The Rarest Warren Buffett Quotes

I went through my case files recently covering the business lessons that I learned from Warren Buffett, and I translated from my list some of the quotes that I found the most instructive. I gave special emphasis on the quality of the insight and the uniqueness of the quote:

  1. Buffett, on successful investing in general: “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”

 

  1. On the temptation to invest in poor businesses at a cheap price, Buffett stated in his 1972 letter: “Your chairman made the decision a few years ago to purchase Waumbac Mills in Manchester, New Hampshire, thereby expanding our textile commitment. By any statistical test, the purchase was a statistical bargain; we bought well below the working capital of the business and, in effect, got very substantial amounts of machinery and real estate for less than nothing. But the purchase was a mistake. While we labored mightily, new problems arose as fast as old problems were tamed.”

 

  1. Buffett, discussing his frequent mistake of ceasing to buy a stock that goes up in value while he is accumulating shares: “My biggest lost opportunity was probably Freddie Mac. We owned a savings and loan, and that entitled us to buy 1% of Freddie Mac stock when it first came out. We should have bought 100 S&Ls and loaded up on Freddie Mac. What was I doing? I was sucking my thumb. The biggest cause of this kind of mistake, is that I stop buying when the stock starts moving up. I got so enamored of how cheap it was when I started buying that I stopped. I have often folded by tent. I believe in loading up on these things. There wasn’t anyone who thought it was going to disappear.”

When Warren Buffett toured the Hearst Castle, he reportedly grew frustrated with the tour guide’s stories of how Hearst spent his fortune and exclaimed: “Don’t tell us how he spent it! Tell us how he made it!”

  1. Favorably citing the old age of Berkshire’s management team: “We find it’s hard to teach a young dog old tricks. But we haven’t had lots of problems with people who hit the ball out of the park year after year. Even though they’re rich, they love what they do. And nothing ever happens to our managers. We try to offer them immortality.”

 

  1. Buffett’s keen observation about how human nature manifests itself in corporate management teams’ zeal for acquisitions: “I’ve observed that many acquisitions-hungry managers were apparently mesmerized by their childhood reading of the story about the frog-kissing pricess. Remembering her success, they pay dearly for the right to kiss corporate toads, expecting wondrous transfigurations. Ultimately, even the most optimistic manager must face reality. Standing knee-deep in unresponsive toads, he announces an enormous ‘restructuring’ charge. In this corporate equivalent of a Head Start program, the CEO receives the education but the stockholders pay the tuition.”

 

  1. On the decision to put 40% of his net worth into American Express stock after the salad oil scandal in which inventories securing American Express’ advance of credit were filled with water in the barrel: “A great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable problem.”

 

  1. Long critical of accounting shenanigans, Buffett described his north star: “Those who think about accounting issues should never forget one of Abraham Lincoln’s favorite riddles. How many legs does a dog have if you call his tail a leg? Four, because calling a tail a leg does not make it a leg.”

 

  1. On the high insurance premiums that Berkshire receives for insuring unusual risks: “We insured (1) the life of Mike Tyson for a sum that is large initially and that fight-by-fight, gradually declines to zero over the next few years; (2) Lloyd’s of London against more than 225 of its ‘names’ dying during the year, and (3) the launch, and a year in orbit, of two Chinese satellites”.

 

  1. After trashing an aluminum operator in a speech to Columbia business school students, a student asked why Buffett didn’t short the stock: “Going short is betting on something that’ll happen. If you go short for meaningful amounts, you can go broke. If something is selling for twice what it’s worth, what’s to stop it from selling for 10 times what it’s worth? You’ll be right eventually, but you may be explaining it to somebody in the poorhouse.”

 

  1. On how he got the initial idea to invest in Coca-Cola after his neighbor and Coca-Cola executive Don Keough sent him a sample of Cherry coke after years of putting grenadine into Pepsi: “Don sent me a trial sample of the formula for Cherry Coke very early on—and I loved it. I wrote him back saying he could save all his test-marketing money, send me a portion of what he’d spend otherwise and that it was going to be a great success.”

 

  1. Though he has been quiet about the prospects of a Coca-Cola takeover since joining forces with 3G, the old Buffett once said this in a 1989 interview with Fortune magazine: “A takeover of Coca-Cola would be like Pearl Harbor.”

 

  1. Buffett once purchased the Baltimore department store Hochschild Kohn because he thought the manager was extraordinarily talented, but had reservations about the business itself which ultimately proved unsuccessful and led to a sale: “After ending our corporate marriage to Hochschild Kohn, I had memories like those of the husband in the country song, ‘My Wife Ran Away With My Best Friend and I Still Miss Him a Lot.”

 

  1. Responding to a critical question at the 1988 Berkshire Hathaway shareholder meeting in which a shareholder told Berkshire to act more like Kellogg: “If you want to be loved, it’s clearly better to sell high-priced corn flakes than low-priced auto insurance.”

 

  1. On succession planning: “Business management can be viewed as a three-act play—the dream, the execution, and the passing of the baton.”

 

  1. Warren Buffett, testifying in the antitrust suit involving IBM in the 1990s, was asked by a government lawyer if he believed everything Benjamin Graham said was accurate. Buffett said yes, and the government lawyer read a definition of depreciation from the book that supported the antitrust claim. Buffett disagreed with the definition, and added: “I think you’ll find that it was from the fifth edition of The Intelligent Investor—and that particular chapter wasn’t written by Benjamin Graham. It was cited as having been written by an expert on utility companies. And that happens to be the definition of this other gentleman, not Ben Graham. And I don’t agree with it.”

 

  1. Speaking to Columbia business school students in 1993 about investing in companies with pricing power: “Did I think See’s Candies could charge 20 cents a pound more for candy? Sure. And sure enough, they could. If you own See’s Candy, and look in the mirror and say, ‘Mirror, mirror on the wall, how much do I charge for candy this fall?’ and it says, ‘More,’ it’s a good business.”

 

  1. Buffett served on the investment committee for Grinnell College in the 1980s and 1990s, famously investing in Intel stock early in its infancy even though the committee later sold the stock: “We did buy 10% of the original issue. But the genius who ran Grinnell’s investment committee managed to sell those shares a few years later—although I won’t give you his name. And there’s no prize for anybody who calculates the value of those shares today.”

 

  1. On business changes over the course of his career: “Today is significantly different from the 1950s. Back then there was less disclosure, but the disclosure you had was accurate. In the 1960s you started to have more games being played. Conglomerates were trying to pump up their stock to use as currency in takeovers, but old-line America didn’t do it. It was still the good guys vs. the bad guys. It’s not like today, where too often otherwise high-grade companies start with a number for quarterly earnings and work backward. Situational ethics has reared its ugly head.”

 

  1. Although KKR famously purchased RJR Nabisco at the fulcrum of the Junk Bond Era, Buffett made a handsome profit by purchasing the debt that financed the transaction: “Our other major portfolio change last year was large additions to our RJR Nabisco bonds, securities that we first bought in late 1989. At yearend 1990 we had $440 imillion invested in these securities, an amount that approximated market value. As I write this, their market value has risen by more than $150 million. I’m not an engineer. I don’t even know why the light goes on when I flip the switch. I do, however, know how to pick junk bonds.”

 

  1. Buffett laying out the math that explained why long-term capital management collapsed: “Long-term capital used leverage to magnify returns for investors. At the end of August 1998, the hedge fund had $2.3 billion in capital, which it had used as collateral to borrow securities worth about $125 billion. It had then used those securities as collateral to buy derivatives and forward contracts, whose value was tied to assets at one time worth $1 trillion.”

 

  1. On the rise of footnotes in accounting documents: “If I can’t understand the accounting, someone doesn’t want me to.”

 

  1. After accepting the role of interim chairman at Salomon Brothers, where Berkshire owned 10% of the company, Buffett paraphrased the financial dilemma as follows: “Salomon owed more money than any other institution in the United States, with the exception of Citicorp, the big bank. Salomon’s total liabilities were just under $150 billion. Now $150 billion was roughly equal to the profits of all of the companies on the New York Stock Exchange that year…The problem about this $150 billion was that basically, it almost all came due within the next couple of weeks…so we were faced with the fact all over the world, because the money was owed all over the world, that people on that Friday and the following Monday were going to want us to pay back $140 odd billion or something close to it, which is not the easiest thing to do.”

 

  1. Buffett’s explanation as to why Berkshire does not telegraph its stock picks: “Despite our policy of candor, we will discuss our activities in marketable securities only to the extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisitions are. Therefore, we normally will not talk about our investment ideas. This ban extends to securities we have sold (because we may purchase them again) and to stocks we are incorrectly rumored to be buying. If we deny the reports but say ‘no comment’ on other occasions, the no-comments become confirmation.”

 

  1. While on the Board of Directors, Buffett tried to justify the high price of stock repurchases of Coca-Cola at valuations of nearly triple its historical average: “40x earnings sounds like a very high price, when you name it in terms of P/E to buy back stock at that kind of number. Still, it’s the best large business in the world. I approve of Coke’s repurchases. I’d rather them repurchase at 15x earnings, but it’s a very efficiency way of using capital.”

 

  1. On the threat of a nuclear attack: “We’re going to have something in the way of a major nuclear event in this country whether it will happen in 10 years or 10 minutes or 50 years…it’s a virtual certainty.”

 

  1. Explaining the advantage of selling a business to Berkshire: “When someone builds a business, they’re building their own masterpiece. If we purchased that painting, we’re offering to hang it, not buy it and quickly sell it to someone else. I tell a perspective seller they can choose to hand it over to Berkshire where I will never tell them to add more blue paint or less red paint, but simply hang it. Consider Berkshire the Metropolitan Museum. Your alternative is to hang it in a porn shop.”

 

  1. Buffett, reminding investors that it is only necessary to follow Benjamin Graham’s precepts in The Intelligent Investor without resorting to fancy formulas: “The fact that it’s so simple makes people reluctant to reach for it. If you’ve gone and gotten a Ph.D. and spent years learning how to do all kinds of tough things mathematically, to have to come back to this is—it’s like studying for the priesthood and finding out that the Ten Commandments were all you needed.”

 

  1. In his 1965 letter to investors in the Buffett Partnership: “The course of the stock market will largely determine when we’ll be right, but the accuracy of our analysis will determine whether we’ll be right. In other words, we concentrate on what should happen, not when it should happen. If we start deciding, based on our guesses and emotions, whether we will participate in a business where we have some long-run edge, we’re in trouble We will not sell out our interests in businesses when they are attractively priced just because some astrologer thinks the quotations may go even lower through forecasts. We’ll be right some of the time. The availability of a quotation for your business interests should always be an asset to be utilized if desired. If it gets silly enough in either direction, you take advantage of it. Its availability should never be turned into a liability whereby its periodic aberrations in turn form your judgments.”