paid—not more taxes than it had to, but the taxes that it was responsible for.

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.

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

Dave’s visit eventually grew into a very active yoga program, and in due course we received the first grant from the National Institutes of Health to study the effects of yoga on PTSD. Dave’s work also contributed to my developing my own regular yoga practice and becoming a frequent teacher at Kripalu, a yoga center in the Berkshire Mountains in western Massachusetts. (Along the way, my own HRV pattern improved as well.)

He has a really consistent routine. He comes in in the morning at around 8:30. He reads five newspapers. He reads The Financial Times, The Washington Post, The New York Times, The Wall Street Journal, and The Omaha World Herald. Then he has a stack of reports on his desk from the companies Berkshire owns, and some trade press like American Banker or oil and gas journals, and through the rest of the day, he alternates between flipping through this stuff and then talking on the phone to people either who call him or who he calls. He never calls his managers; they can call him. He is really accessible, but he leaves them alone. Then he has CNBC on all day long with the crawl, with the sound muted and if he sees his name cross along the bottom and they are talking about him, he will turn the sound on to find out what they are saying. That is his day. He doesn't do meetings -- there are no meetings.

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.

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.

What, then, is Berkshire’s moat? The answer: Berkshire’s distinctive corporate culture. Berkshire spent the last five decades acquiring a group of wholly owned subsidiaries of bewildering variety but united by a set of distinctive core values. The result is a corporate culture unlike any other. And this is Berkshire’s moat.

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’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.

The moat represents a barrier to competition and could be low production costs, a trademark, or an advantage of scale or technology.

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

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

In thinking about markets, it is important to remember that markets are there to serve you, not instruct you.

With imports exceeding exports, the world is doing the savings for us. China, with a much higher savings rate, will grow faster than us, and it probably needs to do so.

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.

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.

one key element of a wonderful business: the cost structure.

For his successor, Buffett emphasized that proven capital allocation abilities would be the key.

Buffett chimed in that running a budget deficit of 10% of GDP is not sustainable.

Both Buffett and Munger are betting on higher, and maybe a lot higher inflation in the years to come.

Yet he knew that stocks would be better than bonds or cash over the long run.

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

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

The valuation picture is very much affected by our zero-based interest rate structure. Clearly, stocks are worth far more when government bonds yield 1% than when they yield 5%.

Buffett concluded that you can learn a lot about the durability of the economics of a business by observing price behavior.

Diversification is a protection against ignorance, a confession that you do not know the businesses you own.

It is much easier to pick the relative strength of Coca-Cola than it is to pick a winner in software.

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.

The idea of finding talented people to do what they do best is one of Buffett’s driving principles.

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.

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

Buffett’s formula for happiness is simple: “Do what I like with people I like.” He noted that he learned early in life that his favorite employer was himself. It avoids aggravation.

With artificial intelligence, Buffett observed that more change will be coming. Almost certainly it will cause less employment in certain areas while being good for society overall.

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.

Buffett chimed in that most buybacks are done at any price, which makes no sense. Very rarely do you see metrics to govern the prices paid. Buybacks above intrinsic value destroy value.

CHAPTER ONE A Boy at the Window FOR A LONG TIME AFTER THAT SUMMER, the four Penderwick sisters still talked of Arundel. Fate drove us there, Jane would say. No, it was the greedy landlord who sold our vacation house on Cape Cod, someone else would say, probably Skye. Who knew which was right? But it was true that the beach house they usually rented had been sold at the last minute, and the Penderwicks were suddenly without summer plans. Mr. Penderwick called everywhere, but Cape Cod was booked solid, and his daughters were starting to think they would be spending their whole vacation at home in Cameron, Massachusetts. Not that they didn’t love Cameron, but what is summer without a trip to somewhere special? Then, out of the blue, Mr. Penderwick heard through a friend of a friend about a cottage in the Berkshire Mountains. It had plenty of bedrooms and a big fenced-in pen for a dog—perfect for big, black, clumsy, lovable Hound Penderwick—and it was available to be rented for three weeks in August. Mr. Penderwick snatched it up, sight unseen. He didn’t know what he was getting us into, Batty would say. Rosalind always said, It’s too bad Mommy never saw Arundel—she would have loved the gardens. And Jane would say, There are much better gardens in heaven. And Mommy will never have to bump into Mrs. Tifton in heaven, Skye added to make her sisters laugh. And laugh they would, and the talk would move on to other things, until the next time someone remembered Arundel.

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.

Nevertheless, their dishonesty upset Buffett. They were trying to chisel him out of 12.5 cents per share. So Buffett went the other way and started buying increasingly more shares of Berkshire until he took control. He then booted out the guy who had tried to chisel him out. In 1964, Warren Buffett took control of that small New England textile firm, and it became his new base for making investments.

While reading, you may wonder, If Berkshire got out of the market, shouldn’t I do the same? or If Berkshire bought it, should I buy it too? Buffett and Munger are clear in their advice—people should learn from them and model their advice rather than copy their behavior. The main reason is this: Unless you find yourself in the enviable position that Berkshire operates in, you would do well not to copy its moves.

Buffett believed the rating agencies are good businesses: there are few competitors, they affect a large segment of the economy and they don’t require much capital (though they are still very much attackable).

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

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 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.

As Munger put it, “Basically, we’re a hedgehog that knows one big thing. If you generate float at 3% per annum and buy businesses that earn 13% per annum with the proceeds of that float, we have figured out that’s a pretty good position to be in.

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

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 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 best protection against inflation, according to Buffett, is your own earning power. If you constantly increase your earning power, you’ll be sure to get your share of the economic pie. The next best thing is to own wonderful businesses, especially those that have low capital requirements.

Buffett explained that buying a business is much like buying a bond with no maturity and with a blank coupon. You must write in the coupon, and the accuracy of that coupon is the essence of intelligent investing. If you cannot guess the coupon with any accuracy, then do not invest in the business.

William Slothrop was a peculiar bird. He took off from Boston, heading west in true Imperial style, in 1634 or -5, sick and tired of the Winthrop machine, convinced he could preach as well as anybody in the hierarchy even if he hadn’t been officially ordained. The ramparts of the Berkshires stopped everybody else at the time, but not William. He just started climbing. He was one of the very first Europeans in. After they settled in Berkshire, he and his son John got a pig operation going—used to drive hogs right back down the great escarpment, back over the long pike to Boston, drive them just like sheep or cows. By the time they got to market those hogs were so skinny it was hardly worth it, but William wasn’t really in it so much for the money as just for the trip itself. He enjoyed the road, the mobility, the chance encounters of the day—Indians, trappers, wenches, hill people—and most of all just being with those pigs. They were good company. Despite the folklore and the injunctions in his own Bible, William came to love their nobility and personal freedom, their gift for finding comfort in the mud on a hot day—pigs out on the road, in company together, were everything Boston wasn’t, and you can imagine what the end of the journey, the weighing, slaughter and dreary pigless return back up into the hills must’ve been like for William. Of course he took it as a parable—knew that the squealing bloody horror at the end of the pike was in exact balance to all their happy sounds, their untroubled pink eyelashes and kind eyes, their smiles, their grace in crosscountry movement. It was a little early for Isaac Newton, but feelings about action and reaction were in the air. William must’ve been waiting for the one pig that wouldn’t die, that would validate all the ones who’d had to, all his Gadarene swine who’d rushed into extinction like lemmings, possessed not by demons but by trust for men, which the men kept betraying . . . possessed by innocence they couldn’t lose . . . by faith in William as another variety of pig, at home with the Earth, sharing the same gift of life. . . .

In a fascinating digression, Buffett noted that “the fact that you are being obsoleted does not mean you should go into the successor business.” As an example, he explained that if you were a person of vision in the passenger train business in 1930, you might have seen the coming of the airplane. But the answer was not to get into the airline business, which is a terrible business. The answer was to get out of the passenger business altogether.

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.

Buffett declared the best inflation hedge is a company with a wonderful product that requires little capital to grow. As a test, he invited each of us to look at our own earning ability. In inflation, your compensation can go up without any additional investment. As a business example, Buffett noted that when See’s Candy was purchased in 1971, it had the revenues of $25 million and sold 16 million pounds of candy annually with $9 million in tangible assets. Today, See’s sells $300 million of candy with $40 million of tangible assets. Berkshire needed to invest only $31 million to generate a more than 10-fold increase in revenues. In aggregate, Buffett noted that Berkshire has earned $1.5 billion in profits at See’s over the years. See’s inventory turns fast, has no receivables and has little fixed investment – a perfect inflation hedge. Buffett allowed that if you have tons of receivables and inventory, that’s a lousy business in inflation. The railroad and MidAmerican Energy both have these undesirable characteristics, but that is offset by their utility to the economy and subsequent allowable returns. Buffett rued that there simply aren’t enough “See’s Candys” to buy. Buffett added that being an investor has made him a better businessman and that being a businessman has made him a better investor.(125) Munger noted that they didn’t always know this inflation-business element, which shows how continuous learning is so important.

Basically, Graham breaks the art of investing down into two simple variables – price and value. Value is what a business is worth. Price is what you have to pay to get it. Given the stock market’s manic-depressive behavior, numerous occasions arise where a business’ market price is distinctly out of line with its true business value. In such instances, an investor may be able to purchase a dollar of value for just 50 cents. Note that there is no mention here of interest rates, economic forecasts, technical charts, market cycles, etc. The only issues are price and value. I should also note that Graham emphasizes a large margin of safety. The strategy is not to buy a dollar of value for 97 cents. Rather, the gap should be dramatic so as to absorb the effects of miscalculation and worse-than-average luck.