YouSaid · the spoken record

Warren Buffett

lines on the record: 194
first: 2019-09-08
most recent: 2019-09-08
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“In other words, he's telling us to be frugal. The most important ingredient in Geico's success is rock bottom operating costs, which set the company apart from literally hundreds of competitors that offer auto insurance. The total of Geico's underwriting expense and loss adjustment expense, I'm just going to tell you, the number is 23% of premiums. Many major companies show percentage points 15 points higher than that. So 20% of the money it costs them 20% of their premium to rate the policy as opposed to what would that be 40 oh not 40 what are you talking about can't do math 38 so it's a big it's 15 difference right”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Reporting to you and still have time for an afternoon nap. Conversely, if you have even one person reporting to you who is deceitful, inept, or uninterested, you will find yourself with more than you can handle. This is Warren talking about how low costs can expand your moat.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Investment activities. We are enormously indebted to those academics. What could be more advantageous in an intellectual contest, whether it be bridge, chess, or stock selection, than to have opponents who have been taught that thinking is a waste of energy”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Textile indust Question the conventional thinking because history shows it changes meaning that it was wrong. Okay, let's see what this means. Most institutional investors in the early 1970s, on the other hand, regarded business value as of only minor relevance when they were deciding the prices at which they should buy or sell. This now seems hard to believe. However, these institutions were then under the spell of academics at prestigious business schools who were preaching a newly fashioned theory. The new theory that they were preaching that the stock market was totally efficient, and let me just stop, pause here. He's going to pick on like business schools and academics a lot. He finds a lot of the stuff Charlie Munger's quoted, like a lot of the stuff you learned in business schools Twaddle, and they pick on him a lot. I mean, not undeservingly, but they're like, you know, we are what you're teaching in theory is now where we're seeing it practice. So now he's going to disagree heavily with the idea that the stock market's totally efficient. He's like, this is obviously not true. And therefore, calculations of business value, and even though itself were of no importance in”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“He's still talking about it. So the market you're in matters most. That's the quote from Mark and Drieson. Sometimes it's better to switch to a different game than keep trying to improve the one you're in. Opportunity cost is how smart people make decisions. That's a quote from Charlie Munger. So it says, my conclusion from my own experiences and from much observation of other businesses is that a good managerial record is far more a function of what business boat you get into than it is, how effectively you row. Some years ago, I wrote when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics. It is a reputation of the business that remains intact. Nothing has since changed my point of view on that matter. Should you find yourself in a chronically leaking boat energy devoted to changing vessels is more likely to be more productive than energy devoted to patching leaks. And that's exactly the situation he found himself in.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“With the textile mills. So he's finally getting out of it. So he says, however, I also feel inappropriate for him an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect. Adam Smith would disagree with my first proposition, and Karl Marx would disagree with my second. The middle ground is the only position that leads me comfortable.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“This is him on closing down the textile business. I won't close down businesses for subnormal profitability merely to add a fraction of a point to our corporate rate of return. However, I also feel it inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses and prospects. So that's different. If it's making a little bit of money and it's not returning, let's say it's returning zero or 1% or 1% or whatever the case is, I'm not going to shut it down. But if it's losing 10, 15, if I'm losing money every year, then I have to. This is what happened with...”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Put up some amazing numbers. While this is why Charlie and Warner are optimistic about achieving return higher than most American corporations, we have several things going for us. One, we don't have to worry about quarterly or annual figures, but instead can focus on whatever actions will maximize long-term value. Two, we can expand the business into any areas that make sense. Our scope is not circumscribed by history, structure, our concept. And three, which is extremely important and extremely rare, we love our work.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, so even Warren Buffett makes a lot of mistakes. Something I'll highlight a lot. So now we're talking more about their insurance operations. We both operate insurance companies and have a large economic interest in insurance. We don't operate. GEICO. The result for all can be summed up easily. In aggregate, the companies we operate and whose underwriting results reflect the consequences of decisions that were my responsibility had absolutely terrible results. Fortunately, Geico, whose policies I do not influence, simply shot the lights out. The inference you draw from this summary is the correct one. I made some serious mistakes a few years ago that came home to roost. And he talks about this later. I think I have some other quotes of his on the circle of competence, but he definitely knows the circle of competence that stays within it. And it says a lot about having your ego in checked. It says, these guys are way better at running this business than me.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Rummy managerial behavior, which he defines as discard your least promising business at each turn, is not our style. We would rather have our overall results penalized a bit than engage in it. Okay, I need to tell you about Mrs. B, Mrs. Blumpkin. The story is incredible. This is absolutely incredible. Okay. So this is how they come to own the Nebraska furniture mert. Last year, in discussing how managers with bright but adrenaline soaked mines scramble after foolish acquisitions, I quoted Pascal. It has struck me that all the misfortunes of men spring from the single cause that they are unable to stay quietly in one room.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“See what I meant. Okay, you should be fully aware of one attitude Charlie and I share that hurts our financial performance. Regardless of price, we have no interest at all in selling any good business at Berkshire owns and are very reluctant to sell subpar businesses as long as we expect them to generate at least some cash and as long as we feel good about the managers and labor relations. We hope not to repeat the capital allocation mistakes that led us into such subpar businesses. And we react with great caution to suggestions that our poor businesses can be restored to satisfactory profitability by major capital expenditures, meaning money is not the solution here. The projections will be dazzling. The advocates will be sincere, but in the end major additional investment in a terrible industry usually is about as rewarding as struggling in quicksand. Nevertheless,”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Warren on how Bershire uses debt. We rarely use much debt, and when we do, we attempt to structure it on a long-term fixed rate basis. We will reject interesting opportunities rather than over leverage our balance sheet. He doesn't want to get himself into precarious position. This conservatism has penalized the results, but it is the only behavior that leaves us comfortable. So that's what I mentioned earlier, how he'll optimize for his ability to sleep at night than a few extra percentage points in profit. So, this is what he calls the gin rummy management. And he says it's not their style. This is a great, I must have really liked this part because I put on all caps and contrarian point.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Act on the information that we're learning here. So it says, here's the story. If your family owns 120 acre farm and you invite a neighbor with 60 acres of comparable land to merge his farm into an equal partnership, then your managerial domain will have grown to 180 acres, so overall size is better, right? But you will have permanently shrunk by 25% your family's ownership interest in both acreage and crops. Managers who want to expand their domain at the expense of owners might better be considered a career in government. So he's saying like, don't do what you're doing is you're growing in size, but now you're making all your shareholders fundamentally less wealthy, which is the opposite of what you should be doing. This is just a great quote. We will not equate activity with progress or corporate size with owner wealth”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“So he says this is the reason they tell you they have to buy, they make poor acquisitions. We have to grow, and then this is now Warren's answer to that. Who it might be asked is the we for present shareholders, the reality is that all existing businesses shrink when shares are issued. Where Berkshire to issue shares tomorrow for an acquisition, Berkshire would own everything that it owns now plus the new business, but your interest in such a hard-to-match businesses as sees candies and the other ones would automatically be reduced. If your family, and this is the illustration of the story that's going to make his point make more sense, and then keep in mind what he's describing, he does exactly this. He buys Dexter Shoe Company for stock and instead of paying a couple hundred million or whatever would have been for in cash, it winds up being like a $5 billion mistake. So again, you can know this and it's good to understand this, but understanding is not enough. We have to actually”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, so this is him talking again now about don't optimize for growth in action if you're worse off after the action after you take the action for growth and then common rationalizations heard and a story to illustrate his points The thirst for size and action is strong enough The acquirer's manager will find ample rationalizations for such a value-destroying issuance of stock meaning buying a poor company with your valuable company stock Friendly investment bakers will reassure him as to the soundness of his actions, but don't ask the barber whether you need a haircut a few favorite radicalizations employed by stock issuing managers follow”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“A few producers in such industries may constantly 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, so this is a very rare. It's hard to find. For the great majority of companies selling commodity products, a depressing equation of business economics prevails. Persistent overcapacity without administrative prices or cost equals poor profitability. So the expected economic result of such this activity.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Are prime candidates for profit troubles? These may be escaped true if prices or costs are administered in some manner and thereby insulated at least partially from normal market forces. So he's talking about the insurance industry. If, however, cost and prices are determined by full bore competition, there is more than ample capacity and the buyer cares little about whose product or distribution services he uses. Industry economics are almost certain to be unexciting. They may well be disastrous. There's nothing protecting you. So all of your profits are going to be competed away. Hence the constant struggle of every vendor to establish and emphasize special qualities of products or service. This works with candy bars. Customers buy a brand name, not by asking for a two-ounce candy bar, but doesn't work with sugar. How often do you hear, I'll have a coffee with a cream and CNH sugar, please? In many industries, differentiation simply can't be made meaningful. A few produce”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“The problem with business is to sell commodity products. He talks about this a lot in the expected economic result of such an activity. To understand the change, we need to look at some major factors that affect levels of corporate profitability generally. Businesses and industries with both substantial overcapacity and a commodity product, and he's going to define a commodity product that's undifferentiated in any customer important way by factors such as performance, appearance, service, or support.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Higher levels, our ability to utilize capital effectively in partial ownership positions will be reduced or eliminated. This will happen periodically, multiple times. There's nothing to buy. I think right now they're sitting on $112, $120 billion, something like that. So he's going through a period like that now, but he's talking about this, you know, what, 40 years ago.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“So, this is the conditions that he's laying out what his strategy is, but it's not going to work all the time. So these are the conditions that are required for the strategy to work. And if done incorrectly, it can ruin your progress. It's not foolproof. So let me start that again. Our partial ownership approach can be continued soundly, only as long as portions of attractive businesses can be acquired attractive prices. Don't buy them if it's overpriced or if you're never going to get a return or you have to wait too long for the return. Then you did the exact opposite of what you're trying to do. He says the market does not forgive those who know not what they do. For the investor, a too high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments. So you messed up in paying too much and now you just wiped away what could have been a decade of profits. Should the stock market advance to considerably high”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“And he also says your chairman left the room once too often last year and almost started in the acquisition follies of 1982 to caught himself. Our partial ownership approach can be continued soundly only as long as portions of attractive businesses can be acquired at attractive prices”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“In a panic So, this is the joy of missing out and the value of patience. As we look at the major acquisitions that others made during 1982, our reaction is not envy, but relief that we were non-participants. For in many of these acquisitions, managerial intellect wilted in competition with managerial adrenaline. So saying you did it because you got excited, but it wasn't the smart thing to do. The thrill of the chase blinded the pursuers to the consequence of the catch. Pascal's observation seems apt. It is struck me that all men's misfortunes spring from the single cause that they are unable to stay quietly in one room.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Now we're in the 1980s. This is him elaborating on the adventures of buying fractional portions of great businesses again. I have to repeat this because he repeats it. It's obviously important to him. This very unevenness and irregularity offers advantages to the value-oriented purchaser a fractional portions of businesses, i.e. people buying stocks. This investor may select from almost the entire array of major American corporations, including many far superior to virtually any of the businesses that could be bought in their entirety in a negotiated deal. So saying you can own a small portion of a business that's better than the ones that are available for sale. In fractional interest purchases can be made in an auction market where prices are set by participants with behavior patterns that sometimes resemble those of an army of manic depressive lemmings. So not only can you get a better deal, but you can get an even better deal because you're compounding what humans do.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Predicting rain doesn't count building arcs does. So he criticizes himself many, many times and he shareholder letters about knowing something was going to happen, but then his brain turns off for a second or he just doesn't act on it. He's like, it doesn't make a difference. You can predict that there's going to be a crash or predict there's going to be increase or predict whatever you think is going to happen. But if you didn't bet on it, if you didn't build arcs, then what's the point?”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“This must be important to warn because he repeats this a lot. Reputation is persuasive. Small portions of exceptionally good businesses are usually available in the securities markets at reasonable prices. So I've already brought this up to you. You can buy, you can't buy the whole business for a good amount, but you can buy small pieces and you can keep doing this in various different industries. But such businesses are available for purchase in their entirely only rarely and then almost at high prices, something you must have run away from.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“By this conservative approach, but is the only one which we feel comfortable. That's a really important point. There's a lot of times where he says, I could take another strategy and it might give me an extra few percentage points in profit, but I wouldn't be able to sleep. So I'm optimizing for sleep. I think that's extremely smart.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Removed as opposed to just poor fundamental economics that just you can't do anything about. Update on the textile business. The end is near. Warren showing ownership of mistakes as usual. That's what I wrote to myself. During the past year, we have cut back the scope of our textile business. Your chairman made a costly mistake in not facing the realities of the situation sooner. Current conditions indicate another tough year in textiles, but with substantially less capital employed in the operation. So it's still going to be bad, but at least we have less of our money on the line and we can reallocate that money elsewhere. So this is basically how Warren runs a business. A large buffer, low debt, and if you do have debt, it's going to be on good terms. So he borrows when he didn't need the money. And that's how he gets better terms. And an abundance of capital strength. We plan to operate with plenty of liquidity, with debt that is moderate in size and properly structured and with an abundance of capital strength. Our return on equity is penalized somewhere.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“It sells its insurance directly to its customers as opposed to going through a network of agents like most insurance companies do. For decades, this has been run, it has been run in this manner. It's troubles in the mid-1970s were not produced by any diminution or disappearance of this essential economic advantage. Geico's problems at that time put in a position analogous to the American Express, to that of American Express in 1964 following the salad oil scandal. Both were one-of-a-kind companies temporary reeling from the effects of a fiscal blow that did not destroy their exceptional underlying economics. The GEICO and American Express situations extraordinary business franchises with a localized excisable cancer needing to be sure a skilled surgeon should be distinguished from the true turnaround situations in which they managed to expect and need to pull off a corporate pigmallion. So he's saying there like they needed a turnaround, but they had a specific problem that could be”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“And he says it may be an exception, but it's also a weird business to use that. This is my word. That's my description of the insurance industry, not his. But he kind of echoes this here. He says, but it's also true the fundamental business advantage that ECHO has enjoyed, an advantage that previously had produced staggering success, was still intact with the company, although submerged in the sea of financial and operating trouble. So they're making some bad deals. It had to be unwound. GECO was designed to be the low-cost operation and enormous marketplace, which is auto insurance, populated largely by companies whose marketing structures restricted adaption rather. Run is designed, it could offer unusual value to its customers while earning unusual returns for itself. So it uses a direct marketing.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“We have written in past reports about the disappointments that usually result from purchases and operations of turnaround businesses. Literally hundreds of turnaround possibilities in dozens of industries have been described to us over the years. And either as participants or as observers, we have tracked performance against expectations. This is their conclusion. Our conclusion is that with few exceptions, when a management with a reputation for brilliance tackles a business Geico may appear to be an exception, having been turned around from the very edge of bankruptcy in nineteen seventy six.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“This is Warren's quick description of what makes a great business. Geico represents the best of all investment worlds, the coupling of a very important and very hard duplicate business advantage with an extraordinary management whose skills and operations are matched by skills and capital allocation. This is what I referenced earlier. Great managers cannot fix and great entrepreneurs cannot fix a business that has poor fundamental economics.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Are more profitable utilization of capital? Can there be, then significant enlargement of the interest of all owners at that bargain price? The competitive nature of corporate acquisition activity almost guarantees the payment of a full, frequently more than full price when a company buys the entire ownership of another enterprise. But the auction-like nature of security markets often allows finally run companies the opportunity to purchase portions of their own business at a price under 50% of that needed to acquire the same earnings power through negotiated acquisition of large enterprises. So essentially instead of buying, overpaying for another business, why don't you just underpay for your own? That's what he's selling us there. That's why I like share buybacks. He just says it in a couple paragraphs.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“And we spend more, but it also eliminates large layers of cost and dramatically speeds decision making because everyone has a great deal to do, a very great deal gets done. Most important of all, it enables us to attract and retain some extraordinary talented individuals, people who simply can't be hired in the normal course of events, who find working for Berkshire to be almost identical to running their own show. Remember all the people that tell their business to Berkshire, they're already wealthy. You don't need to work another day in your life, you want to be micromanaged, there's just no way. And that's why I like how he puts it. These people just simply couldn't be hired in normal course events. They have skills way outside the average employee. This is him telling why he likes share buybacks. One usage of retained earnings we often greet with special enthusiasm when practiced by companies in which we have an investment interest is repurchase of their own shares. The reasoning is simple. If they find businesses selling in the marketplace for far less than intrinsic value, what more certain”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“So one way to talk about their philosophy, how they run their extra companies, extreme centralization of investment decisions and extreme decentralization of everything else. And then you add to that a very strong, frugal streak. And that's where you have a recipe for Berkshire. He says, your companies run on the principle of centralization of financial decisions at the top, meaning him and Charlie, and rather extreme delegation of operating authority to a number of key managers at the individual company or business unit level. We could just field a basketball team with our corporate headquarters group, which utilizes only about 1,500 square feet of space. This approach produces an occasional major mistake that might have been eliminated or minimized through closer operating controls. So he's saying like if we were a little bit more centralized, we might make fewer mistakes, but we'd move slower. But it also eliminates large...”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“That was a lot. That was like 18, weren't us 54 of them. He says the same thing. He is very upfront about what he's doing. This is my idea. If you want to invest, invest. But if you're looking for a short-term flip, then you got the wrong company, buddy. And Warren is essentially saying the same thing. And that's a wonderful thing about people, though, where if you can just tell them if you set their expectations up front and you tell them, listen, this is what you're in for, I think this is why this strategy of mine is going to work. Invest if you want, but he even says later on, I hope people don't buy per share stock if they're not going to keep it forever, not going to keep it at least five years, whatever the case is. So he spends a lot of time, like they said earlier, on education, like explaining exactly why he thinks the way he does. Do you agree with this? This is my thinking. If you agree, then buy stock. If you don't, then don't.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“This is something I heard Jeff Bezos say before. This is part one of two. And this also applies, the same applies to the type of customers you want. So he says in large part, companies obtain the shareholder constituency that they seek and deserve. If they focus their thinking and communication on short-term results or short-term stock market consequences, they will in large part attract shareholders who focus on the same factors. We prefer owners who like our service and menu and who return year after year. It would be hard to find a better group to sit in the Berkshire Hathaway shareholder seats than those already occupying them. We hope to continue to have a very low turnover among our owners, reflecting a constituency that understands our operation, approves our policy, and shares our expectations, and we hope to deliver on those expectations. So it says Berkshire's wants investors, which essentially are customers like themselves, stable and long-term investors. So this is very similar. If you remember the podcast I did on when I read all of Jeff Bezos' shareholder letters, although a lot”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“That's like the best route to go as far as if you like building wealth over a long period of time. Because that's nice that he bought this mill. Even if you would have made money short term, he's going to make money for a few years. A truly fantastic business. Like he gets involved in Coca-Cola, Geico, and all these other ones. Sees candies, et cetera. They just print money for Berkshire for decades. So that's what he's talking about here. All right.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Expanded into the crappy industry. Look how cheap. I got this piece of crap. It's essentially what happened. We bought well below the working capital of the business and in effect got very substantial amounts of machinery and restate for less than nothing. But the purchase was a mistake while we labored mightily. New problems arose as fast as old problems retained. Both our operating and investment experience causes us to conclude 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. And he's talking about things that he's not explicitly stating it, but what he means is the opportunity cost is too high. You have a limited amount of time, a limited amount of energy, and some degree, a limited amount of capital, and you're spending it unwisely by trying to turn around a dud. And you should have just ponied up and bought a better asset. And over long term, that's the best way to do it.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“On the dollar, a valuation reflecting the splendid, almost unavoidable economic results obtainable, so a fantastic business. Despite a fancy price tag, the quote unquote easy business So he's saying, like, maybe you're better off paying a higher price for a business that's going to generate a lot more money, right? We can speak from experience having tried the other route. Your chairman made the decision a few years ago to purchase whambuck mills in Manchester, New Hampshire, thereby expanding our textile commitment, right? Isn't that a strange decision, though? And he owns up to this, why it's a bad idea, but think about it. He's already mentioned multiple times in the last few shareholder letters we've gone over about how terrible the textile industry is. Avoid going into a business that has a headwind. Go over one that has a tailwind. He didn't take his own advice. That's human. That is normal. We just have to know that that happens. He's making a mistake here. He talks about this mistake for many years ago. Like, you could know what to do is right, but you're going to, like, and it's not that you should forget what you learned. It's that inevitable, inevitably, excuse me, your humanness is going to get in the way. And this is an exact ample. He's been lecturing us on not to do this.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“And upon yearly changes in that figure. Okay, this next part, he starts talking about, well, he changes. Remember, he's famous for following the teachings of Ben Graham and being like a value investor. And he made a lot of money doing that, but he realized, and he learned this from Charlie Munger, that it's never going to scale. So what he decides to change, and he was pushed by Charlie in this direction, which is winds up becoming the blueprint for Berkshire. And that's I need to be buying fantastic businesses at fair prices instead of poor businesses at bargain prices. You're going to make a lot more money over long term if you just go for quality. So now he's going to lay out a little bit about like his thinking on this. So I'm just going to read this whole section to you. In some businesses, a network TV station, for example, it is virtually impossible to avoid earning extraordinary returns on tangible capital employed in the business. And assets in such businesses sell at equally extraordinary prices, one thousand cents or more.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, so now we move to 1979. He talks a lot about his failures. And in this case, he failed. We failed at our primary objective. And this is what he feels is a better way to understand businesses. We had substantially more capital to work with in 1979 than in 1978, and our performance in utilizing that capital fell short of the earlier year, even though per share earnings rose. So now this is why the way his better way to understand businesses. The primary test of managerial economic performance is the achievement of high earnings rate on equity capital employed without undue leverage, accounting, gimmicky, 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 the general public if managements and financial analysts modified the primary emphasis they place upon earnings per share”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“That's the person that runs Geico. Tony, I think I forgot his last name, maybe nicely or something like that, but we'll get to him eventually. So his costs are well below his competitors, and he keeps decreasing them. Or he did when he was running a company.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Do its job, which again is something that says like modus operandi here. Just let them do what they do. I bought the company because it's great. I want you to keep making it great. The note of myself is resourceful. People stay resourceful and wasteful people. Stay wasteful. Our experience has been the manager of an already high cost operation, frequently is uncommonly resourceful in finding new ways to add to overhead. So this is what I mean that they constantly focus on cost. They hate people that spend unwisely. So our experience has been if a manager already has a high cost business and that person frequently is uncommonly resourceful in finding new ways to add to overhead, right? So they keep doing what they're good at, adding expenses. While the manager of a tightly run operation usually continues to find additional methods to curtail cost, even when his costs are already well below those of his competitors. And he's not yet describing this person.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“It is better than the one we could develop, and similarly is far better than any in which we might negotiate purchase of a controlling interest. Yet our purchase of SafeCode was made as substantially under book value. We paid less than $100 on the dollar for the best company in the business when far more than $100 on the dollars being paid for mediocre companies and corporate transactions. And there's no way to start a new operation. Of course, with a minor interest, we do not have the right to direct or even influence management policies of SafeCo. But why should we wish to do this? The record would indicate that they do a better job of manning their operation than we do ourselves. While there may be less excitement and prestige in sitting back and letting others do the work, we think that this is all one loses by accepting passive participation in excellent management. Because quite clearly, if one controlled a company run as well as Safeco, the proper policy also would be to sit back and let management.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“All right, so sometimes he buys the entire insurance agency or insurance company. Sometimes he buys just their stock, but he says he's talking about now we're in the year in what, the 1978. And he's talking about, so buying, I'm going to read this part to you, but the main takeaway is buying parts of businesses through common stock yields better returns than buying the entire company through acquisition. Now, later on, maybe always. They would prefer acquisition. They're just saying that the prices are not always as good as you can get by buying partially buying the business through the open market. And he talks about people criticize this idea of his, but because you don't have control, right? But he says, given their skill, why would we want control? They're better at managing the business than we would be. So he's talking about, and to give you an illustration of this, he's talking about this company called Safego. So it says Safego is much better insurance operation than our own.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“Pop up over and over again, these letters, which I think is one of the most inspiring parts about reading them is even Warren makes bad decisions and he makes a lot of them. And some of them are giant losing multiple billions of dollars on one decision. So perfection is not required to build a great company. We continue to look for ways to expand our insurance operation, but your reaction to this intent should not be unrestrained joy. Some of our expansion efforts, largely initiated by your chairman, that's what he calls himself. I mean, that's his title, but that's how he's referring to himself, that's my point here. Some of them, some of our expansion efforts largely initiated by your chairman have been lackluster. Others have been expensive failures.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“And now he's going to tell us. So here's a straight up some notes I left that avoid owning businesses that offer one undifferentiated goods and two are high capital intensive. It was true back then, it's still true today. So he says the textile industry illustrates in textbook style how producers of relatively undifferentiated goods and 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 are expected, what's their end result of a situation like this? Our expectations are for profits of relatively modest amounts in relation to capital. So it takes a lot of money invested to make a little bit of money. We hope we don't get into too many more businesses which such tough economic conditions. And something that's going to”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“So he's saying his insurance businesses are not going to run well if they're not run by extremely smart and competent people. Now he's talking about there's no, he lists all the things that they don't have. They don't have trademarks. They don't have patents and application. One moat that he feels durable in the insurance business and why he eventually later buys all of Geico is low cost, which is pounded again and again in our heads when we're reading these biographies of these entrepreneurs about setting up a long, durable advantage for your business by being ruthless and monitoring and maintaining your costs. And that's definitely something that Geico does. Okay.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“How bizarre the insurance industry is because it's fundamentally, it's a commodity product. They're just papers with promises written on them. So he says insurance companies offer standardized policies, which can be copied by anyone. Their only products are promises. It is not difficult to be licensed and rates are an open book. There are no important advantages from trademarks, patents, location, corporate longevity, raw material sources, and very little consumer differentiation to produce insulation from competition. In other words, if it wasn't in the insurance industry, it sounds like a terrible business to be in, right? So he says, it is commonplace in corporate annual reports to stress the difference that people make. Sometimes this is true and sometimes it isn't.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source
“To do well in life because most people are lazy. Most people are not passionate about their work. Most people are not spending enough time learning. I mean, take everything everybody's doing. Like, oh, I'm going to do the opposite. So again, the word that Buffett's using here is unusual discipline. He just happens to be managerial discipline, but you manage yourself too. And this is a fight we all have to have. Like sometimes I read a lot of books, but sometimes Twitter takes up too much of my time. I'm like, I just spent 30 minutes on Twitter. That's like a couple dozen pages maybe on a book. What was a better use of my time? So no one's perfect. It's just understanding that usually it's required. In industries where there's little differentiation, the competency of management is more important. He talks about insurance. He talks about like the, again, he talks I would say a lot about.”
2019-09-08 · Founders · #88 Warren Buffett's Shareholder Letters— All of them! · IDENTIFIED FROM THE TRANSCRIPT · source