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Summary Of ALL Of Buffett's Letters From 1958-2013

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Please find our notes on all of Buffett's letters going back to the late 1950s.

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1958

- Largest position is 20-25% of assets

1959

- Dow Jones average was up 20%; 10% of managers outperformed

- Would rather sustain the penalties resulting from over-conservatism than face the consequences of error, resulting from the adoption of a "New Era" philosophy where trees grow to the sky

- Largest investment is 35% of assets - partially an investment trust owning 30-40 securities of high quality; substantial discount from asset value based on market value of their securities and a conservative appraisal of operating business

1960

- Dow Jones average declined 6% (Buffett +22%); 90% of managers outperformed

- Largest position (35%) was Sanborn; operating map business wilted over the last 20 years, but investment portfolio blossomed; control situation - separated map from securities

1961

- Buffett's avenues of investment break down into three categories: (1) undervalued securities ("generals") - largest category, nothing to say about corporate policies and no time table as to when undervaluation may correct itself. Many times generals represent a form of "coattail riding" where we feel the dominating stockholder group has plans for the conversion of unprofitable or under-utilized assets to a better use. Usually has 5-10% positions in each of 5-6 generals, with smaller positions in another 10-15. Many times these take years to work out. Difficult at time of purchase to know any reason why they should appreciate in price. However, because of this lack of glamour or anything pending which might create immediate favorable market action, they are available at very cheap prices. Generals behave very much like the Dow Jones average. During sharply advancing years, this section of the portfolio turns in the best results. Also the most vulnerable in a declining market. (2) "Work-outs" - securities whose financial results depend on corporate action rather than supply and demand factors created by buyers and sellers of securities. They have a timetable we can predict, within reasonable error limits, when we will get how much and what might upset the applecart. Corporate events - mergers, liquidations, reorganizations, spin-offs. Produces reasonably stable earnings from year to year irrespective of the course of the Dow. The gross profits in many workouts appear quite small (trade-off for predictability and short holding period). Has been second largest category. Might be in 10-15 of these at any given time. (3) Control - we either control the company or take a very large position and attempt to influence policies of the company. Efforts should be measured over several years.

- Measure conservatism by observing performance in a down market

1962

- Investment performance must be judged over a period of time with such a period including both advancing and declining markets

- Buffett much prefers a five-year test, but feels three years is an absolute minimum for judging performance; if any three-year or longer period produces poor results, we all should start looking around for other places to have our money. An exception to the latter statement would be three years covering a speculative explosion in a bull market

- Our avenues of investment break down into three categories. (1) Generals - generally undervalued securities

- Dempster Mill is present control situation - 73% owned. Its operations for the past decade have been characterized by static sales, low inventory turnover, and virtually no profits in relation to invested capital. When control is obtained, the all-important value is the assets, not the market quote for a piece of paper. Last year, our Dempster holding was valued by applying discounts to various assets - 85% A/R, 60% inventory, 25% prepaid expenses, net PP&E estimated net auction value (60%). After trying to work with management to improve margins, reduce overhead, etc., they weren't cutting it so someone else was brought in.

- You will be right over the course of many transactions if your hypotheses are correct, your facts are correct, and your reasoning is correct. True conservatism is only possible through knowledge and reason.

- Office has an ample supply of Pepsi on hand

1963

- A variation of a few % points has an enormous effect on the success of a compounding program

- Our three investment categories are not differentiated by their expected profitability over an extended period of time

- Workouts: Texas National Petroleum. Risk of stockholder disapproval was nil - the deal was negotiated by controlling stockholders, and the price was a good one. No anti-trust problems.

- Dempster Mill (control): experience shows you can buy 100 situations like this (selling well under book value, breaking even, tough industry, unimpressive mgmt) and have perhaps 70 or 80 work out to reasonable profits in one to three years. Just why any particular one should do so is hard to say at the time of purchase, but the group expectancy is favorable, whether the impetus is form an improved industry situation, a takeover offer, a change in investor psychology, etc.

- Our business is one requiring patience. It has little in common with a portfolio of high-flying glamour stocks and during periods of popularity for the latter, we may appear quite stodgy.

1964

- Generals: what we really like to see is a condition where the company is making substantial progress in terms of improving earnings, increasing asset values, etc., but where the market price of the stock is doing very little while we continue to acquire it.

- My opinion is that the first job of any investment management organization is to analyze its own techniques and results before pronouncing judgment on the managerial abilities and performance of the major corporate entities of the US.

- We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don't. A public opinion poll is no substitute for thought.

- Four revised investment categories: (1) Generals - Private Owner Basis: generally undervalued stocks, determined by quantitative standards but with considerable attention also paid to the qualitative factor. The issues lack glamour /catalysts or market sponsorship. Their main qualification is their bargain price. Many times we have the desirable "two strings to our box" situation where we should either achieve appreciation of market prices from external factors or from the acquisition of a controlling position in a business at a bargain price. (2) Generals - Relatively Undervalued: securities selling at prices relatively cheap compared to securities of the same general quality. Because of large size, does not feel value to a private owner to be a meaningful concept. In the great majority of cases we simply do not know enough about the industry or company to come to sensible judgments - in that situation, we pass. This is a new category. (3) Workouts: securities with a timetable. They arise from corporate activity that has already been publically announced. Risks include anti-trust or other negative gov't action, stockholder disapproval, withholding of tax rulings, etc. More steady profits from year to year. (4) Controls: these are rarities but are often of significant size. Controls develop from the general - private owner category. They result from situations where a cheap security does nothing pricewise for such an extended period of time that we are able to buy a significant percentage of the company's stock.

- More investment sins are probably committed by otherwise quite intelligent people because of "tax considerations" than from any other cause. It is extremely improbably that 20 stocks selected from 3,000 choices are going to prove to be the optimum portfolio both now and a year from now at entirely different prices (both for the selections and the alternatives) prevailing at the later date.

1965

- We criticize a corporate management for failure to use the best of tools to keep it aware of the progress of a complicated industrial organization. We can hardly be excused for failure to provide ourselves with equal tools to show the efficiency of our own efforts to handle other people's money…systems of performance measurement are not automatically included in the data processing programs of most investment management organizations. The sad fact is that some seem to prefer not to know how well or poorly they are doing

- Berkshire is a delight to own. There is no question that the state of the textile industry is the dominant factor in determining the earning power of the business…while a Berkshire is hardly going to be as profitable as a Xerox, Fairchild Camera, or National Video in a hypertensed market, it is a very comfortable sort of thing to own

- We diversify substantially less than most investment operations. We might invest up to 40% of our net worth in a single security under conditions coupling an extremely high probability that our facts and reasoning are correct with a very low probability that anything could drastically change the underlying value of the investment

- We have to work extremely hard to find just a very few attractive investment situations. Such a situation is one where my expectations of performance is at least 10% per annum superior to the Dow

- The question always is, "How much do I put in number one (ranked by expectation of relative performance) and how much do I put in number eight?" This depends to a great degree on the wideness of the spread between the mathematical expectation of number one versus number eight. It also depends upon the probability that number one could turn in a really poor relative performance

- There is one thing of which I can assure you. If good performance of the fund is even a minor objective, any portfolio encompassing one hundred stocks (whether the manager is handling one thousand dollars or one billion dollars) is not being operated logically. The addition of the one hundredth stock simply can't reduce the potential variance in portfolio performance sufficiently to compensate for the negative effect its inclusion has on the overall portfolio expectation

- Has probably only had five or six situations where a position exceeded 25%

1966

- We will not go into businesses where technology which is way over my head is crucial to the investment decision. I know about as much about semiconductors or integrated circuits as I do of the mating habits of the chrzaszcz (Polish May bug)

- You can see how hard it is to develop replacement ideas - we came up with nothing during the remainder of the year despite lower stock prices, which should have been conductive to finding such opportunities

1967

- Worst performance in history in the "Workout" section. Investment in controlled companies was a similar drag on relative performance, but this is to be expected in strong markets. Acquired two new enterprises - Associated Cotton Shops and National Indemnity. Generals were up 72%, mostly driven by one security.

- Berkshire is facing real difficulties in the textile business. Sees no prospect of a good return on the assets employed in the textile business. Will be a substantial drag on relative performance if the Dow continues to advance.

- 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"

- Such statistical bargains have disappeared over the years. Whatever the cause, the result has been the virtual disappearance of the bargain issue as determined quantitatively - and thereby our bread and butter.

- Consistently I have told partners that unless our performance was better than average, the money should go elsewhere. In recent years, this idea has gained momentum throughout the investment community. Now others are measuring investment performance much more frequently than three years, even monthly. More and more money is participating on a shorter and shorter time span. This is resulting in more speculation.

- I am out of step with present conditions. On one point, however, I am clear. I will not abandon a previous approach whose logic I understand even though it may mean foregoing large, and apparently easy, profits to embrace an approach which I don't fully understand, have not practiced successfully and which, possibly, could lead to substantial permanent loss of capital.

- Longer-term goal: the lesser of 9% per annum or a 5% point advantage over the Dow

1968

- Dow Jones average up 8% (Buffett +59%)

- Everything went right; don't expect a repeat

- The quality and quantity of ideas is presently at an all-time low

1969

- Opportunities for investment that are open to the analyst who stresses quantitative factors have virtually disappeared, after rather steadily drying up over the past twenty years

- Our $100M of assets further eliminates a large portion of this seemingly barren investment world, since commitments of less than about $3M cannot have a real impact on our overall performance, and this virtually rules out companies with less than $100M market cap

- A swelling interest in investment performance has created an increasingly short-term oriented and more speculative market

- Intends to retire and return all money to partners; limited return objectives has not resulted in him spending more limited time on investments as he wanted to do

In 1970, as chairman of Berkshire Hathaway, Buffett began writing his now-famous annual letters to shareholders.

1971

- Extraordinarily good year for property and casualty insurance industry; traditional business is non-standard insured, which does well when standard markets become tight due to unprofitable industry underwriting; continues to have underwriting profitability as a goal

1972

- Diversification moves of recent years have established a significantly higher base of normal earning power

- Three major acquisitions of recent years have all worked out exceptionally well

- Underwriting profit caused many new entrants and reduced rates substantially; too risky now

- Bank subsidiary maintained industry leadership in profitability - after-tax earnings of 2.2% on average deposits

1973

- Our textile, banking, and most insurance operations had good years, but certain segments of the insurance business turned in poor results. Overall, our insurance business continues to be a most attractive area in which to employ capital

- Merging with Diversified Retailing, a chain of popular-priced women's apparel stores and also conducts a reinsurance business. It's most important asset is 16% of the stock of Blue Chip Stamps.

- Blue Chip's trading stamp business has declined drastically over the past year or so, but it has important sources of earning power in its See's Candy Shops subsidiary as well as Wesco Financial Corporation, a 54% owned subsidiary engaged in the savings and loan business. We expect Blue Chip Stamps to achieve satisfactory earnings in future years related to capital employed, although certainly at a much lower level than would have been achieved if the trading stamp business had been maintained at anything close to former levels.

- Purchased Sun Newspaper, located in Omaha

1974

- Operating results for 1974 overall were unsatisfactory due to the poor performance of our insurance business. Return on beginning shareholders' equity was 10%, lowest since 1970

- Insurance underwriting turned dramatically worse

1975

- On April 28, 1975 we acquired Waumbec Mills Incorporated and Waumbec Dyeing and Finishing Co., Inc. located in Manchester, New Hampshire. These companies have long sold woven goods into the drapery and apparel trade. Such drapery materials complement and extend the line already marketed through the Home Fabrics Division of Berkshire Hathaway. In the period prior to our acquisition, the company had run at a very substantial loss, with only about 55% of looms in operation and the finishing plant operating at about 50% of capacity. Losses continued on a reduced basis for a few months after acquisition. Outstanding efforts by our manufacturing, administrative and sales people now have produced major improvements, which, coupled with the general revival in textiles, have moved Waumbec into a significant profit position.

- Economic inflation, with the increase in cost of repairing humans and property far outstripping the general rate of inflation, produced ultimate loss costs which soared beyond premium levels established in a different cost environment.

- In 1965, two New England textile mills were the company's only sources of earning power and, before Ken Chace assumed responsibility for the operation, textile earnings had been erratic and, cumulatively, something less than zero subsequent to the merger of Berkshire Fine Spinning and Hathaway Manufacturing. Since 1964, net worth has been built to $92.9 million, or $94.92 per share. We have acquired total, or virtually total ownership of six businesses through negotiated purchases for cash (or cash and notes) from private owners, started four others, purchased a 31.5% interest in a large affiliate enterprise and reduced the number of outstanding shares of Berkshire Hathaway to 979,569. Overall, equity per share has compounded at an annual rate of slightly over 15%.

1976

- You will notice that our major equity holdings are relatively few. We select such investments on a long-term basis, weighing the same factors as would be involved in the purchase of 100% of an operating business: (1) favorable long-term economic characteristics; (2) competent and honest management; (3) purchase price attractive when measured against the yardstick of value to a private owner; and (4) an industry with which we are familiar and whose long-term business characteristics we feel competent to judge. It is difficult to find investments meeting such a test, and that is one reason for our concentration of holdings. We simply can't find one hundred different securities that conform to our investment requirements. However, we feel quite comfortable concentrating our holdings in the much smaller number that we do identify as attractive.

1977

- When companies announce "record" earnings, make sure equity capital has not been growing faster than earnings. Return on equity capital is a more appropriate measure of managerial economic performance.

- Textile business / industry has proved very challenging to forecast

- The nature of the insurance business magnifies the effect which individual managers have on company performance - products are only promises, it is not difficult to be licensed, and rates are an open book

1978

- Merger with Diversified Retailing Company adds two new complications - increased ownership of Blue Chip Stamps to 58%; most be fully consolidated on B/S

- Such a grouping of balance sheet and earnings items - some wholly owned, some partly owned - tends to obscure economic reality more than illuminate it

- 19.4% ROE

- The textile industry illustrates how producers of relatively undifferentiated goods in capital intensive businesses must earn inadequate returns except under conditions of tight supply or real shortage. As long as excess productive capacity exists, prices tend to reflect direct operating costs rather than capital employed. Such a supply-excess condition appears likely to prevail most of the time in the textile industry, and our expectations are for profits of relatively modest amounts in relation to capital.

- Happy for wholly-owned businesses to retain all of their earnings if they can utilize funds at attractive rates. Cuts the other way in industries with low capital requirements, or if mgmt has a record of plowing capital into projects of low profitability; then earnings should be paid out or used to repurchase shares - often by far the most attractive option for capital utilization

1979

- Continues to feel that the ratio of operating earnings to shareholders' equity with all securities valued at cost is the most appropriate way to measure any singe year's operating performance

- The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc) and not the achievement of consistent gains in EPS

- Even a business earning 20% on capital can produce a negative real return for its owners under inflationary conditions. When the inflation rate plus tax on capital / dividends exceeds the rate of return earned on equity by the business, the investor's purchasing power (real capital) shrinks even though he consumes nothing at all

- Purchased Waumbec Mills several years ago - bought well below working capital of the business, got very substantial amounts of machinery and real estate for less than nothing. But the purchase was a mistake - new problems arose as fast as old problems were tamed. Concluded that "turnarounds" seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price.

- Listed on the NASDAQ

1980

- Share repurchase: if a fine business is selling in the market place for far less than intrinsic value, what more certain or profitable use of capital can there be than significant enlargement of the interests of all owners at that bargain price?

- When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.

- The GEICO and American Express situations, extraordinary business franchises with a localized excisable cancer (needing a skilled surgeon), should be distinguished from the true "turnaround" situation in which the managers need to pull off a corporate Pygmalion.

- Acquisition preferences run toward businesses that generate cash, not those that consume it. As inflation intensifies, more and more companies find that they must spend all funds they generate internally just to maintain their existing physical volume of business. There is a certain mirage-like quality to such operations. However attractive the earnings numbers, we remain leery of businesses that never seem able to convert such pretty numbers into no-strings-attached cash.

1981

- Most high-premium takeovers have three motivations: (1) lenders, business seldom are deficient in animal spirits and often relish increased activity and challenge; (2) most organizations measure and compensate themselves by the yardstick of size than by any other yardstick; (3) many managements believe their skills will do wonders for the profitability of a target company.

- Some acquisition records have been dazzling. Two major categories stand out: (1) companies that are particularly well adapted to an inflationary environment - can increase prices rather easily (even when product demand is flat and capacity is not fully utilized) without fear of significant loss of either market share or unit volume - and have the ability to accommodate large dollar volume increases in business (often produced more by inflation than by real growth) with only minor additional investment of capital. Managers of ordinary ability, focusing solely on acquisition possibilities meeting these tests, have achieved excellent results in recent decades. (2) managerial superstars who can recognize that rare prince who is disguised as a toad.

- Logically, a company with historic and prospective high returns on equity should retain much or all of its earnings so that shareholders can earn premium returns on enhanced capital. Conversely, low returns on corporate equity would suggest a very high dividend payout so that owners could direct capital toward more attractive areas.

1982

- In many industries, differentiation simply can't be made meaningful. A few producers in such industries may consistently do well if they have a cost advantage that is both wide and sustainable. By definition such exceptions are few, and, in many industries, are non-existent. For the great majority of companies selling "commodity" products, a depressing equation of business economics prevails: persistent over-capacity without administered prices (or costs) equals poor profitability. Over-capacity may eventually self-correct, but such corrections are often long delayed. When they finally occur, the rebound to prosperity frequently produces a pervasive enthusiasm for expansion that, within a few years, again creates over-capacity and a new profitless environment. In other words, nothing fails like success.

- M&A buyers using stock as currency for the purchase - has no problems if the stock is selling in the market at full intrinsic value. But suppose it is selling at only half intrinsic value. In that case, the buyer is faced with the unhappy prospect of using a substantially undervalued currency to make its purchase. The buyer is making a partial sale of itself - and that is what the issuance of shares to make an acquisition amounts to. In effect, the acquirer must give up $2 of value to receive $1 of value.

- Once management shows itself insensitive to the interests of owners, shareholders will suffer a long time from the price/value ratio afforded their stock (relative to other stocks), no matter what assurances management gives that the value-diluting action taken was a one-of-a-kind event.

- Other things being equal, the highest stock market prices relative to intrinsic business value are given to companies whose managers have demonstrated their unwillingness to issue shares at any time on terms unfavorable to the owners of the business.

1983

- Recommends a five-year test as a rough yardstick of economic performance. If the five-year average annual gain falls much below the return on equity earned over the period by American industry in aggregate, red lights should start flashing. "When ideas fail, words come in very handy."

- Economic and accounting goodwill can, and usually do, differ enormously

- Strong preference for businesses that possess large amounts of enduring goodwill and that utilize a minimum of tangible assets

- Those who cannot fill your pocket will confidently fill your ear

- We are aware of the pie-expanding argument that says that such activities improve the rationality of the capital allocation process. We think that this argument is specious and that, on balance, hyperactive equity markets subvert rational capital allocation and act as pie shrinkers.

- Consumer franchises are a prime source of economic goodwill. Other sources include governmental franchisers not subject to profit regulation, such as TV stations, and an enduring position as the low cost producer in an industry.

- Businesses needing little in the way of tangible assets simply are hurt the least during inflationary times.

1984

- Major repurchases at prices well below intrinsic per-share intrinsic business value immediately increase, in a highly significant way, that value. When companies purchase their own stock, they often find it easy to get $2 of present value for $1. Corporate acquisition programs almost never do as well and, in a discouragingly large number of cases, fail to get anything close to $1 of value for each $1 expended.

- By making repurchases when a company's market value is well below its business value, management clearly demonstrates that it is given to actions that enhance the wealth of shareholders, rather than to actions that expand management's domain but that do nothing for (or even harm) shareholders. Seeing this, shareholders and potential shareholders increase their estimates of future returns from the business. This upward revision produces market prices more in line with intrinsic business value.

- The great majority of operating businesses have a limited upside potential unless more capital is continuously invested in them. That is so because most businesses are unable to significantly improve their average returns on equity - even under inflationary conditions.

- Most managers have very little incentive to make the intelligent-but-with-some-chance-of-looking-like-an-idiot decision. If an unconventional decision works out well, they get a pat on the back and, if it works out poorly, they get a pink slip. (Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.)

- When should earnings be retained vs distributed? All earnings are not created equal. In many businesses particularly those that have high asset/profit ratios - inflation causes some or all of the reported earnings to become artificial. The artificial portion - let's call these earnings "restricted" - cannot, if the business is to retain its economic position, be distributed as dividends. Were these earnings to be paid out, the business would lose ground in one or more of the following areas: its ability to maintain its unit volume of sales, its long-term competitive position, its financial strength. No matter how conservative its payout ratio, a company that consistently redistributes restricted earnings is destined for oblivion unless equity capital is otherwise infused.

- Unrestricted earnings may be retained or distributed. Unrestricted earnings should be retained only when there is a reasonable prospect - backed preferably by historical evidence or, when appropriate, by a thoughtful analysis of the future - that for every dollar retained by the corporation, at least one dollar of market value will be created for owners. This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors.

- Must guess what rate earned on reinvested earnings is. Reinvest if earnings can be expected to earn high returns. Pay earnings out if low returns are the likely outcome of reinvestment.

- Many corporations that consistently show good returns on both equity and overall incremental capital have employed a large portion of retained earnings on an economically unattractive basis. Their marvelous core businesses, however, whose earnings growth YoY, camouflage repeated failures in capital allocation elsewhere.

1985

- My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row. Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.

- The average American business has required about $5 of additional capital to generate an additional $1 of annual pre-tax earnings. When returns on capital are ordinary, an earn-more-by-putting-up-more record is no great managerial achievement. Quadruple the capital committed to a savings account and you will quadruple your earnings.

- Many stock options in the corporate world have gained in value simply because management retained earnings, not because it did well with the capital in its hands. The bearer of a fixed-price option bears no capital costs at all. Option holders have no downside. Options should be priced at true business value, not at bargain prices.

- "We do not put a cap on bonuses, and the potential for rewards is not hierarchical. The manager of a relatively small unit can earn far more than the manager of a larger unit if results indicate he should. We believe, further, that such factors as seniority and age should not affect incentive compensation. A 20 year old who can hit .300 is as valuable to us as a 40 year old performing as well."

- Commodity businesses achieve good levels of profitability only when prices are fixed or when capacity is short. Managers quickly add to capacity when prospects start to improve and capital is available.

1986

- The smaller the additions to net worth and the more earnings returned to shareholders, the less impact capital allocation decisions have on a company's economics

- Businesses are characterized as having very strong market positions, very high returns on capital, and best mgmt teams

- Acquisition criteria: (1) demonstrated consistent earnings power - not interested in projections or turnarounds; (2) good returns on equity with little to no debt; (3) mgmt in place; (4) simple businesses

- Owner earnings: reported earnings plus D&A, plus other non-cash charges, less average capex for PP&E that the business requires to fully maintain its long-term competitive position and its unit volume.

1987

- Severe change and exceptional returns usually don't mix. Most investors, of course, behave as if just the opposite were true. That is, they usually confer the highest P/E ratios on exotic-sounding businesses that hold out the promise of feverish change. That prospect lets investors fantasize about future profitability rather than face today's business realities. Experience, however, indicates that the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.

- A business that constantly encounters major change also encounters many chances for major error. Furthermore, economic terrain that is forever shifting violently is ground on which it is difficult to build a fortress-like business franchise. Such a franchise is usually the key to sustained high returns.

- Economic excellence test: average ROE of over 20% for ten years, and no year worse than 15%. Only 25 of 1,000 companies met the test. 24 / 25 of them outperformed the S&P 500 over the 10 years. Most use very little leverage (really good businesses usually don't need to borrow). The companies are in businesses that, on balance, seem rather mundane. Most sell non-sexy products or services in much the same manner as they did ten years ago. Concentrating on a single winning business theme is what usually produces exceptional economics.

- An investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about that marketplace.

- We try to buy into businesses with favorable long-term economics. Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price.

- Management changes, like marital changes, are painful, time-consuming, and chancy.

1988

- 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.

- The supreme irony of business management is that it is far easier for an inadequate CEO to keep his job than it is for an inadequate subordinate. If a secretary, say, is hired for a job that requires typing ability of at least 80 words a minute and turns out to be capable of only 50 words a minute, she will lose her job in no time. There is a logical standard for this job; performance is easily measured; and if you can't make the grade, you're out. Similarly, if new sales people fail to generate sufficient business quickly enough, they will be let go. Excuses will not be a substitute for orders. However, a CEO who doesn't perform is frequently carried indefinitely. One reason is that performance standards for his job seldom exist. When they do, they are often fuzzy or they may be waived or explained away, even when the performance shortfalls are major and repeated.

- Long-term bonds: will become enthused only when we become enthused about prospects for long-term stability in the purchasing power of money

- To evaluate arbitrage situations, you must be able to answer four questions: (1) How likely is it that the promised event will indeed occur? (2) How long will your money be tied up? (3) What chance is there that something still better will transpire - a competing takeover bid, for example? And (4) What will happen if the event does not take place because of anti-trust action, financing glitches, etc.?

- Berkshire's arbitrage activities differ from those of many arbitrageurs. First, we participate in only a few, and usually very large, transactions each year. Most practitioners buy into a great many deals perhaps 50 or more per year. With that many irons in the fire, they must spend most of their time monitoring both the progress of deals and the market movements of the related stocks.

- We do not have, never have had, and never will have an opinion about where the stock market, interest rates, or business activity will be a year from now.

- An investor cannot obtain superior profits from stocks by simply committing to a specific investment category or style. He can earn them only by carefully evaluating facts and continuously exercising discipline. Investing in arbitrage situations, per se, is no better than selecting a portfolio by throwing darts.

1989

- Normally, the CEO of a consumer products company, drawing on his natural inclinations or experience, will cause either marketing or finance to dominate the business at the expense of the other discipline.

- Make sure free cash flow (operating earnings plus D&A less normalized capex) is adequate to cover both interest and modest reductions in debt

- At 95% of American businesses, capex that over time roughly equal depreciation are a necessity and are every bit as real an expense as labor or utility costs.

- First mistake was buying Berkshire - knew textile manufacturing was unpromising, but enticed to buy because the price looked cheap. If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. "Cigar butt" approach to investing.

- Unless you are a liquidator, that kind of approach to buying businesses is foolish. First, the original "bargain" price probably will not turn out to be such a steal after all. In a difficult business, no sooner is one problem solved than another surfaces. Second, any initial advantage you secure will be quickly eroded by the low return that the business earns.

- It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price

- Good jockeys will do well on good horses, but not on broken-down nags

- In both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult. However, a great investment opportunity can occur when a marvelous business encounters a one-time huge, but solvable, problem.

- Rationality frequently wilts when the institutional imperative comes into play: (1) an institution will resist any change in its current direction; (2) just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds; (3) any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and (4) the behavior of peer companies, whether they are expanding, acquiring, setting executive compensation, etc., will be mindlessly imitated.

- It's no sin to miss a great opportunity outside one's area of competence.

1990

- Nebraska Furniture Mart, Borsheim's, etc., are like Walmart in that their operating costs are at rock bottom - 15% vs peers around 40%. This allows for huge volume to be generated by underpricing competition, allowing the companies to carry the broadest selection of merchandise available anywhere.

- The most common cause of low prices is pessimism - sometimes pervasive, sometimes 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.

- In a business selling a commodity-type product, it's impossible to be a lot smarter than your dumbest competitor.

1991

- An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute; and (3) is not subject to price regulation. The existence of all three conditions will be demonstrated by a company's ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mismanagement (won't result in mortal damage but perhaps diminished profitability).

- In contrast, a "business" earns exceptional profits only if it is the low-cost operator or if supply of its product or service is tight. Tightness in supply usually does not last long. Businesses can be killed by inept management.

1992

- If plantings made confidently are repeatedly followed by disappointing harvests, something is wrong with the farmer. (Or perhaps with the farm: investors should understand that for certain companies, and even for some industries, there simply is no good LT strategy).

- Just as you should be suspicious of managers who pump up short-term earnings by accounting maneuvers, asset sales and the like, so also should you be suspicious of those managers who fail to deliver for extended periods and blame it on their LT focus.

- How does one decide what's an "attractive" valuation? Most analysts feel they must choose between value and growth approaches, but they are really joined at the hip. Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive. The term "value investing" is redundant.

- Growth benefits investors only when the business in point can invest at incremental returns that are enticing - in other words, when each dollar used to finance the growth creates over a dollar of LT market value. In the case of low return businesses requiring incremental funds, growth hurts the investor.

- The investment shown by the DCF to be the cheapest is the one that the investor should purchase - irrespective of whether the business grows or doesn't, displays volatility or smoothness in its earnings, or carries high price or low in relation to its current earnings and book value.

- Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return. This is hard to find because most high-return businesses need relatively little capital. Shareholders of such a business usually will benefit if it pays out most of its earnings in dividends or makes significant stock repurchases.

- The worst business to own is one that must, or will, do the opposite - that is, consistently employ ever-greater amounts of capital at very low rates of return.

- Estimating future cash flow is very difficult. That is why Berkshire sticks to what it knows - simple and stable businesses. If a business is complex or subject to constant change, we're not smart enough to predict future cash flows…what counts for most people in investing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistakes.

- Second, and equally important, we insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. This is a cornerstone of investment success.

- IPO market: ruled by controlling stockholders and corporations, who can usually select the timing of offerings or, if the market looks unfavorable, can avoid an offering altogether. Understandably, these sellers are not going to offer any bargains. They unload only when they feel the market is overpaying.

- A competitively-beset business such as an airline requires far more managerial skill than does a business with fine economics. Unfortunately, though, the near-term reward for skill in the airline business is simply survival, not prosperity.

- In making acquisitions, Berkshire has tended to avoid companies with significant post-retirement liabilities. Lengthening life expectancies and soaring health costs would guarantee an insurer a financial battering from such a business of insuring uncapped post-retirement health benefits. In health care, open-ended promises have created open-ended liabilities that in a few cases loom so large as to threaten the global competitiveness of major American industries.

- Stock options are a cost. Doesn't believe "no cash-no cost" argument / accounting. Companies incur costs when they deliver something of value to another party and not just when cash changes hands.

- At some companies, corporate overhead runs 10% or more of sales. This makes HQ not only hurt earnings, but more importantly slashes capital values.

1993

- An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business

- 1938 Fortune story on Coke stock: "Several times every year a weighty and serious investor looks long and with profound respect at Coke's record, but comes regretfully to the conclusion that he is looking too late. The specters of saturation and competition rise before him…it would be hard to name any company comparable in size to Coke and selling, as Coke does, an unchanged product that can point to a ten-year record anything like Coke's."

- Coke sold 207M cases of soft drinks in 1938 and 10.7B cases in 1993, a 50-fold increase. $40 invested in Coke in 1938 would have grown to $25,000 by yearend 1993.

- Willing to settle for one good idea per year - it's just too hard to make hundreds of smart decisions

- Believes this strategy actually carries less risk - it raises both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it

- Gillette and Coke: dominant market shares - the might of their brand names, the attributes of their products, and the strength of their distribution systems set up a protective moat around their economic castles

- You may consciously purchase a risky investment - one that indeed has a significant possibility of causing loss or injury - if you believe that your gain, weighted for probabilities, considerably exceeds your loss, comparably weighted, and if you can commit to a number of similar, but unrelated opportunities. Adopt the outlook of the casino that owns a roulette wheel - needs to see lots of action because it is favored by probabilities, but will refuse to accept a single, huge bet

- I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices - the businesses he understands best and that present the least risk, along with the greatest profit potential

- Believes boards should have 10 or fewer members and ought to come mostly from the outside

- The best case to insure first-class management is when there is a controlling owner not involved in management - board can go to them. The owner is neither judging himself nor burdened with the problem of garnering a majority

1994

- We have usually made our best purchases when apprehensions about some macro event were at a peak

- Most major acquisitions reduce the wealth of the acquirer's shareholders because the acquirer typically gives up more intrinsic value than it receives

- Compensation misalignment: stock options - typical agreement does not periodically increase the option price to compensate for the fact that retained earnings are building up the wealth of the company

- Before looking at new investments, we consider adding to old ones.

- In an unregulated commodity business, a company must lower its costs to competitive levels or face extinction

1995

- Most deals do damage to the shareholders of the acquiring company. The seller of a business practically always knows far more about it than the buyer and also picks the time of sale - a time when the business is likely to be walking "just fine"

- Retailing is a tough business. During my investment career, I have watched a large number of retailers enjoy terrific growth and superb returns on equity for a period, and then suddenly nosedive, often all the way to bankruptcy. This shooting-star phenomenon is far more common in retailing than it is in manufacturing or service businesses. In part, this is because a retailer must stay smart, day after day. Your competitor is always copying and then topping whatever you do. Shoppers are meanwhile beckoned in every conceivable way to try a stream of new merchants.

1996

- We think it foolish for an insurance company to pay bonuses that are tied to overall corporate results when great work on one side of the business - underwriting or investment - could conceivably be completely neutralized by bad work on the other. If you bat .350 at Berkshire, you can be sure you will get paid commensurately even if the rest of the team bats .200.

- We continue to make more money when snoring than when active. The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.

- When carried out capably, an investment strategy of that type will often result in its practitioner owning a few securities that will come to represent a very large portion of his portfolio.

- To suggest an investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.

- We favor businesses and industries unlikely to experience major change - we are searching for operations that we believe are virtually certain to possess enormous competitive strength 10-20 years from now. A fast-changing industry may offer the chance for huge wins, but it precludes the certainty we seek

- Obviously many companies in high-tech businesses or embryonic industries will grow much faster in percentage terms than will "The Inevitables" (Coke, Gillette, etc). But I would rather be certain of a good result than hopeful of a great one

- Can identify only a few Inevitables, even after a lifetime of looking for them. Leadership alone provides no certainties: witness the shocks some years back at GM, IBM, and Sears. Though some industries or lines of business exhibit characteristics that endow leaders with virtually insurmountable advantages, and that tend to establish survival of the fattest as almost a natural law, most do not. Thus, for every Inevitable, there are dozens of Imposters, companies now riding high but vulnerable to competitive attacks

- Considering what it takes to be an Inevitable, we recognize that we will never be able to come up with a Nifty Fifty or even a Twinkling Twenty

- You can pay too much for even the best of businesses. Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.

- A far more serious problem occurs when the management of a great company gets sidetracked and neglects its wonderful base business while purchasing other businesses that are so-so or worse. When that happens, the suffering of investors is often prolonged. Loss of focus is what most worries us when we contemplate investing in businesses that in general look outstanding. All too often, we've seen value stagnate in the presence of hubris or of boredom that caused the attention of managers to wander

- You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital

- To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing, or emerging markets. You may, in fact, be better off knowing nothing of these. Investment 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 5-20 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.

- If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes

1997

- Ted Williams carved the strike zone into 77 cells, each the size of a baseball. Swinging only at balls in his "best" cell, he knew, would allow him to bat .400; reaching for balls in his "worst" spot, the low outside corner of the strike zone, would reduce him to .230. In other words, waiting for the fat pitch would mean a trip to the Hall of Fame; swinging indiscriminately would mean a ticket to the minors

- Paying a takeover premium does not make sense for any acquirer unless (a) its stock is overvalued relative to the acquiree's or (b) the two enterprises will earn more combined than they would separately

- Only in fairy tales are emperors told that they are naked

- In the presence of low interest rates, every dollar of earnings becomes more valuable

1998

- Restructuring charge is often used to manipulate earnings; a large chunk of costs that should properly be attributed to a number of years is dumped into a single quarter, typically one already fated to disappoint investors. M&A is also used to increase liabilities immediately and substantially for future infusions of "earnings"

1999

- We don't own tech stocks even though we share the general view that our society will be transformed by their products and services. We have no insights into which participants in the tech field possess a truly durable competitive advantage

- Our lack of tech insights does not distress us. There are a great many business areas in which we have no special capital allocation expertise. For instance, we bring nothing to the table when it comes to evaluating patents, manufacturing processes, or geological prospects. So we simply don't get into judgments in those fields.

- If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the LT economics of companies that operate in fast-changing industries is simply far beyond our perimeter. If others claim predictive skill in those industries - and seem to have their claims validated by the behavior of the stock market - we neither envy nor emulate them. Instead, we just stick with what we understand.

- There is only one combination of facts that makes it advisable for a company to repurchase its shares: first, the company has available funds - cash plus sensible borrowing capacity - beyond the near-term needs of the business and, second, finds its stock selling in the market below intrinsic value.

- We feel confident in estimating intrinsic value for only a portion of traded equities and then only when we employ a range of values, rather than some pseudo-precise figure

2000

- "A bird in the hand is worth two in the bush" - to flesh out this principle, you must answer only three questions. How certain are you that there are indeed birds in the bush? When will they emerge and how many will there be? What is the risk-free interest rate (which we consider to be the yield on the LT US bonds)? If you can answer these questions, you will know the maximum value of the bush - and the maximum number of the birds you now possess that should be offered for it.

- Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business

- Growth can destroy value if it requires cash inputs in the early years of a project or enterprise that exceed the discounted value of the cash that those assets will generate in later years

- Market commentators and investment managers who glibly refer to "growth" and "value" styles as contrasting approaches to investment are displaying their ignorance, not their sophistication. Growth is simply a component - usually a plus, sometimes a minus - in the value equation

- Using precise numbers is, in fact, foolish; working with a range of possibilities is the better approach. Usually, the range must be so wide that no useful conclusion can be reached.

- We make no attempt to pick the few winners that will emerge from an ocean of unproven enterprises. We're not smart enough to do that, and we know it.

- References to EBITDA make us shutter - does management think the tooth fairy pays for capex?

- We think it is both deceptive and dangerous for CEOs to predict growth rates of their companies

- I would wager you a very significant sum that fewer than 10 of the 200 most profitable companies in the 2000 will attain 15% annual growth in EPS over the next 20 years

2001

- We never buy junk bonds when they are first issued - they often live up to their name

2002

- You need to understand what "pro forma" / non-GAAP earnings really are

- Derivatives are time bombs for the parties that deal in them and the economic system. These instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices, or currency values. Their ultimate value also depends on the creditworthiness of the counterparties to them. Generated earnings are often wildly overstated because today's earnings are in a significant way based on estimates whose inaccuracy may not be exposed for many years.

- Unless we see a very high probability of at least 10% pre-tax returns (6.5%-7% after tax), we will sit on the sidelines (50/61 years have seen investment). Occasionally, successful investing requires inactivity.

- Concentrates on conservatively financed businesses with strong competitive strengths, run by able and honest people

- Boardroom atmosphere: it's almost impossible to raise the question of whether the CEO should be replaced or to question a proposed acquisition that has been endorsed by the CEO. Outside directors who regularly meet without the CEO is preferred. Directors should be business-savvy, interested, and shareholder-friendly.

- Three suggestions for investors: first, beware of companies displaying weak accounting. If a company still does not expense options, or if its pension assumptions are fanciful, watch out. When managements take the low road in aspects that are visible, it is likely they are following a similar path behind the scenes. Trumpeting EBITDA is a pernicious practice. Doing so implies that depreciation is not truly an expense, given that it is a non-cash charge. That's nonsense. Second, unintelligible footnotes usually indicate untrustworthy management. If you can't understand a footnote or other managerial explanation, it's usually because the CEO doesn't want you to. Finally, be suspicious of companies that trumpet earnings projections and growth expectations. Businesses seldom operate in a tranquil, no-surprise environment, and earnings simply don't advance smoothly.

2003

- Entered the FX market for the first time ever. Increasingly bearish on the dollar due to high trade deficits. The cemetery for seers has a huge section set aside for macro forecasters. We have seldom seen others make them with sustained success.

- Books: Bull! By Maggie Mahar. The Smartest Guys in the Room by Bethany McLean. In an Uncertain World by Bob Rubin.

2004

- Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful

- Stock investments are viewed as fractional ownerships in business; do not buy and sell based on chart patterns, brokers' opinions, or estimates of near-term earnings

- John Keynes: it is better for reputation to fail conventionally than to succeed unconventionally

- Three questions that truly count: First, does the company have the right CEO? Second, is he/she overreaching in terms of compensation? Third, are proposed acquisitions more likely to create or destroy per-share value?

2005

- Intrinsic value calculation: the more uncertain the future of a business, the more possibility there is that the calculation will be wildly off-base. Berkshire's intrinsic value can be more precisely calculated than can the intrinsic value of most companies (relatively-stable earnings streams, great liquidity, minimum debt)

- A crucial, but often ignored, point: when a management proudly acquires another company for stock, the shareholders of the acquirer are concurrently selling part of their interest in everything they own

- If a CEO's compensation plan grants him 10-year options, his incentive is clear: skip dividends entirely and use all of the earnings to repurchase stock. If earnings never grow and the company trades at the same multiple, he can become very rich from doing nothing at all

2006

- Size seems to make many organizations slow-thinking, resistant to change, and smug. Of the ten non-oil companies having the largest market capitalization in 1965, only one made the 2006 list

- Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to LT investment success

- When we use incentives, they are always tied to the operating results for which a given CEO has authority

2007

- It's better to have a part interest in the Hope Diamond than to own all of a rhinestone

- A truly great business must have an enduring "moat" that protects excellent ROIC

- Our criterion of "enduring" causes us to rule out companies in industries prone to rapid and continuous change

- A moat that must be continuously rebuilt will eventually be no moat at all. This criterion eliminates the business whose success depends on having a great manager

- Prototype of a dream business: See's Candy. The boxed-chocolates industry is unexciting - per capita consumption in the US is extremely low and doesn't grow. Only three companies have earned more than token profits over the last 40 years. Earned 60% pre-tax on invested capital. Two factors helped minimize the funds required for operations. First, the product was sold for cash, and that eliminated A/R. Second, the production and distribution cycle was short, minimizing inventories.

- It's far better to have an ever-increasing stream of earnings with virtually no major capital requirements

- The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines.

- Evaluates progress of investments not by price performance any given year but rather through two tests: (1) improvement in earnings, adjusted for industry conditions; and (2) whether their "moats" have widened during the year

- Stock options are a large and obvious expense

- Also look at the return assumption within pension expense - the expense could be understated

2008

- Price is what you pay, value is what you get

- Beware the investment activity that produces applause; the great moves are usually greeted by yawns

2009

- Book value supplies the most useful tracking device for changes in intrinsic value

- Avoid businesses if you can't evaluate their futures, no matter how exciting their products might be

- Stick with businesses whose profit picture for decades to come seems reasonably predictable

2010

- The "what-will-they-do-with-the-money" factor must always be evaluated along with the "what-do-we-have-now" calculation in order to arrive at a sensible estimate of a company's intrinsic value

2011

- Favor share repurchase when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company's intrinsic business value, conservatively calculated

2012

- It is far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price

- Collection of companies earn 16.3% after-tax return on net tangible assets

2013

- Hopes to build Berkshire's per-share intrinsic value by (1) constantly improving the basic earning power of our many subsidiaries; (2) further increasing earnings through bolt-on M&A; (3) benefiting from the growth of our investees; (4) repurchasing Berkshire shares when they are available at a meaningful discount to intrinsic value; and (5) making an occasional large acquisition. We will also try to maximize results for you by rarely, if ever, issuing Berkshire shares

- Serious investors should understand the disparate nature of intangible assets: Some truly deplete over time while others in no way lose value. With software, for example, amortization charges are very real expenses. Charges against other intangibles such as the amortization of customer relationships, however, arise through purchase-accounting rules and are clearly not real costs. GAAP accounting draws no distinction between the two types of charges. Both, that is, are recorded as expenses when earnings are calculated - even though from an investor's viewpoint they could not be more different.

- Every dime of depreciation expense we report, however, is a real cost. And that's true at almost all other companies as well. When Wall Streeters tout EBITDA as a valuation guide, button your wallet.

- Of course, a business with terrific economics can be a bad investment if the purchase price is excessive.

We have paid substantial premiums to net tangible assets for most of our businesses, a cost that is reflected in the large figure we show for goodwill. Overall, however, we are getting a decent return on the capital we have deployed in this sector. Furthermore, the intrinsic value of these businesses, in aggregate, exceeds their carrying value by a good margin.

- Certain fundamentals of investing:

- You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don't swing for the fences. When promised quick profits, respond with a quick "no."

- Focus on the future productivity of the asset you are considering. If you don't feel comfortable making a rough estimate of the asset's future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn't necessary; you only need to understand the actions you undertake.

- If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.

- With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field - not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.

- Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle's scathing comment: "You don't know how easy this game is until you get into that broadcasting booth.")

- My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following - 1987 and 1994 - was of no importance to me in making those investments. I can't remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.

- Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits - and, worse yet, important to consider acting upon their comments.

- During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York real estate, even though a severe recession was clearly brewing. And, if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it. So why would I have sold my stocks that were small participations in wonderful businesses? True, any one of them might eventually disappoint, but as a group they were certain to do well. Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?

- Our analysis is very similar to that which we use in buying entire businesses. We first have to decide whether we can sensibly estimate an earnings range for five years out, or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings - which is usually the case - we simply move on to other prospects. In the 54 years we have worked together, we have never foregone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.

- It's vital, however, that we recognize the perimeter of our "circle of competence" and stay well inside of it. Even then, we will make some mistakes, both with stocks and businesses. But they will not be the disasters that occur, for example, when a long-rising market induces purchases that are based on anticipated price behavior and a desire to be where the action is.

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