On Survivorship Bias

In daily life, because triumph is made more visible than failure, we repeatedly and routinely overestimate our chances of succeeding. We succumb to an illusion, and we do not realize how small the probability of success really is.

This illustrates:

Survivorship bias

This bias exists in all walks of life: photographers, artists, Nobel Prize winners, start-ups, stocks, etc.The media will not report the failures. You will have to search for it yourself.

In some areas in your life, you may succeed. Your success may stem from pure coincidence but your mind will discover similarities with other winners and will be tempted to mark these as “success factors”. But what you really need to do is to look at the failures and see whether these failures also had the so-called “success factors” . In reality, many do.

If enough people look at a particular phenomenon, a few of these studies will deliver statistical significant results through pure coincidence and attain popularity and attention. The truth may be the opposite.


  • We routinely and repeatedly overestimate our chances of success.
  • Visit the graves of once-promising projects, investments and careers. It will be disappointing and sad but will clarify facts and clear your mind.

-notes from “The Art Of Thinking Clearly” by Rolf Dobelli

Saturday Stories 38: The Acquisition Of Wisdom

The governor resigned his exalted office and came to the Master demanding to be taught.

” What is it you wish me to teach you?” asked the Master.

“Wisdom,” was the reply.

“Ah, my friend! How gladly would I do that were it not for one major obstacle.”


“Wisdom cannot be taught.”

“So there’s nothing I can learn here.”

“Wisdom can be learned.  But it cannot be taught.”

The Trap

Q: If you are caught in a trap, what’s the one thing you have to do before you can escape?

A: You have to realise that you have been caught in a trap.

Until you realize you’ve been caught in a trap, you’re very unlikely to get out of it. But once you know about the trap, and you can see how it works, then escape is pretty straightforward. Especially if other people have escaped from the same trap, and can show you how.

It may be that we are all in some trap or the other. Unless we are enlightened –  whatever that means.

What do I mean by this? We all live life in a certain way and we think that certain things are important and that things should happen in a certain way, we should do things in a certain way. There is no wrong in doing that, for otherwise given our current state of being, we cannot live.

But sometimes, there is a nudge from somewhere, a poem, a passage in a book, something we hear, a video or some inner realisation or something else that triggers something, makes us feel that things are not what it should be and that there is something better…like, we realise that there is more to life that the daily routine….that we can live in a more harmonious way….or like the person who has been shut in a room all his life and he glimpses sunlight… and maybe, what a fish felt when it wanted to be a frog…a bird…a monkey…a man….

Realising that we are in a trap inspires us to get out of it. The search begins and the student seek knowledge…and when we find somebody else had done something similar…we follow them…and then the process starts to flower…..

This is not only in what we call the spiritual realm….for example, the teachings of the Buddha have been instrumental to get many people out of the material trap….but also in other realms, physical, emotional, mental, intellectual…. Like Buffet, who got out of one trap when he read Graham, and then got out of Graham, when he met Charlie Munger…

Getting out a trap may not mean that you become completely free. It may mean that you just getter into a trap that is less constrictive…and the process has to evolve over a long time before total freedom is obtained….but may happen any instant.

What this means for our lives, is that we should first live with awareness…the awareness that is open and free from conditioning by your past and the influences….one way to become free is to expose yourself to different influences with total openness..and you will feel something is right…then you explore that further…in this way, we gradually become aware of traps that exist in our lives. Once we realise the trap, out nature will be to get out of it and for that you need aspiration and hard work and surrender. Teachers appear, guides guide and the traps become lighter.

The traps will then gradually fall, and what we become and where we go in the process is the unspeakable mystery of what life is all about.

Reflections From My Calm Center

When we have lived long enough and look back, we will find that the slate has not been pristine. There have been good things that happened and there have been disappointments. We tend to hold on to the good things and reject the disappointments. We live our lives in a way that we seek the good things and avoid the disappointments. This makes life stressful. Let the sand of life be gently setting on your hands. Whatever stays, let it stay. Whatever falls, let it fall. If you try to grasp the sand, it all falls away. Let whatever comes into your life come, and whatever goes go. Let it come and go like everything-the seasons, time, leaves, flowers and life itself. For what you are is eternal and that can never be destroyed.

Don’t surround yourself with luxury. Do not seek good news, compliments or presents. There is no need to say the right thing, to pretend, to prove yourself or seek the respect of others. Do not try to cover up silence with noise. Do not try to fill the empty space with jobs or words or tasks that do not need to be done, have no meaning or purpose. Just be with your stillness and you will find there is no need to seek or strive because there is no need.

When you have moments without thought, you can hear the silence between sounds and beneath sound. The world you see has greater detail, sharpness, colour and depth. Everything looks refreshingly new. You feel part of the whole. Time stops and you are in the present. All this is what is most familiar to the deepest and truest part of you.

Use thought only when you have to deliberate, analyze or organize or you seek to imagine. Pick it and leave it when it is no longer needed. Let the past and future go and live now. Experience purely the stillness of your mind. Do not distort reality through interpretation.

Stop striving. Stop pushing. Give up this endless struggle. Accept that this is all there is and there is nothing more to gain or lose. If this moment is not good enough, then nothing will be and you will always be at war. Do not try to bend fate to your will. Allow life to unfold naturally, like the seasons. Let the river of life carry you. Flow easily and do not seek to swim to a place.

Do you wonder how you are going to pass the time? Do you wish you were someone else? Do you feel something’s not quite right? Do you catch your mind clinging to future dreams? Do you seek noise and activity? Then it means you are pushing yourself too hard, you have lost yourself in worries and responsibilities and you are stuck in the past and the future. You don’t need to do anything. Just be still and in the now and the water will become clear.

Do not lose yourself in diversions, entertainment, never-ending activity. Do not hide yourself behind beliefs and stories and illusions. Who are you? Where are you? What should you be doing here? Be still and the answers will come. The emptiness, solitude and silence will lead you to your true home.

If you cling hard, you become weary. Don’t fight. Change brings decay if you resist it. But if you accept and flow with it, it brings growth and renewal.

What you are is covered with beliefs, fantasies, stories, identities, emotions, thoughts, past and future. Slowly strip them and see what you truly are. A spark of the Eternal.

Leaves and flowers die. Who mourns? Many people die everyday. But not all of us mourn. We mourn for what we think is ours. But was it always ours. Where was your wife before you met her? Would you have mourned her death if she had died before you met? Where were your children before you brought them into this world? Is it all a dance of the Eternal in various shapes and forms. Death will happen unless we transform. Death will happen as a part of transformation. Death is something we shy away from, but why? It has to happen, isn’t it? Or are you going to be the first one to fight it and win? But if we were eternal then death has no meaning. It is just change like the leaves drop off in winter. But we need to realise this and once we do, our whole life becomes more calmer.

Once you feel the silence, even for a moment, life is never going to be the same again. For who you has tasted this nectar and will seek to do it again and again.

Do not cling, for one day you will have to let go. Prepare yourself like a traveller who knows she will be leaving soon and gives away her things and hands over her duties.

Slow down. Don’t strive. Don’t chase. Don’t get agitated. Don’t look forward. Look around, accept the now and be content.

The question of why the Eternal is born comes from the mind. The Truth regarding this question is beyond the mind and hence an answer cannot be given, it has to be found.

The insect, the fish, the bird, the animal and man have evolved. Is man the final? Who knows? But if the Divine is perfect, there is more to come.

True realisation brings forth the epiphany that what is happening is what has happened and the only way to make things happen that need to happen is to become one with the will of the Divine.

Do not seek second-hand and superficial happiness. Be happy with nothing, with no cause, without consuming or collecting. Then there will be no deception, disappointment or fading. The happiness of you is eternal.

You are a miniscule point in the grand scheme of things. Your problems, worries and perspectives are not important. But you are important. Because you are the Divine and this is your play in one sense. But you have be immersed in the Divine and merge your will to his will and then this miniscule point gradually expands to fill the whole universe and this point becomes a flowing expression of the whole.

A world that is reborn every minute. If you look carefully, everything, I mean everything is reborn every minute. Contemplate this and the mind becomes still.

There are a lot of problems in the prison and you can spend your whole life fixing them. But a luxurious prison is still a prison. The first step in becoming free is to realise you are trapped in a prison and then the steps will follow to help you get free. Seeking freedom in a prison is like seeking warmth in ice.

Can you conceive of a time when you did not exist? I cannot.

If you are aware, you can sense the strangeness of it all – of being alive, of being here, being this body, this world of form and the life that exist behind all this form.

Hear the silence behind the noise. Feel the space in the crowd. Sense peace among chaos and conflict. See the beauty in the ugly. When being alone is no longer lonely, when emptiness seems full and strangeness is familiar and home is everywhere, you start to sense the paradox that is life.

If you seek to succeed, you will fail. If you seek to fail, you will fail. The seeking is the issue. Fulfillment is not a place you seek, it the place from where you seek. If you seek without seeking, then success and failure are the same for what matters is beyond these states.

If you want endless pleasure, wealth or fame, you will always want. You will never reach peace. Desire is gross, it is subtle. It is like the layers of an onion and peeling each one reveals more layers. Don’t desire anything except the end of desire. To do so, we have to become hand-maids of the Divine-like the sun, moon, earth, water and sky.

Savour this world, this life as it will pass sooner or later. It is a project of the Divine and you are an subject. Be fearless, empty and step aside and allow the Divine to work his will in and through you.

The essence of you is existence, consciousness and bliss – all Eternal, all Divine.

The Qualities That Make Warren Buffett The Man He Is

This post contains extracts of Buffett’s words from the book: Being Warren Buffett-life lessons from a cheerful billionaire by Nic Liberman.


For the right business – and the right people -we can provide a good home.

Charlie Munger, our Vice Chairman, and I really have only two jobs. One is attract and keep outstanding managers to run our various operations. Our main contribution has been to not get in their way. This approach seems elementary: if my job were to manage a golf team – and if Jack Nicklaus or Arnold Palmer were willing to play for me – neither would get a lot of directives from me about how to swing.

[M]y message to them [his managers] has been simple: Run your business as if it were the only asset your family will own over the next hundred years. Almost invariably they do just that and, after taking care of the needs of their business, send excess cash to Omaha for me to deploy.

Our attitude, however, fits our personalities and the way we want to live our lives. Churchill once said, “You shape your houses and then they shape you.” We know the manner in which we wish to be shaped. For that reason, we would rather achieve a return of X while associating with people whom we strongly like and admire than realize 110% of X by exchanging these relationships for uninteresting or unpleasant ones.

My job is to make sure that I don’t do anything that kills my managers’ love of the business.

I look into their eyes and try to figure out whether they love the money, or if they love the business…If they don’t love the business, I can’t put money into it…

We need 80%…It is important to us that the family members who run the business remain as owners.

It is a real pleasure to work with managers who enjoy coming to work each morning and, once there instinctively and unerringly think like owners. We are associated with some of the very best.

When you have able managers of high character running businesses about which they are passionate, you can have a dozen or more 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. Charlie and I could work with double the number of managers we now have, so long as they had the rare qualities of the present ones…For good reasons, we had very high expectations when we joined with these managers. In every case, however, our experience has greatly exceeded those expectations. We have received far more than we deserve, but we are willing to accept such inequities. (We subscribe to the view Jack Benny expressed upon receiving an acting award: “I don’t deserve this, but then, I have arthritis and I don’t deserve that either.”)

I have it from unreliable sources that the cost of the voyage Isabella originally underwrote for Columbus was approximately $30,000. This has been considered at least a moderately successful utilization of venture capital. Without attempting to evaluate the psychic income derived from finding a new hemisphere, it must be pointed out that even had squatter’s rights prevailed, the whole deal was not exactly another IBM. Figured very roughly, the $30,000 invested at 4% compounded annually would have amounted to something like $2,000,000,000,000 (that’s $2 trillion for those of you who are not government statisticians) by 1962. Historical apologists for the Indians of Manhattan may find refuge in similar calculations. Such fanciful geometric progressions illustrate the value of either living a long time, or compounding your money at a decent rate. I have nothing particularly helpful to say on the former point.


It’s hard to teach a new dog old tricks.

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

Regardless of price, we have no interest in all in selling any good businesses that Berkshire owns, and are very reluctant to sell sub-par businesses – even if that hurts performance – as long as we expect them to generate at least some cash and as long as we feel good about their managers and labour relations.

Agatha Christie, whose husband was an archaeologist, said  that was the perfect profession for one’s spouse: “The older you become, the more interested they are in you.”

Our goal is to attract long-term owners who, at the time of  purchase, have no timetable or price target for sale but plan  instead to stay with us indefinitely. We don’t understand the  CEO who wants lots of stock activity, for that can be achieved  only if many of his owners are constantly exiting. At what other  organization – school, club, church, etc. – do leaders cheer when  members leave? (However, if there were a broker whose livelihood  depended upon the membership turnover in such organizations, you  could be sure that there would be at least one proponent of activity, as in: “There hasn’t been much going on in Christianity  for a while; maybe we should switch to Buddhism next week.“)


A public opinion poll is no substitute for thought.

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.
Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.
Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.
But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. 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. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.” (Never invest without knowing your edge.) 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”?
The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.
Following Ben’s teachings, Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.
Sometimes, of course, the market may judge a business to be more valuable than the underlying facts would indicate it is. In such a case, we will sell our holdings. Sometimes, also, we will sell a security that is fairly valued or even undervalued because we require funds for a still more undervalued investment or one we believe we understand better.
We need to emphasize, however, that we do not sell holdings just because they have appreciated or because we have held them for a long time. (Of Wall Street maxims the most foolish may be “You can’t go broke taking a profit.”) We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.

It is unquestionably true that the investment companies have their money more conventionally invested than we do. To many people conventionality is indistinguishable from conservatism. In my view, this represents erroneous thinking. Neither a conventional nor an unconventional approach, per se, is conservative.
Truly conservative actions arise from intelligent hypotheses, correct facts, and sound reasoning. These qualities may lead to conventional acts, but there have been many times when they have led to unorthodoxy. In some corner of the world they are probably still holding regular meetings of the Flat Earth Society.
We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don’t. A public opinion poll is no substitute for thought. When we really sit back with a smile on our face is when we run into a situation we can understand, where the facts are ascertainable and clear, and the course of action obvious. In that case–whether conventional or unconventional–whether others agree or disagree–we feel we are progressing in a conservative manner.


I’m no genius, I’m smart in spots – but I stay around those spots.


To earn even 15% annually over the next decade  (assuming we continue to follow our present dividend policy, about which more will be said later in this letter) we would need profits aggregating about $3.9 billion. Accomplishing this will require a few big ideas – small ones just won’t do. Charlie Munger, my partner in general management, and I do not have any such ideas at present, but our experience has been that they pop up occasionally. (How’s that for a strategic plan?)

Both our operating and investment experience cause 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.

We expect our insurance business to both grow and make significant amounts of money – but progress will be distinctly irregular and there will be major unpleasant surprises from time to time. It’s a treacherous business and a wary attitude is essential. We must heed Woody Allen: “While the lamb may lie down with the lion, the lamb shouldn’t count on getting a whole lot of sleep.”

At Berkshire, we have no view of the future that dictates what businesses or industries we will enter. Indeed, we think it’s usually poison for a corporate giant’s shareholders if it embarks upon new ventures pursuant to some grand vision. We prefer instead to focus on the economic characteristics of businesses that we wish to own and the personal characteristics of managers with whom we wish to associate – and then to hope we get lucky in finding the two in combination.

Our gain in net worth during the year was $613.6 million, or 48.2%. It is fitting that the visit of Halley’s Comet coincided with this percentage gain: neither will be seen again in my lifetime.


We will not normally pay a lot in any purchase for what we are supposed to bring to the party – for we find that we don’t ordinarily bring a lot.

In the end, you know, we are very minor blips in a cosmic story. Aspirations for importance or significance are the illusions of the ignorant. All our hopes are minor, except to us; but some things matter because we choose to make them matter. What might make a difference to us, I think, is whether in our tiny roles, in our brief time, we inhabit life gently and add more beauty than ugliness. – Jamie G March

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 rather than because we acquired any ability to clear seven-footers.

The results of the first ten years have absolutely no chance of being duplicated or even remotely approximated during the next decade. They may well be achieved by some hungry twenty-five year old working with $105,100 initial partnership capital and operating during a ten year business and market environment which is frequently conducive to successful implementation of his investment philosophy.
They will not be achieved by a better fed thirty-six year old working with our $54,065,345 current partnership capital who presently finds perhaps one-fifth to one-tenth as many really good ideas as previously to implement his investment philosophy.

Charlie, bless him, never lets me forget Ben Franklin’s advice: “A small leak can sink a great ship.”

What we do know, however, is that occasional outbreaks of  those two super-contagious diseases, fear and greed, will forever  occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

The buyer of insurance receives only a promise in exchange for his cash. The value of that promise should be appraised against the possibility of adversity, not prosperity.


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

If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter. If others claim predictive skill in those industries — and seem to have their claims validated by the behavior of the stock market — we neither envy nor emulate them. Instead, we just stick with what we understand. If we stray, we will have done so inadvertently, not because we got restless and substituted hope for rationality. Fortunately, it’s almost certain there will be opportunities from time to time for Berkshire to do well within the circle we’ve staked out.

We will not follow the frequently prevalent approach of investing in securities where an attempt to anticipate market action overrides business valuations. Such so-called “fashion” investing has frequently produced very substantial and quick profits in recent years (and currently as I write this in January). It represents
an investment technique whose soundness I can neither affirm nor deny. It does not completely satisfy my intellect (or perhaps my prejudices), and most definitely does not fit my temperament. I will not invest my own money based upon such an approach hence, I will most certainly not do so with your money. Finally, we will not seek out activity in investment operations, even if offering splendid profit expectations, where major human problems appear to have a substantial chance of developing.

John Maynard Keynes, whose brilliance as a practicing investor matched his brilliance in thought, wrote a letter to a business associate, F. C. Scott, on August 15, 1934 that says it all: “As  time goes on, I get more and more convinced that the right method  in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which  one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. . . . One’s knowledge and experience are definitely limited and there are
seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”

I am likely to limit myself to things which are reasonably easy, safe, profitable and pleasant.

I’ve said many times that when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. I just wish I hadn’t been so energetic in creating examples. My behavior has matched that admitted by Mae West: “I was Snow White, but I drifted.”

Experience, however, indicates that the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago. That is no argument for managerial complacency. Businesses always have opportunities to improve service, product lines, manufacturing techniques, and the like, and obviously these opportunities should be seized. But a business that constantly encounters major change also encounters many chances for major error. Furthermore, economic terrain that is forever shifting violently is ground on which it is difficult to build a fortress-like business franchise. Such a franchise is usually the key to sustained high returns.

A far more serious problem occurs when the management of a great company gets sidetracked and neglects its wonderful base business while purchasing other businesses that are so-so or worse. When that happens, the suffering of investors is often prolonged. Unfortunately, that is precisely what transpired years ago at both Coke and Gillette. (Would you believe that a few decades back they were growing shrimp at Coke and exploring for oil at Gillette?) Loss of focus is what most worries Charlie and me when we contemplate investing in businesses that in general look outstanding. All too often, we’ve seen value stagnate in the presence of hubris or of boredom that caused the attention of managers to wander. That’s not going to happen again at Coke and Gillette, however – not given their current and prospective managements.


We never take the one-year figure very seriously. After all, why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off? Instead, we recommend not less than a five-year test as a rough yardstick of economic performance.

Since the whole subject of compounding has such a crass ring to it, I will attempt to introduce a little class into this discussion by turning to the art world. Francis I of France paid 4,000 ecus in 1540 for Leonardo da Vinci’s Mona Lisa. On the off chance that a few of you have not kept track of the fluctuations of the ecus, 4,000 converted out to about $20,000.
If Francis had kept his feet on the ground and he (and his trustees) had been able to find a 6% after-tax investment, the estate now would be worth something over $1,000,000,000,000,000. That’s $1 quadrillion, or over 3,000 times the present national debt, all from 6%. I trust this will end all discussion in our household about any purchase of paintings qualifying as an investment.
However, as I pointed out last year, there are other morals to be drawn here. One is the wisdom of living a long time. The other impressive factor is the swing produced by relatively small changes in the rate of compound.

We find doing nothing the most difficult task of all.

In studying the investments we have made in both subsidiary  companies and common stocks, you will see that we favor businesses and industries unlikely to experience major change. The reason for that is simple: Making either type of purchase, we are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek.

Fresh ideas, new products, innovative processes and the like cause our country’s standard of living to rise, and that’s clearly good. As investors, however, our reaction to a fermenting industry is much like our attitude toward space exploration: We applaud the endeavor but prefer to skip the ride.

Investment managers are even more hyperkinetic: their behavior during trading hours makes whirling dervishes appear sedated by comparison. Indeed, the term “institutional investor” is becoming one of those self-contradictions called an oxymoron, comparable to “jumbo shrimp,” “lady mudwrestler” and “inexpensive lawyer.”

Berkshire, however, has a shareholder base — which it will have for decades to come — that has the longest investment horizon to be found in the public-company universe. Indeed, a majority of our shares are held by investors who expect to die still holding them. We can therefore ask our CEOs to manage for maximum long-term value, rather than for next quarter’s earnings. We certainly don’t ignore the current results of our businesses — in most cases, they are of great importance — but we never want them to be achieved at the expense of our building ever-greater competitive strengths.

Last year, in discussing how managers with bright, but adrenalin-soaked minds 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.”

Our present setup unquestionably lets me devote a higher percentage of my time to thinking about the investment process than virtually anyone else in the money management business. We continue to make more money when snoring than when active.

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.(It must be noted that your Chairman, always a quick study, required only 20 years to recognize how important it was to buy good businesses. In the interim, I searched for “bargains” – and had the misfortune to find some. My punishment was an education in the economics of short-line farm implement manufacturers, third-place department stores, and New England textile manufacturers.)

No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.


There’s much to be said for just putting one foot in front of the other every day.

Alas, what is “tight” and “cheap” money is far from clear at any particular time. We have no ability to forecast interest rates and – maintaining our usual open-minded spirit – believe that no one else can. Therefore, we simply borrow when conditions seem non-oppressive and hope that we will later find intelligent expansion or acquisition opportunities, which – as we have said – are most likely to pop up when conditions in the debt market are clearly oppressive. Our basic principle is that if you want to shoot rare, fast-moving elephants, you should always carry a loaded gun.

Imagine that Berkshire had only $1, which we put in a security that doubled by year end and was then sold. Imagine further that we used the after-tax proceeds to repeat this process in each of the next 19 years, scoring a double each time. At the end of the 20 years, the 34% capital gains tax that we would have paid on the profits from each sale would have delivered about $13,000 to the government and we would be left with about $25,250. Not bad. If, however, we made a single fantastic investment that itself doubled 20 times during the 20 years, our dollar would grow to $1,048,576. Were we then to cash out, we would pay a 34% tax of roughly $356,500 and be left with about $692,000.


When we were due to close the purchase at Charlie’s office, Jack was late. Finally arriving, he explained that he had been driving around looking for a parking meter with some unexpired time. That was a magic moment for me. I knew then that Jack was going to be my kind of manager.


Agonising over errors is a mistake, but acknowledging and analysing them can be useful, though that practice is rare in corporate boardrooms.

Our Vice Chairman, Charlie Munger, has always emphasized the study of  mistakes rather than successes, both in business and other  aspects of life. He does so in the spirit of the man who said: “All I want to know is where I’m going to die so I’ll never go there.” You’ll immediately see why we make a good team: Charlie likes to study errors and I have generated ample material for him, particularly in our textile and insurance businesses.

If the physiological rules that applied to Pinocchio  were to apply tome, my nose would now draw crowds.


Mae West had it right: “Too much of a good thing can be wonderful.”


In fairness, we’ve seen plenty of successes as well, some truly outstanding. There are many giant company managers whom I greatly admire; Ken Chenault of American Express, Jeff Immelt of G.E. and Dick Kovacevich of Wells Fargo come quickly to mind. But I don’t think I could do the management job they do. And I know I wouldn’t enjoy many of the duties that come with their positions –meetings, speeches, foreign travel, the charity circuit and governmental relations. For me, Ronald Reagan had it right: “It’s probably true that hard work never killed anyone – but why take the chance?” So I’ve taken the easy route, just sitting back and working through great managers who run their own shows. My only tasks are to cheer them on, sculpt and harden our corporate culture, and make major capital-allocation decisions. Our managers have returned this trust by working hard and effectively.


Why search for a needle buried in a haystack when one is sitting in plain sight?

Some Thoughts on Selling Your Business*

*This is an edited version of a letter I sent some years ago to a man who had indicated that he might want to sell his family business. I present it here because it is a message I would like to convey to other prospective sellers. — W.E.B.

Dear _____________:

Here are a few thoughts pursuant to our conversation of the other day.

Most business owners spend the better part of their lifetimes building their businesses. By experience built upon endless repetition, they sharpen their skills in merchandising, purchasing, personnel selection, etc. It’s a learning process, and mistakes made in one year often contribute to competence and success in succeeding years.

In contrast, owner-managers sell their business only once — frequently in an emotionally-charged atmosphere with a multitude of pressures coming from different directions. Often, much of the pressure comes from brokers whose compensation is contingent upon consummation of a sale, regardless of its consequences for both buyer and seller. The fact that the decision is so important, both financially and personally, to the owner can make the process more, rather than less, prone to error. And, mistakes made in the once-in-a-lifetime sale of a business are not reversible.

Price is very important, but often is not the most critical aspect of the sale. You and your family have an extraordinary business — one of a kind in your field — and any buyer is going to recognize that. It’s also a business that is going to get more valuable as the years go by. So if you decide not to sell now, you are very likely to realize more money later on. With that knowledge you can deal from strength and take the time required to select the buyer you want.

If you should decide to sell, I think Berkshire Hathaway offers some advantages that most other buyers do not. Practically all of these buyers will fall into one of two categories:

(1) A company located elsewhere but operating in your business or in a business somewhat akin to yours. Such a buyer — no matter what promises are made — will usually have managers who feel they know how to run your business operations and, sooner or later, will want to apply some hands-on “help.” If the acquiring company is much larger, it often will have squads of managers, recruited over the years in part by promises that they will get to run future acquisitions. They will have their own way of doing things and, even though your business record undoubtedly will be far better than theirs, human nature will at some point cause them to believe that their methods of operating are superior. You and your family probably have friends who have sold their businesses to larger companies, and I suspect that their experiences will confirm the tendency of parent companies to take over the running of their subsidiaries, particularly when the parent knows the industry, or thinks it does.

(2) A financial maneuverer, invariably operating with large amounts of borrowed money, who plans to resell either to the public or to another corporation as soon as the time is favorable. Frequently, this buyer’s major contribution will be to change accounting methods so that earnings can be presented in the most favorable light just prior to his bailing out. I’m enclosing a recent article that describes this sort of transaction, which is becoming much more frequent because of a rising stock market and the great supply of funds available for such transactions.

If the sole motive of the present owners is to cash their chips and put the business behind them — and plenty of sellers fall in this category — either type of buyer that I’ve just described is satisfactory. But if the sellers’ business represents the creative work of a lifetime and forms an integral part of their personality and sense of being, buyers of either type have serious flaws.

Berkshire is another kind of buyer — a rather unusual one. We buy to keep, but we don’t have, and don’t expect to have, operating people in our parent organization. All of the businesses we own are run autonomously to an extraordinary degree. In most cases, the managers of important businesses we have owned for many years have not been to Omaha or even met each other. When we buy a business, the sellers go on running it just as they did before the sale; we adapt to their methods rather than vice versa.

We have no one — family, recently recruited MBAs, etc. — to whom we have promised a chance to run businesses we have bought from owner-managers. And we won’t have.

You know of some of our past purchases. I’m enclosing a list of everyone from whom we have ever bought a business, and I invite you to check with them as to our performance versus our promises. You should be particularly interested in checking with the few whose businesses did not do well in order to ascertain how we behaved under difficult conditions.

Any buyer will tell you that he needs you personally — and if he has any brains, he most certainly does need you. But a great many buyers, for the reasons mentioned above, don’t match their subsequent actions to their earlier words. We will behave exactly as promised, both because we have so promised, and because we need to in order to achieve the best business results.

This need explains why we would want the operating members of your family to retain a 20% interest in the business. We need 80% to consolidate earnings for tax purposes, which is a step important to us. It is equally important to us that the family members who run the business remain as owners. Very simply, we would not want to buy unless we felt key members of present management would stay on as our partners. Contracts cannot guarantee your continued interest; we would simply rely on your word.

The areas I get involved in are capital allocation and selection and compensation of the top man. Other personnel decisions, operating strategies, etc. are his bailiwick. Some Berkshire managers talk over some of their decisions with me; some don’t. It depends upon their personalities and, to an extent, upon their own personal relationship with me.

If you should decide to do business with Berkshire, we would pay in cash. Your business would not be used as collateral for any loan by Berkshire. There would be no brokers involved.

Furthermore, there would be no chance that a deal would be announced and that the buyer would then back off or start suggesting adjustments (with apologies, of course, and with an explanation that banks, lawyers, boards of directors, etc. were to be blamed). And finally, you would know exactly with whom you are dealing. You would not have one executive negotiate the deal only to have someone else in charge a few years later, or have the president regretfully tell you that his board of directors required this change or that (or possibly required sale of your business to finance some new interest of the parent’s).

It’s only fair to tell you that you would be no richer after the sale than now. The ownership of your business already makes you wealthy and soundly invested. A sale would change the form of your wealth, but it wouldn’t change its amount. If you sell, you will have exchanged a 100%-owned valuable asset that you understand for another valuable asset — cash — that will probably be invested in small pieces (stocks) of other businesses that you understand less well. There is often a sound reason to sell but, if the transaction is a fair one, the reason is not so that the seller can become wealthier.

I will not pester you; if you have any possible interest in selling, I would appreciate your call. I would be extraordinarily proud to have Berkshire, along with the key members of your family, own _______; I believe we would do very well financially; and I believe you would have just as much fun running the business over the next 20 years as you have had during the past 20.


/s/ Warren E. Buffett

The Changing Eternal

The limitless space that surrounds,
The unending time that exists,
Is mysterious and magical,
Baffling the thinking mind which
Creates limits that it can handle.

But this constricts us, confines us
To a world that is like a prison,
That does not satisfy the inner being
Even if it showers us with luxuries.

We yearn to live in the limitless space,
And live in unending time,
Where we live and change like the
Sun, moon, leaves and flowers.

Identified with the Divine, the soul
Has found its home in
The Changing Eternal.