66. In the 1930s, there as a stretch here you could borrow more against the real estate than you could sell it for. I think that’s what’s going on in today’s private-equity world.
67. Mimicking the herd invites regression to the mean.
68. A lot of opportunities in life tend to last a short while, due to some temporary inefficiency… For each of us, really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act and have a prepared mind.
69. Everywhere there is a large commission, there is a high probability of a rip off.
70. Acknowledging what you don’t know is the dawning of wisdom.
71. Recognize reality even when you don’t like it –especially when you don’t like it.
72. We try more to profit from always remembering the obvious than from grasping the esoteric.
73. Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return– even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.
74. Just as a man working with his tools should know its limitations, a man working with his cognitive apparatus must know its limitations.
75. Suppose,any one of you knew of a wonderful thing right now that you were overwhelmingly confident- and correctly so- would produce about 12% per annum compounded as far as you could see. Now, if you actually had that available, and by going into it you were forfeiting all opportunities to make money faster- there’re a lot of you who wouldn’t like that. But a lot of you would think, “What the hell do I care if somebody else makes money faster?” There’s always going to be somebody who is making money faster, running the mile faster or what have you. So in a human sense, once you get something that works fine in your life, the idea of caring terribly that somebody else is making money faster strikes me as insane.
76. In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables — like the discount warehouses of Costco.
77. There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back.
78. If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply.
79. Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer.
80. I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.
81. I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.
82. I know someone who lives next door to what you would actually call a fairly modest house that just sold for $17 million. There are some very extreme housing price bubbles going on.
83. Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves 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.
84. The present era has no comparable referent in the past history of capitalism. We have a higher percentage of the intelligentsia engaged in buying and selling pieces of paper and promoting trading activity than in any past era. A lot of what I see now reminds me of Sodom and Gomorrah. You get activity feeding on itself, envy and imitation. It has happened in the past that there came bad consequences.
85. Our investment style has been given a name –focus investing – which implies ten holdings, not one hundred or four hundred. The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obvious idea. But 98% of the investment world does not think this way. It’s been good for us.
86. You want to be very careful with intense ideology. It presents a big danger for the only mind you’re ever going to get.
87. Like Warren, I had a considerable passion to get rich. Not because I wanted Ferraris– I wanted the independence. I desperately wanted it.
88. Well envy/jealousy made, what, two out of the ten commandments. Those of you who have raised siblings you know about envy, or tried to run a law firm or investment bank or even a faculty. I’ve heard Warren say a half a dozen times, “It’s not greed that drives the world, but envy.”
89. It’s a good habit to trumpet your failures and be quiet about your successes.
90. Ineffect about half our spare cash was stashed in currencies other than the dollar. I consider that a non-event. As it happens it’s been a very profitable non-event.
91. As for what we like least, we don’t want kleptocracies. We need a rule of law. If people are stealing from the companies, we don’t need that.
92. I agree with Peter Drucker that the culture and legal systems of the United States are especially favorable to shareholder interests, compared to other interests and compared to most other countries. Indeed, there are many other countries where any good going to public shareholders has a very low priority and almost every other constituency stands higher in line.
93. Berkshire in its history has made money betting on sure things.
94. Efficient market theory is a wonderful economic doctrine that had a long vogue in spite of the experience of Berkshire Hathaway. In fact one of the economists who won — he shared a Nobel Prize — and as he looked at Berkshire Hathaway year after year, which people would throw in his face as saying maybe the market isn’t quite as efficient as you think, he said, “Well, it’s a two-sigma event.” And then he said we were a three-sigma event. And then he said we were a four-sigma event. And he finally got up to six sigmas — better to add a sigma than change a theory, just because the evidence comes in differently. And, of course, when this share of a Nobel Prize went into money management himself, he sank like a stone.
95. We’re guessing at our future opportunity cost. Warren is guessing that he’ll have the opportunity to put capital out at high rates of return, so he’s not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we’d change. Our hurdles reflect our estimate of future opportunity costs.
96. Our ideas are so simple that people keep asking us for mysteries when all we have are the most elementary ideas.
97. The idea of a margin of safety, a Graham precept, will never be obsolete. The idea of making the market your servant will never be obsolete. The idea of being objective and dispassionate will never be obsolete. So Graham had a lot of wonderful ideas.
98. I know just enough about thermodynamics to understand that if it takes too much fossil-fuel energy to create ethanol, that’s a very stupid way to solve an energy problem.
99. Warren and I don’t feel like we have any great advantage in the high-tech sector. In fact, we feel like we’re at a big disadvantage in trying to understand the nature of technical developments in software, computer chips or what have you. So we tend to avoid that stuff, based on our personal inadequacies. Again, that is a very, very powerful idea. Every person is going to have a circle of competence. And it’s going to be very hard to advance that circle. If I had to make my living as a musician…. I can’t even think of a level low enough to describe where I would be sorted out to if music were the measuring standard of the civilization. So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence. If you want to be the best tennis player in the world, you may start out trying and soon find out that it’s hopeless—that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you’d gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work.
100. Beta and modern portfolio theory and the like –none of it makes any sense to me.
101. Today, it seems to be regarded as the duty of CEOs to make the stock go up. This leads to all sorts of foolish behavior. We want to tell it like it is.
102. Our standard prescription for the know-nothing investor with a long-term time horizon is a no-load index fund. I think that works better than relying on your stock broker. The people who are telling you to do something else are all being paid by commissions or fees. The result is that while index fund investing is becoming more and more popular, by and large it’s not the individual investors that are doing it. It’s the institutions.
103. Closetindexing….you’re paying a manager a fortune and he has 85% of his assets invested parallel to the indexes. If you have such a system, you’re being played for a sucker.
104. Black-Scholes is a know-nothing system. If you know nothing about value — only price — then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it’s crazy to get into Black-Scholes.
105. We have monetized houses in this country in a way that’s never occurred before. Ask Joe how he bought a new Cadillac and he’ll say from borrowing on his house. We are awash in capital. Being awash is leading to very terrible behavior by credit cards and subprime lenders –a very dirty business, luring people into a disadvantageous position. It’s a new way of getting serfs, and it’s a dirty business. We have financial institutions, including those with big names, extending high-cost credit to the least able people. I find a lot of it revolting. Just because it’s a free market doesn’t mean it’s honorable.
106. We don’t believe that markets are totally efficient and we don’t believe that widespread diversification will yield a good result. We believe almost all good investments will involve relatively low diversification. Maybe 2% of people will come into our corner of the tent and the rest of the 98% will believe what they’ve been told.
107. We’ve really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.
108. A lot of share-buying, not bargain-seeking, is designed to prop stock prices up. Thirty to 40 years ago, it was very profitable to look at companies that were aggressively buying their own shares. They were motivated simply to buy below what it was worth.
109. There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested — there’s never any cash. It reminds me of the guy who looks at all of his equipment and says, “There’s all of my profit.” We hate that kind of business.
110. There are actually businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices—and yet they haven’t done it. So they have huge untapped pricing power that they’re not using. That is the ultimate no-brainer. … Disney found that it could raise those prices a lot and the attendance stayed right up. So a lot of the great record of Eisner and Wells …came from just raising prices at Disneyland and Disneyworld and through videocassette sales of classic animated movies… At Berkshire Hathaway, Warren and I raised the prices of See’s Candy a little faster than others might have. And, of course, we invested in Coca-Cola—which had some untapped pricing power. And it also had brilliant management. So a Goizueta and Keough could do much more than raise prices. It was perfect.
111. At Berkshire Hathaway we do not like to compete against Chinese manufacturers.
112. Berkshire is in the business of making easy predictions. If a deal looks too hard, the partners simply shelve it.
113. We’re the tortoise that has outrun the hare because it chose the easy predictions.
114. Warren and I avoid doing anything that someone else at Berkshire can do better. You don’t really have a competency if you don’t know the edge of it.
115. Understanding both the power of compound return and the difficulty of getting it is the heart and soul of understanding a lot of things.
116. There are a lot of things we pass on. We have three baskets: in, out, and too tough…We have to have a special insight, or we’ll put it in the ‘too tough’ basket. All of you have to look for a special area of competency and focus on that.
117. We don’t care about quarterly earnings (though obviously we care about how the business is doing over time) and are unwilling to manipulate in any way to make some quarter look better.
118. Almost all good businesses engage in ‘pain today, gain tomorrow’ activities.
119. No CEO examining books today understands what the hell is going on.
120. If mutual fund directors are independent, then I’m the lead character in the Bolshoi Ballet.