‍Blue Ribbon

• In Forbes, Buffett wrote that it was time for investors to buy stocks. “The future is never clear,” he wrote; “you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.”

Pharaoh

• The method was the same: Estimate an investment’s intrinsic value, handicap its risk, buy using margin of safety, concentrate, stay in the circle of competence, let it roll as compounding did the work.

Rubicon

• Leverage, however, was like gasoline. In a rising market, a car used more of it to go faster. In a crash, it was what made the car blow up.
• Risk was “inextricably bound up in your time horizon for holding an asset.”

Thumb-Sucking, and Its Hollow-Cheeked Result

• Who would tell me all the bad news, because good news always takes care of itself in business.

The Lottery

• “Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, ‘One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one that is born in the United States?’ It says something about the fact that society has something to do with your fate and not just your innate qualities. The people who say, ‘I did it all myself,’ and think of themselves as Horatio Alger—believe me, they’d bid more to be in the United States than in Bangladesh. That’s the Ovarian Lottery.”

To Hell with the Bear

• A money manager had warned Long-Term, early on, that its strategy of eking out teensy profits on a zillion trades was like “picking up nickels in front of a bulldozer.” Now—surprise—the bulldozer turned out to have a Ferrari engine, and it was racing toward them at eighty miles an hour.
• It is hard to overstate the significance of a central-bank-led rescue of a private money manager. If a hedge fund, however large, was too big to fail, then what large financial institution would ever be allowed to collapse? The government risked becoming the margin of safety. No serious consequences had followed the derivatives near-meltdown. The market afterward seemed to behave as if no serious consequences ever could. This threat, the so-called “moral hazard,” was a chronic worry of regulators. But the world would always be full of people who loved risk. When it came to business, Buffett’s veins were filled with ice, but plenty of other people’s pulsed with adrenaline. Some of them had even been members of his own family.

Chickenfeed

• Buffett avoided technology stocks partly because these fast-moving businesses could never be run by a ham sandwich.
• He accompanied his “not unhappy with” remark with the warnings that interest rates must stay well below average and the economy stay unusually hot for the market to meet investors’ expectations. This was the same Sun Valley speech where Buffett had explained that investing is laying out money today to get money back tomorrow, like Aesop’s bird in the hand versus the birds in the bush; that interest rates are the price of waiting for the birds in the bush; that for periods sometimes as long as seventeen years the market had gone exactly nowhere; and that at other times—such as the present—the value of stocks grows much faster than the economy. And, of course, he had closed this speech by comparing investors to a bunch of oil prospectors who were going to hell.
• In public, Buffett repeated—in almost unvarying terms—the ideas that had made him famous: the margin of safety, the circle of competence, Mr. Market’s vagaries. He still maintained that a stock is a piece of a business, not a bunch of numbers on a screen.
• “You can’t do well in investing unless you think independently. And the truth is, you are neither right nor wrong because people agree with you. You’re right because your facts and reasoning are right. In the end, that’s what counts.”  

The Last Kay Party

• "Do what you love and work for whom you admire the most, and you’ve given yourself the best chance in life you can.”
• “You’d get very rich,” he said, “if you thought of yourself as having a card with only twenty punches in a lifetime, and every financial decision used up one punch. You’d resist the temptation to dabble. You’d make more good decisions and you’d make more big decisions.”

By the Rich, for the Rich

• Berkshire’s best opportunities always came at times of uncertainty, when others lacked the insight, resources, and fortitude to make the right judgments and commit. “Cash combined with courage in a crisis is priceless”.

Oracle

• “The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine”.
• “So if you had your choice, if you could put a hundred million dollars into a business that earns twenty percent on that capital—twenty million—ideally, it would be able to earn twenty percent on a hundred twenty million the following year and on a hundred forty-four million the following year and so on. You could keep redeploying capital at [those] same returns over time. But there are very, very, very few businesses like that... we can move that money around from those businesses to buy more businesses.” This was about as clear a lesson on business and investing as he would ever give. It explained why Berkshire was structured as it was.
• “I have this complicated procedure I go through every morning,” Buffett said, “which is to look in the mirror and decide what I’m going to do. And I feel at that point, everybody’s had their say.”

Frozen Coke

• “If you go from the first floor to the hundredth floor of a building and then go back to the ninety-eighth, you’ll feel worse than if you’ve just gone from the first to the second, you know. But you’ve got to fight that feeling, because you’re still on the ninety-eighth floor.”

Claim Checks

• Berkshire’s big money was always made in times of fear and panic. When others fled a stock and—especially—the whole stock market, Buffett saw that as a cue to buy. In the 1960s he bought American Express; in the 1970s he bought GEICO and the Washington Post, and any number of other stocks that positioned Berkshire for its long gallop into the 1990s; in the early 1980s, when investors thought equities were dead, he bought stocks greedily. Later, he bought Coca-Cola when its price war with Pepsi seemed to have eroded the franchise; he scooped up undervalued stocks after the market crash of 1987. He had tried to buy Long-Term Capital Management during the panic its failure created.
• No group of shareholders in history had ever missed their CEO as much as Berkshire’s shareholders would miss Buffett when he was finally gone. None had ever thought of their CEO as a teacher and a friend the way Buffett’s shareholders had thought of him. The man who had made billions had touched thousands of people and had a relationship that felt personal to countless others whom he’d never even met or seen. But oddly enough, no matter how many fan letters Buffett got or how many autographs he signed, he never fully grasped how loved and admired he was. He still got as excited about every letter and request for an autograph as though it were the first.

The Crisis

• “Doing first-class business in a first-class way.”
• Buffett would always love reading newspapers, but his investing was tightly focused on simple businesses that were as close to immortal as possible. Newspapers—in fact, any sort of media—no longer qualified. Candy, on the other hand, was an immortal business, and the economics of the candy business remained predictable.
• Buffett had indeed learned through experience that “when in doubt keep holding”; he said, “I’ve made most of my money sitting on my ass.”
• And it would soon turn out that Coca-Cola’s stock price was tracking the overall stock market, which would be revealed as part of another speculative bubble, this one buoyed by the ebullient “consumer economy” and driven by cheap credit. Although average wages in the United States had risen only 0.6 percent a year since 1998 and consumer confidence had been declining steadily, GDP had risen 2.6 percent a year. This was an artificial increase—boosted by an $ 8.6 trillion increase in personal indebtedness and an almost $ 20 trillion increase in household net worth—that came from rising real estate values and the stock market. In essence, consumer debt had inflated the economy beyond its real size. This economic “growth” was simply borrowed from the future, and would have to be paid back with interest.
• “You absolutely never want to be in a position where tomorrow morning you have to depend on the kindness of strangers in the financial world. I spent a lot of time thinking about that. I never want to have to come up with a billion dollars tomorrow morning. Well, a billion I could. But any significant amount. Because you just cannot be sure of anything. You have to think about things that have never happened before. You always want to have plenty of money around.”
• In the midst of all the chaos of the spring of 2008, there sat Buffett, whose thinking about value and risk had not changed in the nearly sixty years of his career. There are always people who say that the rules have changed. But it only looks that way, he said, if the time horizon is too short.
• “Stocks are the things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund, and buy it over time. Be greedy when others are fearful, and fearful when others are greedy, but don’t think you can outsmart the market.
• Challenged on his decision not to sell financial stocks in the spring of 2008, he said he only sold when a company’s competitive advantage disappeared, he lost faith in management, or he needed cash. He was cutting a fine distinction in trying to separate his criteria for selling stocks when companies’ circumstances were changing materially all the time, versus selling whole businesses, which happened only when they became economically unviable or had persistent labor problems. With newspapers folding in cities all over the United States, he also went so far as to raise the possibility of eventually shuttering the Buffalo News, but said that as long as the News made a little money and had no labor problems, he and Munger would “keep it going.”
• He spoke optimistically of the long-term future of the U.S. economy, which had survived two world wars, many panics and depressions, the resignation of a president in disgrace, and civil unrest. At various times, he had discussed what he expected to be inevitable inflation and the declining value of the dollar. Yet it was the “unleashed potential” of the human race that caused economies to grow over time, he said; in other words, productivity. The world’s system to increase productivity works naturally and has been working for a long time.

The Snowball

• What he was teaching were the lessons that had emerged from the unfolding of his own life. In that unfolding, he admits to ambition, but he denies that there was ever a plan. He finds it hard to acknowledge his own powerful hand as the creator of the sweeping canvas that is his masterpiece. As he tells the story, a series of happy accidents built Berkshire Hathaway; a moneymaking machine sprang up without design. Its elegant structure of true partnership with like-minded shareholders built on what Munger called a “seamless web of deserved trust,” with an investment portfolio buried inside an interlocked set of businesses whose capital could be moved at will, all of them turbocharged with “float”—all this had come about, he claims, simply as a reflection of his personality. The final product was a model that could be analyzed and understood, yet few did and, for the most part, nobody coat-tailed it.