Buffett Money Quotes

There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.

Rule No. 1 : Never lose money. Rule No. 2 : Never forget Rule No. 1.

It's nice to have a lot of money, but you know, you don't want to keep it around forever. I prefer buying things. Otherwise, it's a little like saving sex for your old age.

If you don't find a way to make money while you sleep, you will work until you die.

If past history was all that is needed to play the game of money, the richest people would be librarians.

When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.

Money followed; it never led.

Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.

Never test the depth of the river with both feet. —WARREN BUFFETT

The rich invest in time, the poor invest in money.

I don't have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GDP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die.

Buffett does enjoy being a billionaire, but in offbeat ways. As he put it, though money cannot change your health or how many people love you, it lets you be in 'more interesting environments.

Debt is a four letter word and means a four word sentence - Be Prepared for Trouble.

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 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.

Hold an index fund for 20 years or more, adding new money every month, and you are all but certain to outper-forms the vast majority of professional and individual investors alike. Late in his life, Graham praised index funds as the best choice for individual investors, as does Warren Buffett.6

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 stock market is a device for transferring money from the impatient to the patient.

Graham’s first goal was never to make money—it was to avoid losing any.

To make big money in the investment world you have to learn to think independently; to think independently you need to be comfortable standing alone.

It’s not that I want money. It’s the fun if making money and watching it grow.

Buffett has said that the stock market is designed to transfer money “from the active to the patient.

According to George Soros, what’s important is not whether you’re right or wrong about the market. What’s important is how much money you make when you’re right about a trade, and how much money you lose when you’re wrong.

More than 2,000 books are dedicated to how Warren Buffett built his fortune. Many of them are wonderful. But few pay enough attention to the simplest fact: Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child. As I write this Warren Buffett’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s. Warren Buffett is a phenomenal investor. But you miss a key point if you attach all of his success to investing acumen. The real key to his success is that he’s been a phenomenal investor for three quarters of a century. Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him. Consider a little thought experiment. Buffett began serious investing when he was 10 years old. By the time he was 30 he had a net worth of $1 million, or $9.3 million adjusted for inflation.16 What if he was a more normal person, spending his teens and 20s exploring the world and finding his passion, and by age 30 his net worth was, say, $25,000? And let’s say he still went on to earn the extraordinary annual investment returns he’s been able to generate (22% annually), but quit investing and retired at age 60 to play golf and spend time with his grandkids. What would a rough estimate of his net worth be today? Not $84.5 billion. $11.9 million. 99.9% less than his actual net worth. Effectively all of Warren Buffett’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years. His skill is investing, but his secret is time. That’s how compounding works. Think of this another way. Buffett is the richest investor of all time. But he’s not actually the greatest—at least not when measured by average annual returns.

Warren Buffett wisely stated, “The rich invest in time; the poor invest in money.

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.

It’s not that I want money. It’s the fun of making money and watching it grow.

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

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.

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 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.

It is not just a human rights argument, it is the Warren Buffett argument and the Christine Lagarde argument: Countries that want to develop their economies and standards of living cannot afford to shut out one-half of their population. And it is the Virginia Woolf argument: In order to create, a woman needs money and a room of her own.

he worked with a passion for the future he saw ahead of him, right there in sight. He wanted money. “It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.

the arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her saving in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is 'taxed' in a manner that leave her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn't seem to notice that 5 percent inflation is the economic equivalent.

Basically, when you get to my age, you'll really measure your success in life by how many of the people you want to have love you actually do love you. I know people who have a lot of money, and they get testimonial dinners and they get hospital wings named after them. But the truth is that nobody in the world loves them. If you get to my age in life and nobody thinks well of you, I don't care how big your bank account is, your life is a disaster. That's the ultimate test of how you have lived your life. The trouble with love it that you can't buy it. You can buy sex. You can buy testimonial dinners. You can buy pamphlets that say how wonderful you are. But the only way to get love is to be lovable. It's very irritating if you have a lot of money. You'd like to think you could write a check: I'll buy a million dollars' worth of love. But it doesn't work that way. The more you give love away, the more you get." — Warren Buffett

Living frugally even when you can afford to live luxurious will not only help you to save money. It will also help you to realize what is truly important in life. The secret that Warren Buffett knows is that money truly cannot buy you happiness. It can buy you a sense of security and it can open many doors for you. However, happiness comes from being engaged in fulfilling work; from strengthening your relationships with those who are most important to you; from doing those things that make you happy.

gold standard,” which the United States had dropped in 1933. Ever since, the Treasury had been printing money freely to finance first the New Deal and now the war. Howard feared that someday the United States might wind up like Germany in the 1920s, when people had to cart wheelbarrows of money down the street to buy a head of cabbage—the direct result of Germany being forced to deplete its gold stock to pay reparations after World War I.1 The economic chaos that resulted was one of the major factors that had led to Hitler.

Warren Buffett, quoting Henry Ford, often talks about the importance of keeping all your eggs in one basket, then watching that basket very carefully. One thing that appalled me and that I’d seen too many times was the Wall Street practice of having many eggs in many baskets. Even the most reputable mutual fund companies have a practice of selling multiple funds. The ones that do well are those that then get the marketing dollars and raise more money from investors. The ones that do poorly are either shut down or merged into the better-performing funds. In the process, the failures are buried as if they’d never existed while

All 250 + episodes to date can be found at tim.blog/ podcast and itunes.com/ timferriss Jamie Foxx on Workout Routines, Success Habits, and Untold Hollywood Stories (# 124)—tim.blog/ jamie The Scariest Navy SEAL I’ve Ever Met . . . and What He Taught Me (# 107)—tim.blog/ jocko Arnold Schwarzenegger on Psychological Warfare (and Much More) (# 60)—tim.blog/ arnold Dom D’Agostino on Fasting, Ketosis, and the End of Cancer (# 117)—tim.blog/ dom2 Tony Robbins on Morning Routines, Peak Performance, and Mastering Money (# 37)—tim.blog/ tony How to Design a Life—Debbie Millman (# 214)—tim.blog/ debbie Tony Robbins—On Achievement Versus Fulfillment (# 178)—tim.blog/ tony2 Kevin Rose (# 1)—tim.blog/ kevinrose [If you want to hear how bad a first episode can be, this delivers. Drunkenness didn’t help matters.] Charles Poliquin on Strength Training, Shredding Body Fat, and Increasing Testosterone and Sex Drive (# 91)—tim.blog/ charles Mr. Money Mustache—Living Beautifully on $ 25–27K Per Year (# 221)—tim.blog/ mustache Lessons from Warren Buffett, Bobby Fischer, and Other Outliers (# 219)—tim.blog/ buffett Exploring Smart Drugs, Fasting, and Fat Loss—Dr. Rhonda Patrick (# 237)—tim.blog/ rhonda 5 Morning Rituals That Help Me Win the Day (# 105)—tim.blog/ rituals David Heinemeier Hansson: The Power of Being Outspoken (# 195)—tim.blog/ dhh Lessons from Geniuses, Billionaires, and Tinkerers (# 173)—tim.blog/ chrisyoung The Secrets of Gymnastic Strength Training (# 158)—tim.blog/ gst Becoming the Best Version of You (# 210)—tim.blog/ best The Science of Strength and Simplicity with Pavel Tsatsouline (# 55)—tim.blog/ pavel Tony Robbins (Part 2) on Morning Routines, Peak Performance, and Mastering Money (# 38)—tim.blog/ tony How Seth Godin Manages His Life—Rules, Principles, and Obsessions (# 138)—tim.blog/ seth The Relationship Episode: Sex, Love, Polyamory, Marriage, and More (with Esther Perel) (# 241)—tim.blog/ esther The Quiet Master of Cryptocurrency—Nick Szabo (# 244)—tim.blog/ crypto Joshua Waitzkin (# 2)—tim.blog/ josh The Benevolent Dictator of the Internet, Matt Mullenweg (# 61)—tim.blog/ matt Ricardo Semler—The Seven-Day Weekend and How to Break the Rules (# 229)—tim.blog/ ricardo

Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1. —WARREN BUFFETT,

The goal of the nonprofessional should not be to pick winners—neither he nor his “helpers” can do that—but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal. —WARREN BUFFETT, 2013 letter to shareholders

We are here to make money with you, not off you.” -1996 letter

Risk comes from not knowing what you’re doing. —WARREN BUFFETT

Warren Buffett’s top two rules of investing? Rule 1: don’t lose money! Rule 2: see rule 1.

Smith in his book and with his life is telling us how to live. Seek wisdom and virtue. Behave as if an impartial spectator is watching you. Use the idea of an impartial spectator to step outside yourself and see yourself as others see you. Use that vision to know yourself. Avoid the seductions of money and fame, for they will never satisfy. How to be virtuous is not so obvious, and that comes next. But I want to close this chapter with Peter Buffett, the man who ended up selling his Berkshire Hathaway stock for $90,000 and giving up the $100 million he could have had in order to pursue a career as a musician. A few years ago, Peter Buffett reflected on his decision to sell his Berkshire Hathaway stock to pursue his dreams in his memoir, Life Is What You Make It. He claims to have no regrets. But could a life as a successful musician possibly be worth giving up $100 million? Wouldn’t $100 million be even more pleasant? Then you ask yourself—what could he have with the extra millions? A nicer car? He could have a Lamborghini Veneno Roadster that retails for about $4 million. Or he could settle for the lovely Ferrari Spider, at $300,000; he could have a couple of those. He could have a mansion you and I can only imagine, anywhere in the world. Like Onassis, he could own an island or two rather than enduring the indignity of visiting an island in the Mediterranean, say, and having to share it with others while staying at a nice hotel. Could those physical pleasures possibly be worth sacrificing the life in music that he dreamed of and ultimately achieved? I think Peter Buffett got a bargain. He gave up $100 million and got something—hard as it is to imagine—that was even more precious. A good life. I think Adam Smith would agree with me.

Rule 1: don’t lose money. Rule 2: see Rule 1. —WARREN BUFFETT’S RULES OF INVESTING

Once a bull market gets under way, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks. In effect, these people superimpose an I-can’t-miss-the-party factor on top of the fundamental factors that drive the market. Like Pavlov’s dog, these “investors” learn that when the bell rings—in this case, the one that opens the New York Stock Exchange at 9:30 A.M.—they get fed. Through this daily reinforcement, they become convinced that there is a God and that He wants them to get rich.

We are here to make money with you, not off you.

The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.

Government has been exceptionally able in printing money and creating promises, but is unable to print gold or create oil.

Rather than attempt to time the market or pick individual stocks, it is more productive to invest and stay invested. As Warren Buffett said: “We continue to make more money when snoring than when active.” Mr. Buffett also said: “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 expenses and fees) delivered by the great majority of investment professionals.

Stan Druckenmiller, reflecting on his unbelievable success as an investor, said that the only way to make superior returns is to concentrate heavily. He thinks “diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere. And if you look at great investors that are as different as Warren Buffett, Carl Icahn, Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it… . [T]he mistake I’d say 98 percent of the money managers and individuals make is they feel like they got to be playing in a bunch of stuff.”4

The evaluation of securities and businesses for investment purposes has always involved a mixture of qualitative and quantitative factors. At the one extreme, the analyst exclusively oriented to qualitative factors would say, “Buy the right company (with the right prospects, inherent industry conditions, management, etc.) and the price will take care of itself.” On the other hand, the quantitative spokesman would say, “Buy at the right price and the company (and stock) will take care of itself.” As is so often the pleasant result in the securities world, money can be made with either approach. And, of course, any analyst combines the two to some extent—his classification in either school would depend on the relative weight he assigns to the various factors and not to his consideration of one group of factors to the exclusion of the other group. Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess—I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a “high-probability insight.” This is what causes the cash register to really sing. However, it is an infrequent occurrence, as insights usually are, and, of course, no insight is required on the quantitative side—the figures should hit you over the head with a baseball bat. So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions. As

So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions. As

When it comes to investing, it’s critical not to “force it.” Markets will cycle. There will be times when you too feel “out of step” with the market, just as Buffett did in the late 1960s. You’ll find that during the late bull market mania of the Go-Go years, his standards remained firmly set, while the pressure to perform caused the standards of many of even the best around him to crumble. It’s hard not to cave your principles in at the top of the cycle when your value approach has apparently stopped working and everyone around you seems to be making money easily (that’s why so many people do it). However, it’s more often than not a “buy high, sell low” strategy. Buffett set his plan, established his standards, and then entered the fray, maintaining the courage of his convictions, come what may.

Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess—I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a “high-probability insight.” This is what causes the cash register to really sing. However, it is an infrequent occurrence, as insights usually are, and, of course, no insight is required on the quantitative side—the figures should hit you over the head with a baseball bat. So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions. Such

If you can identify six wonderful businesses, that is all the diversification you need. And you will make a lot of money. And I can guarantee that going into a seventh one instead of putting more money into your first one is gotta be a terrible mistake. Very few people have gotten rich on their seventh best idea. But a lot of people have gotten rich with their best idea. So I would say for anyone working with normal capital who really knows the businesses they have gone into, six is plenty, and I [would] probably have half of [it in] what I like best.3 There

When management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact’ Warren Buffett

As more lives and communities are destroyed by the system that creates vast amounts of wealth for the few,” philanthropists were frequently left “searching for answers with their right hands” to problems that they had “created with their left.” Whether their motives were virtuous or venal, in the course of a few decades a handful of enormously rich right-wing philanthropists had changed the course of American politics. They created a formidable wealth defense movement, which had become a sizable part of what Buffett dubbed “the charitable-industrial complex.

Warren Buffett summed up the conventional view with his usual pith: “Gold gets dug out of the ground . . . we melt it down, dig another hole, bury it again and pay people to stand around guarding it. . . . Anyone from Mars would be scratching their head.”2

you can simply buy wonderful companies at reasonable prices, and let those companies compound cash over long periods of time. Surprisingly, there aren’t all that many money managers who follow this strategy, even though it’s the one used by some of the world’s most successful investors. (Warren Buffett is the best-known.)

Jason Zweig, senior writer and columnist at Money magazine and coauthor of the revised edition of Benjamin Graham's classic, The Intelligent Investor: "If you buy-and then hold-a total stock market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run. Graham praised index funds as the best choice for individual investors, as does Warren Buffett.

Of all the professional money managers, Warren Buffett’s record stands out as the most extraordinary. For over 40 years, Buffett’s company, Berkshire Hathaway, has earned a rate of return for his stockholders twice as large as the stock market as a whole. But that record was not achieved only by his ability to purchase “undervalued” stocks, as it is often portrayed in the press. Buffett buys companies and holds them. (He has suggested that the correct holding period for a stock is forever.)

Rule No. 1 : Never lose money. Rule No. 2 : Never forget Rule No. 1.

Buffett asks whether the manager loves the money or loves the business. If they love the business, they’ll be a good fit for Berkshire.

As I write this Warren Buffett’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s.

When I was sixteen, I had just two things on my mind—girls and cars,” Buffett would say, taking a little poetic license here by leaving out the part about the money. “I wasn’t very good with girls. So I thought about cars. I thought about girls, too, but I had more luck with cars. “Let’s say that when I turned sixteen, a genie had appeared to me. And that genie said, ‘Warren, I’m going to give you the car of your choice. It’ll be here tomorrow morning with a big bow tied on it. Brand-new. And it’s all yours.’ “Having heard all the genie stories, I would say, ‘What’s the catch?’ And the genie would answer, ‘There’s only one catch. This is the last car you’re ever going to get in your life. So it’s got to last a lifetime.

Buffett noted that such a person would need a “money mind.” Even someone with an IQ of 140 can have a very different mind where they do poorly at investing. It takes a money mind to think well about money and investing.

Warren Buffett’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday.

If you look around the poker table and you can’t spot the patsy, you’re it.” Warren Buffett

Buffett says it’s a political phenomena, not an economic one. As long as politicians lack self-restraint, they will print a lot of money at some point. Though it is probably two years or more down the road, Buffett sees “substantial inflation” and “rates we’ve never seen before.

Munger had worked in law, but Buffett convinced him that he should be in the investment business if he wanted to make real money.

Insurance companies collect premiums, of which a significant portion goes into reserves to pay future claims. This reserve (the “float”) earns money for Berkshire, leveraging the company’s return on capital.

When “dumb” money acknowledges its limitations, it ceases to be dumb.

After Buffett finished undergrad at University of Nebraska in Lincoln, he was working as a stockbroker, which essentially means he was a stock salesman. Though nearly every time Buffett tried to get a meeting with a businessperson in Omaha, he was turned down. No one wanted to meet with a young guy with no credibility, trying to sell them stocks. So Buffett changed his approach—he began calling up businesspeople and made them feel he could save them money on their taxes. All of a sudden the businesspeople said, “Come on in!” And just like that, Buffett booked his meetings. “This is the thing,” I told Corwin. “Although people won’t meet with you for the reason you want, that doesn’t mean they won’t meet at all. Just find another angle.

I like a business that, when it’s not managed at all, still makes lots of money. That’s my kind of business.

Though the market doesn’t really produce anything, it does grow over time as a factor of the businesses and the labor it represents. Thus, ultimately, the average investor does make money.

Buffett concluded, “If you think about business and buy businesses for less than they’re worth, you’re going to make money.

I read the book The Money

Munger concluded with a joke. The man says, “Would you still love me if I lost all our money?” The wife replies, “Yes, I will love you always, and I would miss you terribly.

he argued with Susie that she had been conned into spending too much money on Howard's coffin.

Operating Activities: This is all the activity that involves earning money. Investing Activities: This is all the activity that involves buying or selling assets. Financing Activities: This is all the activity that involves acquiring debt or paying it off.

If this was a business, it would do one of two things with the $3.00 of earnings per share: pay a portion of the earnings to the shareholder (known as a dividend) or retain the money as equity (therefore, the $25.60 of book value would increase). Like

One of the most fundamental concepts of making money in the stock market is buying a company that you can hold forever.

Remember Warren Buffett’s ultimate laws of investing? Rule 1: don’t lose money. Rule 2: see rule

Don't work for money, make money work for you.

Warren Buffett, the brilliant investor, said the rich invest in time. The poor invest in money.

The idea is to find investments that give you money, not take it.

In fact, most great investors I know (Warren Buffett, for starters) are technophobes. They don’t own what they don’t understand, and neither do I.

Buffett added that there is a big difference between identifying a growth industry and minting money. He noted that AT&T’s return on equity over the years has been poor. Change has hurt the company more than it has helped. Similarly,

As long as politicians lack self-restraint, they will print a lot of money at some point.

Everyone talks about the big money made in realestate, but they forget to talk about the big money lost in real estate.” Foreign

Buffett asserted that the tendency to project out very high rates of growth has caused investors to lose tons of money. The “new economy” bubble was characterized by many such projections.4 Buffett

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.” Charles T. Munger Frequently overshadowed by Warren Buffett, his partner in the $300 billion Berkshire Hathaway holding company, Charlie Munger is a quiet, reclusive figure. Rarely making public appearances, the unostentatious billionaire spends most of his time as Buffett does: reading, thinking, and managing Berkshire Hathaway from his home in Southern California. Buffett and Munger have, over the course of their careers, amassed a multi-billion dollar empire with a brilliant-in-its-simplicity investment strategy: value investing.

1. Investors give fund managers money at the wrong time. Now that you’ve had some time to read this book and understand the importance of buying stocks during fear cycles and holding during greed cycles, this first indicator should make sense. To understand this principle, imagine that you’re the fund manager of a $100 billion investment fund. When the stock market crashes and you’re able to purchase severely undervalued businesses with minimal debt, not only do you lack funds to invest, but all your resources are being depleted by scared investors. Instead of receiving money to buy the great deals, your investors are selling their shares in the fund and you don’t have the capacity to take advantage of the market behavior. This reason alone severely handicaps fund managers as they attempt to beat the market.

Remember one thing, Warren: Money isn’t making that much difference in how you and I live. We’re both going down to the cafeteria for lunch and working every day and having a good time. So don’t worry too much about money, because it won’t make much difference in how you live.

Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.

The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine,” Buffett said. “So if you had your choice, if you could put a hundred million dollars into a business that earns twenty percent on that capital—twenty million—ideally, it would be able to earn twenty percent on a hundred twenty million the following year and on a hundred forty-four million the following year and so on. You could keep redeploying capital at [those] same returns over time. But there are very, very, very few businesses like that...we can move that money around from those businesses to buy more businesses.

When Buffett was asked by business students in 2008 about his views on portfolio diversification and position sizing, he responded that he had “two views on diversification:”13 If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. If it’s your game, diversification doesn’t make sense. It’s crazy to put money in your twentieth choice rather than your first choice. . . . [Berkshire vice-chairman] Charlie [Munger] and I operated mostly with five positions. If I were running $50, $100, $200 million, I would have 80 percent in five positions, with 25 percent for the largest. In 1964 I found a position I was willing to go heavier into, up to 40 percent. I told investors they could pull their money out. None did. The position was American Express after the Salad Oil Scandal.

The Economics of Property-Casualty Insurance With the acquisition of General Re — and with GEICO’s business mushrooming — it becomes more important than ever that you understand how to evaluate an insurance company. The key determinants are: (1) the amount of float that the business generates; (2) its cost; and (3) most important of all, the long-term outlook for both of these factors. To begin with, float is money we hold but don't own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money. Typically, this pleasant activity carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay. That leaves it running an "underwriting loss," which is the cost of float. An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money. A caution is appropriate here: Because loss costs must be estimated, insurers have enormous latitude in figuring their underwriting results, and that makes it very difficult for investors to calculate a company's true cost of float. Errors of estimation, usually innocent but sometimes not, can be huge. The consequences of these miscalculations flow directly into earnings. An experienced observer can usually detect large-scale errors in reserving, but the general public can typically do no more than accept what's presented, and at times I have been amazed by the numbers that big-name auditors have implicitly blessed. As for Berkshire, Charlie and I attempt to be conservative in presenting its underwriting results to you, because we have found that virtually all surprises in insurance are unpleasant ones. The table that follows shows the float generated by Berkshire’s insurance operations since we entered the business 32 years ago. The data are for every fifth year and also the last, which includes General Re’s huge float. For the table we have calculated our float — which we generate in large amounts relative to our premium volume — by adding net loss reserves, loss adjustment reserves, funds held under reinsurance assumed and unearned premium reserves, and then subtracting agents balances, prepaid acquisition costs, prepaid taxes and deferred charges applicable to assumed reinsurance. (Got that?)