Warren Edward Buffett (born 30 August1930) is an American investor and the CEO of Berkshire Hathaway.
- I call investing the greatest business in the world … because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.
- Interview in Forbes magazine (1 November 1974)
- Variant: The stock market is a no-called-strike game. You don't have to swing at everything — you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, "Swing, you bum!"
- 1999 Berkshire Hathaway Annual Meeting, as quoted in The Tao of Warren Buffett by Mary Buffett and David Clark p. 145
- It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
- You're dealing with a lot of silly people in the marketplace; it's like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be O.K.
- On being dispassionate and patient in investments, in an interview in Forbes magazine (1 November 1974); he is contrasting soft-drinks to intoxicating beverages in this example; Buffet eventually became a major investor in Coca-Cola.
- Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management and limited exposure to hard times. … Buy into a company because you want to own it, not because you want the stock to go up. … People have been successful investors because they've stuck with successful companies. Sooner or later the market mirrors the business.
- Interview in Forbes magazine (1 November 1974)
- I'll tell you why I like the cigarette business. … It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty.
- As quoted in Barbarians at the Gate : The Fall of RJR Nabisco (1989), by Bryan Burrough and John Helyar
- Someone's sitting in the shade today because someone planted a tree a long time ago.
- Statement of January 1991, as quoted in Of Permanent Value: The Story of Warren Buffett (2007) by Andrew Kilpatrick
- Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
- As quoted in Buffett: The Making of an American Capitalist (1995), by Roger Lowenstein, p. 77
- It’s a game of a million inferences. There are a lot of things to draw inferences from — cards played and not played. These inferences tell you something about the probabilities. It's got to be the best intellectual exercise out there. You're seeing through new situations every ten minutes. Bridge is about weighing gain/loss ratios. You're doing calculations all the time.
- On the game of bridge, as quoted in Forbes (2 June 1997); also quoted in The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy (2000), p. 112
- 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 is 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 GNP 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.
- As quoted in Warren Buffett Speaks: Wit and Wisdom from the World's Greatest Investor (1997) by Janet C. Lowe, pp. 165-166
- If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need. If you're driving a truck across a bridge that says it holds 10,000 pounds and you've got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it's over the Grand Canyon, you may feel you want a little larger margin of safety...
- 1997 Berkshire Hathaway Annual Meeting, as quoted in Of Permanent Value : The Story of Warren Buffett, by Andrew Kilpatrick, Vol. 2 (2007), p. 1615
- Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway.
- As quoted in The Money Adventure (1998) by Egbert Sukop, p. 128
- 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.
- 1998 Berkshire Hathaway Annual Meeting, as quoted in The Essays of Warren Buffett : Lessons for Corporate America (1998), p. 92
- We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.
- 1998 Berkshire Hathaway Annual Meeting, quoted in Wait: The Art and Science of Delay (2012) by Frank Partnoy, p. 177
- If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.
- As quoted in "Wisdom from the 'Oracle of Omaha'" by Amy Stone in BusinessWeek (5 June 1999)
- We're more comfortable in that kind of business. It means we miss a lot of very big winners. But we wouldn't know how to pick them out anyway. It also means we have very few big losers - and that's quite helpful over time. We're perfectly willing to trade away a big payoff for a certain payoff.
- I wouldn't mind going to jail if I had three cellmates who played bridge. … The approach and strategies [of bridge and stock investing] are very similar. In the stock market you do not base your decisions on what the market is doing, but on what you think is rational. With bridge, you need to adhere to a disciplined bidding system. While there is no one best system, there is one that works best for you. Once you choose a system, you need to stick with it.
- Quoted in The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy (2000), p. 112, and Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals (2012), p. 22
- If you invested in a very low cost index fund — where you don’t put the money in at one time, but average in over 10 years — you’ll do better than 90% of people who start investing at the same time.
- Berkshire Hathaway Annual Meeting (2004), as quoted at The Buffett
- The free market’s the best mechanism ever devised to put resources to their most efficient and productive use. … The government isn’t particularly good at that. But the market isn’t so good at making sure that the wealth that’s produced is being distributed fairly or wisely. Some of that wealth has to be plowed back into education, so that the next generation has a fair chance, and to maintain our infrastructure, and provide some sort of safety net for those who lose out in a market economy. And it just makes sense that those of us who’ve benefited most from the market should pay a bigger share. … When you get rid of the estate tax, you’re basically handing over command of the country’s resources to people who didn’t earn it. It’s like choosing the 2020 Olympic team by picking the children of all the winners at the 2000 Games.
- You know, if I'm playing bridge and a naked woman walks by, I don't ever see her — don't test me on that! … You know, I wouldn't mind going to jail if I had the right three cell mates, so we could play bridge all the time. … It takes some investment to play it … I mean, you cannot sit down and learn how to play it like most games. … There's a lotta lessons in it … you have to look at all the facts. You have to draw inferences from what you've seen, what you've heard. You have to discard improper theories about what the hand had as more evidence comes in sometimes. You have to be open to a possible change of course if you get new information. You have to work with a partner, particularly on defense.
- I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.
- In a panel discussion after the premier of the 2008 documentary I.O.U.S.A.. Panel at the Premier, 0:05:42ff., DVD extras, I.O.U.S.A. (2008)
- More than 99% of my wealth will go to philanthropy during my lifetime or at death. Measured by dollars, this commitment is large. In a comparative sense, though, many individuals give more to others every day.
Millions of people who regularly contribute to churches, schools, and other organizations thereby relinquish the use of funds that would otherwise benefit their own families. The dollars these people drop into a collection plate or give to United Way mean forgone movies, dinners out, or other personal pleasures. In contrast, my family and I will give up nothing we need or want by fulfilling this 99% pledge.
Moreover, this pledge does not leave me contributing the most precious asset, which is time. Many people, including — I’m proud to say — my three children, give extensively of their own time and talents to help others. Gifts of this kind often prove far more valuable than money.
- Some material things make my life more enjoyable; many, however, would not. I like having an expensive private plane, but owning a half-dozen homes would be a burden. Too often, a vast collection of possessions ends up possessing its owner. The asset I most value, aside from health, is interesting, diverse, and long-standing friends.
My wealth has come from a combination of living in America, some lucky genes, and compound interest. Both my children and I won what I call the ovarian lottery. (For starters, the odds against my 1930 birth taking place in the U.S. were at least 30 to 1. My being male and white also removed huge obstacles that a majority of Americans then faced.) My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious.
The reaction of my family and me to our extraordinary good fortune is not guilt, but rather gratitude. Were we to use more than 1% of my claim checks on ourselves, neither our happiness nor our well-being would be enhanced. In contrast, that remaining 99% can have a huge effect on the health and welfare of others. That reality sets an obvious course for me and my family: Keep all we can conceivably need and distribute the rest to society, for its needs. My pledge starts us down that course.
- I could end the deficit in five minutes. You just pass a law that says that any time there's a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.
- The approach and strategies are very similar in that you gather all the information you can and then keep adding to that base of information as things develop. You do whatever the probabilities indicated based on the knowledge that you have at that time, but you are always willing to modify your behaviour or your approach as you get new information. In bridge, you behave in a way that gets the best from your partner. And in business, you behave in the way that gets the best from your managers and your employees.
Letters to Shareholders (1957 - 2012)
- Buffet's annual letters to shareholders (1957 - 2012)
- Our performance, relatively, is likely to be better in a bear market than in a bull market … in a year when the general market had a substantial advance, I would be well satisfied to match the advance of the averages.
- I make no attempt to forecast the general market — my efforts are devoted to finding undervalued securities. However, I do believe that widespread public belief in the Inevitability of profits from investments in stocks will lead to eventual trouble. Should this occur, prices, but not intrinsic values in my opinion, of even undervalued securities can be expected to be substantially affected.
- Management's objective is to achieve a return on capital over the long term which averages somewhat higher than that of American industry generally — while utilizing sound accounting and debt policies.
- An irresistible footnote: in 1971, pension fund managers invested a record 122% of net funds available in equities — at full prices they couldn't buy enough of them. In 1974, after the bottom had fallen out, they committed a then record low of 21% to stocks.
- 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 earnings per share. In our view, many businesses would be better understood by their shareholder owners, as well as by the general public, if managements and financial analysts modified the primary emphasis they place upon earnings per share, and upon yearly changes in that figure.
- We have tried occasionally to buy toads at bargain prices with results that have been chronicled in past reports. Clearly our kisses fell flat. We have done well with a couple of princes — but they were princes when purchased. At least our kisses didn’t turn them into toads. And, finally, we have occasionally been quite successful in purchasing fractional interests in easily-identifiable princes at toad-like prices.
- When returns on capital are ordinary, an earn-more-by-putting-up-more record is no great managerial achievement. You can get the same result personally while operating from your rocking chair. Just quadruple the capital you commit to a savings account and you will quadruple your earnings. You would hardly expect hosannas for that particular accomplishment. Yet, retirement announcements regularly sing the praises of CEOs who have, say, quadrupled earnings of their widget company during their reign — with no one examining whether this gain was attributable simply to many years of retained earnings and the workings of compound interest.
- Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising "Take two aspirins"?
- Over the years, Charlie [Munger, Berkshire Hathaway Vice Chairman] and I have observed many accounting-based frauds of staggering size. Few of the perpetrators have been punished; many have not even been censured. It has been far safer to steal large sums with pen than small sums with a gun.
- In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.
- For example: (1) As if governed by Newton's First Law of Motion, 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 or whatever, will be mindlessly imitated.
- After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over because we acquired any ability to clear seven-footers.
- The most common cause of low prices is pessimism — some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
- Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.
- We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.
- The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, 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. In stating this opinion, we define risk, using dictionary terms, as "the possibility of loss or injury."
- Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy. At Berkshire we will stick with businesses whose profit picture for decades to come seems reasonably predictable. Even then, we will make plenty of mistakes.
- The sad fact is that most major acquisitions display an egregious imbalance: They are a bonanza for the shareholders of the acquiree; they increase the income and status of the acquirer's management; and they are a honey pot for the investment bankers and other professionals on both sides. But, alas, they usually reduce the wealth of the acquirer's shareholders, often to a substantial extent. That happens because the acquirer typically gives up more intrinsic value than it receives. Do that enough, says John Medlin, the retired head of Wachovia Corp., and "you are running a chain letter in reverse." ... The acquisition problem is often compounded by a biological bias: Many CEOs attain their position in part because they possess an abundance of animal spirits and ego.
- Of course, Charlie and I 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 General Motors, IBM and Sears, all of which had enjoyed long periods of seeming invincibility. 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 Impostors, companies now riding high but vulnerable to competitive attacks.
- In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.
- But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
- Our future rates of gain will fall far short of those achieved in the past. Berkshire's capital base is now simply too large to allow us to earn truly outsized returns. If you believe otherwise, you should consider a career in sales but avoid one in mathematics (bearing in mind that there are really only three kinds of people in the world: those who can count and those who can't).
- Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life. The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised.
- We will reject interesting opportunities rather than over-leverage our balance sheet.
- Berkshire Hathaway Inc.: An Owner's Manual (1999)
- Those who attended [the annual meeting] last year saw your Chairman pitch to Ernie Banks. This encounter proved to be the titanic duel that the sports world had long awaited. After the first few pitches — which were not my best, but when have I ever thrown my best? — I fired a brushback at Ernie just to let him know who was in command. Ernie charged the mound, and I charged the plate. But a clash was avoided because we became exhausted before reaching each other.
- 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.
- Instead, we try to apply Aesop's 2,600-year-old equation to opportunities in which we have reasonable confidence as to how many birds are in the bush and when they will emerge (a formulation that my grandsons would probably update to "A girl in a convertible is worth five in the phonebook.").
- But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street — a community in which quality control is not prized — will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.
- Most companies are saddled with institutional constraints. A company's history, for example, may commit it to an industry that now offers limited opportunity. A more common problem is a shareholder constituency that pressures its manager to dance to Wall Street's tune. Many CEOs resist, but others give in and adopt operating and capital-allocation policies far different from those they would choose if left to themselves.
- 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.
- Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, "I can calculate the movement of the stars, but not the madness of men." If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
- 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. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
- I've reluctantly discarded the notion of my continuing to manage the portfolio after my death — abandoning my hope to give new meaning to the term "thinking outside the box."
- Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
- Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.
- We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.
- Upon leaving [the derivatives business], our feelings about the business mirrored a line in a country song: "I liked you better before I got to know you so well."
Quotes from the press
Rules for success
- Take the job that you would take if you were independently wealthy.
- Look for integrity, intelligence and energy.
- There's a whole bunch of things I don't know a thing about — I just stay away from those. So, I stay within what I call my circle of competence.
- I just read and read and read. ... I have always enjoyed reading.
- Capitalism is all about somebody coming and trying to take the castle. Now what you need is .... you need a castle that has some durable competitive advantage — some castle that has a moat around it.
- I like to study failure, actually. My partner says, "I want to know where I'll die so I'll never go there." We want to see what has caused businesses to go bad. The biggest thing that kills them is complacency. ... The danger would always be that you rest on your laurels.
- It was the peculiar artifice of Habit not to suffer her power to be felt at first. Those whom she led, she had the address of appearing only to attend, but was continually doubling her chains upon her companions; which were so slender in themselves, and so silently fastened, that while the attention was engaged by other objects, they were not easily perceived. Each link grew tighter as it had been longer worn, and when, by continual additions, they became so heavy as to be felt, they were very frequently too strong to be broken.
- Such sentiments were later succinctly summarized by Maria Edgeworth in Moral Tales For Young People by Miss Edgeworth (1806), Vol 1, Second Edition, p. 86:
- … the diminutive chains of habit, as somebody says, are scarcely ever heavy enough to be felt, till they are too strong to be broken.
- Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.
- This maxim (perhaps of gambling or horse racing origin) is widely attributed to Warren Buffett and, as such, has traditionally been cited in print; notably, it was attributed (perhaps facetiously) to him by Mary Buffett in, The Tao of Warren Buffett. A more uncommon, less well known version, and perhaps one with a more lasting credibility (or certainly with a higher degree of checkability), would be: "The first rule is don't lose, and the second rule is never forget the first rule." This version was noted by Steve Forbes in a friendly meeting in Omaha, in an article published as: Jay-Z, Buffett and Forbes on Success and Giving Back. This article is available on the Forbes website, published on September 23, 2010.
Quotes about Buffett
- Buffett does not believe that it is wise to bequeath greatwealth and plans to give most of his money to his charitable foundation. … Buffett is not cutting his children out of his fortune because they are wastrels or wantons or refuse to go into the family business — the traditional reasons rich parents withhold money. Says he: "My kids are going to carve out their own place in this world, and they know I'm for them whatever they want to do." But he believes that setting up his heirs with "a lifetime supply of food stamps just because they came out of the right womb" can be "harmful" for them and is "an antisocial act." To him the perfect amount to leave children is "enough money so that they would feel they could do anything, but not so much that they could do nothing." For a college graduate, Buffett reckons "a few hundred thousand dollars" sounds about right.
- Buffett had invited me to Omaha to discuss tax policy. More specifically, he wanted to know why Washington continued to cut taxes for people in his income bracket when the country was broke. … Buffett’s low rates were a consequence of the fact that, like most wealthy Americans, almost all his income came from dividends and capital gains, investment income that since 2003 has been taxed at only 15 percent. The receptionist’s salary, on the other hand, was taxed at almost twice that rate once FICA was included. From Buffett’s perspective, the discrepancy was unconscionable.
- I asked Buffett how many of his fellow billionaires shared his views. He laughed.
“I’ll tell you, not very many,” he said. “They have this idea that it’s ‘their money’ and they deserve to keep every penny of it. What they don’t factor in is all the public investment that lets us live the way we do." … It may be surprising to some to hear the world’s foremost capitalist talk in this way, but Buffett’s views aren’t necessarily a sign of a soft heart. Rather, they reflect an understanding that how well we respond to globalization won’t be just a matter of identifying the right policies. It will also have to do with a change in spirit, a willingness to put our common interests and the interests of future generations ahead of short-term expediency.
- The world's second-richest person called on Washington policymakers to adopt fundamental reforms on such costs to address what he called a "national emergency."
He said health care eats up 17 percent of U.S. gross domestic product, at a time when many other countries pay only nine or 10 percent of GDP but have more doctors, nurses and hospital beds per capita.
"It's like a tapeworm eating at our economic body," Buffett said on CNBC television.
"If it was a choice today between Plan A, which is what we've got, or Plan B, which is the Senate bill, I would vote for the Senate bill," he said. "But I would much rather see a Plan C that really attacks costs, and I think that's what the American public wants to see."
Rising costs, Buffett said, are holding back an economy that faced an "economic Pearl Harbor" in late 2008 when capital markets seized up.
Prologue: Owner-Related Business Principles 1
Corporate Governance 15
Finance and Investing 20
Investment Alternatives 26
Common Stock 28
Mergers and Acquisitions 31
Valuation and Accounting 33
Accounting Shenanigans 37
Accounting Policy 37
Tax Matters 38
I. Corporate Governance 39
A. Full and Fair Disclosure 40
B. Boards and Managers 43
C. The Anxieties of Business Change 56
D. Social Compacts 63
E. An Owner-Based Approach to Corporate Charity 65
F. A Principled Approach to Executive Pay 72
G. Risk, Reputation and Oversight 82
II. Finance and Investing 87
A. Mr. Market 88
B. Arbitrage 92
C. Debunking Standard Dogma 98
D. “Value” Investing: A Redundancy 110
E. Intelligent Investing 117
F. Cigar Butts and the Institutional Imperative 124
G. Life and Debt 128
III. Investment Alternatives 133
A. Surveying the Field 134
B. Junk Bonds 138
C. Zero-Coupon Bonds 145
D. Preferred Stock 152
E. Derivatives 162
F. Foreign Currencies and Equities 172
G. Home Ownership: Practice and Policy 179
IV. Common Stock 183
A. The Bane of Trading: Transaction Costs 184
B. Attracting the Right Sort of Investor 189
C. Dividend Policy and Share Repurchases 191
D. Stock Splits and Trading Activity 202
E. Shareholder Strategies 204
F. Berkshire’s Recapitalization 205
V. Mergers and Acquisitions 211
A. Bad Motives and High Prices 212
B. Sensible Share Repurchases Versus Greenmail 223
C. Leveraged Buyouts 223
D. Sound Acquisition Policies 226
E. On Selling One’s Business 230
F. The Buyer of Choice 234
VI. Valuation and Accounting 239
A. Aesop and Inefficient Bush Theory 240
B. Intrinsic Value, Book Value, and Market Price 243
C. Look-Through Earnings 249
D. Economic versus Accounting Goodwill 255
E. Owner Earnings and the Cash Flow Fallacy 264
F. Option Valuation 271
VII. Accounting Shenanigans 275
A. A Satire on Accounting Shenanigans 276
B. Standard Setting 284
C. Stock Options 285
D. “Restructuring” Charges 290
E. Pension Estimates 294
F. Realization Events 296
VIII. Accounting Policy 297
A. Mergers 297
B. Segment Data and Consolidation 299
C. Deferred Taxes 300
D. Retiree Benefits 303
IX. Tax Matters 305
A. Distribution of the Corporate Tax Burden 305
B. Taxation and Investment Philosophy 311
Concept Glossary 323
Disposition Summary 325