Warren Buffett

Principles are our summary of their public statements.

• Buy Outstanding Businesses at Sensible Prices

  Buffett emphasizes that it is far better to buy a wonderful business at a fair price than a mediocre one at a bargain. The long-term economic characteristics of a company ultimately determine investment returns. Instead of trying to fix a bad business, investors should focus on selecting inherently superior ones.

  Supporting quotes

  • “Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price.”

    “Charlie and I have found that making silk purses out of silk is the best that we can do; with sow's ears, we fail.”

  1 more supporting quote is in the member records.

  A question to consider

  Am I choosing a structurally inferior business model just because it looks cheap in the short term?

• Stay Within Your Circle of Competence

  He states that the most important thing for an investor is knowing exactly what they do not know. Making decisions only within the boundaries of what you fully understand minimizes mistakes. Rather than chasing market trends, you should focus solely on businesses you can accurately evaluate.

  Supporting quotes

  • “Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game.”

  1 more supporting quote is in the member records.

  A question to consider

  Am I recklessly investing capital into trends or technologies that I do not fully understand?

• Demand a Margin of Safety

  He explains that the business environment is always filled with unpredictable risks. Therefore, you must always secure a margin of safety to absorb unexpected shocks when investing. A plan that relies on a perfect scenario will eventually lead to disaster.

  2 more supporting quotes are in the member records.

  A question to consider

  Have I built enough financial cushion to survive if the worst-case scenario unfolds?

  Source Berkshire Hathaway Shareholder Letter (1990)  (opens in a new tab)

• Investing as Business Analysis

  He emphasizes that stocks should be viewed as pieces of an actual business, not just scraps of paper. Instead of trying to predict market trends, investors must focus on analyzing the underlying economics of the business. A true investor must adopt the mindset of a sole owner.

  Supporting quotes

  • “When investing, we view ourselves as business analysts - not as market analysts, not as macroeconomic analysts, and not even as security analysts.”

  1 more supporting quote is in the member records.

  A question to consider

  Am I focusing on the fundamental value generated by the business model rather than stock prices or market trends?

• Hedge Unpredictable Macro Risks

  Risk

  When investing in foreign markets, use debt denominated in that local currency to offset the risk of currency fluctuations that cannot be predicted.

  Supporting quotes

  • “Neither Greg nor I believe we can forecast market prices of major currencies. We also don't believe we can hire anyone with this ability.”

  2 more supporting quotes are in the member records.

• Prioritize Shareholder Friendly Management

  Capital allocation

  Look for companies where management is conservative with their own compensation, reluctant to issue new shares, and uses retained earnings to buy back shares at attractive prices.

  Supporting quotes

  • “Neither Greg nor I believe we can forecast market prices of major currencies. We also don't believe we can hire anyone with this ability.”

  2 more supporting quotes are in the member records.

• Reward Controllable Outcomes

  Management

  Compensation should be tied to specific business unit performance that employees can actually influence, rather than broad metrics like stock price.

  2 more supporting quotes are in the member records.

  Source Berkshire Hathaway Shareholder Letter (1997)  (opens in a new tab)

• Measure Performance Over Five Years

  Management

  Do not judge a business on one-year results; use a five-year average to see if actions are truly paying off.

  Supporting quotes

  • “Book value tells you what has been put in; intrinsic business value estimates what can be taken out.”

  2 more supporting quotes are in the member records.

• Minimize Frictional Costs

  Capital allocation

  Excessive activity and transaction costs act as a hidden tax that drains wealth without adding any productive value to the business.

  2 more supporting quotes are in the member records.

  Source Berkshire Hathaway Shareholder Letter (1983)  (opens in a new tab)

• Win Through Selection and Price

  Strategy

  A business can expand its territory without adding locations by building a reputation for the lowest prices and the widest selection.

  3 more supporting quotes are in the member records.

  Source Berkshire Hathaway Shareholder Letter (1986)  (opens in a new tab)

• Delegate to Terrific Operators

  Management

  If a CEO runs a business exceptionally well, there is no need for the owner to visit the plants or micromanage the daily operations.

  3 more supporting quotes are in the member records.

  Source Berkshire Hathaway Shareholder Letter (2010)  (opens in a new tab)

• Master the Basics

  Management

  Extraordinary business results come from setting the right goals and handling fundamental tasks consistently without getting distracted.

  3 more supporting quotes are in the member records.

  Source Berkshire Hathaway Shareholder Letter (1994)  (opens in a new tab)

• Avoid High Cost Commodity Businesses

  Strategy

  In industries where products are indistinguishable, a company with high structural costs cannot survive without regulatory protection.

  Supporting quotes

  • “Mistakes occur at the time of decision. We can only make our mistake-du-jour award, however, when the foolishness of the decision become obvious.”

  2 more supporting quotes are in the member records.

• Price Dictates Value Creation

  Capital allocation

  The success of a share repurchase or any acquisition depends entirely on the price paid relative to intrinsic value. Buying back shares above their value destroys wealth for the remaining owners.

  2 more supporting quotes are in the member records.

  Source Berkshire Hathaway Shareholder Letter (2016)  (opens in a new tab)

• Incentive Alignment in Systems

  Strategy

  He criticizes systems where service providers are paid for procedures rather than results, as it leads to unnecessary costs and inefficiency.

  Source Wikipedia: Warren Buffett  (opens in a new tab)

• Invest in Productive Assets

  Capital allocation

  Buffett avoids assets like gold or cryptocurrencies because they do not produce anything; he prefers businesses that generate utility and value over time.

  Source Wikipedia: Warren Buffett  (opens in a new tab)

• Price Based on Value

  Pricing

  A superior balance sheet makes a guarantee more valuable, allowing a company to charge higher premiums than weaker competitors.

  3 more supporting quotes are in the member records.

  Source Berkshire Hathaway Shareholder Letter (2008)  (opens in a new tab)

• Prioritize Cash Upfront Without Collateral

  Cash

  Structure deals so the company holds the money from the start, avoiding counterparty risk and gaining 'float' for investment.

  Supporting quotes

  • “I both initiated these positions and monitor them, a set of responsibilities consistent with my belief that the CEO of any large financial organization must be the Chief Risk Officer as well.”

    “If we break even on an underlying transaction, we will have enjoyed the use of free money for a long time.”

  1 more supporting quote is in the member records.

• Prioritize Economic Substance Over Size

  Strategy

  Decisions should aim at maximizing real economic benefits rather than increasing managerial domain or reported accounting numbers.

  Supporting quotes

  • “If something's not worth doing at all, it's not worth doing well”

  2 more supporting quotes are in the member records.

• Franchise vs Ordinary Business

  Management

  A franchise can survive poor management, whereas an ordinary business requires superior management or low-cost operations to avoid being killed by competition.

  3 more supporting quotes are in the member records.

  Source Berkshire Hathaway Shareholder Letter (1991)  (opens in a new tab)