Warren Buffett Quotes and Annual Letters

This is the master page on the 7 Circles website for all things Warren Buffett.

Here you will find Warren Buffett quotes and summaries of the Warren Buffett Annual Letters, together with lessons from analysing the reports.

The Warren Buffett Annual Letters

Click on the images below to go a summary report on any particular Annual Letter.


Warren Buffets annual letters 2017


Buffett's Annual Letters


Buffett's Annual Letters

2014Buffet's Annual Letters


Warren Buffett's Annual Letters


Warren Buffet letters


Buffett's Annual Letters


Warren Warren Buffett's Annual Letters - 2010


Warren Buffett's Annual Letters - 2009


Warren Buffett letters

Lessons for the Private Investor
  1. Investing involves forgoing consumption (purchasing power) now, so as to have the ability to consume more later (to have greater purchasing power) in the future.
  2. Risk is not beta / volatility, it is the chance that purchasing power might be destroyed.
  3. There are three kinds of investment:
    • currency-based investments
    • “greater fool” investments
    • productive assets
  4. Don’t buy “greater fool” investments
  5. Only buy currency-based investments when they are mispriced (junk-bond crisis) or when interest rates rise high enough to lead to capital gains on high-grade bonds when rates eventually fall.
  6. Productive assets will retain their purchasing-power through periods of inflation
    • they are the best investments and the safest
    • over a multi-decade time horizon, stocks are safer than bonds and cash, even though they are more volatile
  7. Always diversify
  8. Keep costs low
  9. Target 12-25% return on net tangible assets
  10. Avoid leverage – it will catch you out in time
  11. Don’t try to time the market
  12. Don’t use EBITDA as a valuation measure
  13. Don’t trust the net income number – book value and operating income are better guides
  14. When problems appear with an investment, sell quickly before things get worse
  15. Recognise your limitations.
  16. Focus on the future productivity (earnings) of the asset you are considering.
  17. The fact that an asset has appreciated in the recent past is never a reason to buy it.
  18. Never sell when stocks are well off their highs.
  19. Macro doesn’t matter in the long-run and may distract you.
  20. Accumulate shares over a long-period.
  21. If you plan to be a net buyer of shares in the future, you want them to be at low prices as you buy them.
  22. Derivatives are dangerous, especially contracts that don’t settle quickly.
  23. Black-Scholes doesn’t work for long-dated derivative contracts.
  24. A growing industry or sector doesn’t necessarily mean growing and profitable firms with rising share prices.
  25. Predictable profits are more important than being in a growth sector.
  26. An acquisition funded by issuing shares in an undervalued stock is likely to hurt the existing shareholders, especially if the target company is fully valued.
  27. Back-testing errors are common and underlying assumptions must always be checked – are we comparing like with like?
Other Lessons from analysing Berkshire Hathaway
  1. Compound annual growth in the share price of 21.6% over 50 years (vs. 9.9% for the index) is truly exceptional
  2. Book value is no longer a useful measure for BH
  3. The float from the insurance business appears to be a key factor in the way BH operates
  4. Warren thinks the capital-intensive, regulated businesses are undervalued
  5. Warren doesn’t like the treatment of intangible amortization in GAAP, and therefore doesn’t like EBITDA as a valuation measure
  6. Warren sees 12% pa return on net tangible assets as a minimum “good” return, and prefers 25%+ pa
  7. Integration and cooperation between subsidiaries (financial backing, manufacturing items for lease) improves their performance
  8. The conglomerate structure of BH allows it to allocate capital rationally and at minimal cost –  Warren and Charlie are not tied to the history of particular industries, or pressured by long-time colleagues with a vested interest in maintaining the status quo
  9. The track record and culture of BH means it is now the home of choice for the owners and managers of many outstanding businesses that come up for sale
  10. The BH plan for the future involves seeking out growth in all possible directions:
    • organic growth
    • bolt-on and larger standalone acquisitions
    • growth in non-subsidiary investments
    • controlling or even reducing the number of BH shares in circulation
  11. BH is now so big that future growth will be much closer to the rest of the market
  12. At some point in the future, it may not be possible to profitably re-invest all earnings – dividends or buy-back will be needed
  13. BH will make share repurchases whenever the BH stock price falls to 120% of book value
  14. BH will out-perform the S&P 500 in normal years, but not in good years for the S&P 500 (> 15% gains)
  15. Liquidity is king – BH will operate with at least $20 bn of spare cash and no material short-term obligations
  16. With 12% annual earnings and shares valued at 125% of net worth, a “sell-off” approach (at 3.2% pa) beats a dividend distribution of 4%. As long as these conditions persist, BH won’t issue dividends.
  17. When BH buys stock in a company that is repurchasing shares, they hope for two things:
    • that earnings will increase
    • that the stock underperforms the market
  18. BH will not be initiating any major derivatives positions, because of the requirements for collateral
  19. BH will sell firms only under two conditions:
    • the business is likely to be a long-term cash drain
    • it is strike-prone
  20. BH don’t buy businesses whose futures they can’t evaluate, no matter how exciting the growth prospects.
  21. BH lets its subsidiaries operate on their own, without supervising and monitoring them to any degree.
  22. BH makes no attempt to woo Wall Street.
  23. A CEO must not delegate risk control, because it’s too important.
Warren Buffett Quotes

Investing is the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future.

Risk is not beta (volatility relative to the market) but rather the probability of an investment causing its owner a loss of purchasing-power over his contemplated holding period.

Over any extended period of time this category of investing [productive assets] will prove to be the runaway winner … more important, it will be by far the safest.

There are certain things that cannot be adequately explained to a virgin either by words or pictures.

Charlie and I have always considered a “bet” on ever-rising U.S. prosperity to be very close to a sure thing.

You see a cockroach in your kitchen; as the days go by, you meet his relatives.

The … inescapable conclusion to be drawn from the past 50 years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities … whose values have been tied to American currency. That was also true in the preceding half-century, a period including the Great Depression and two world wars. … It is almost certain to be repeated during the next century.

Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however,  currency-denominated instruments are riskier investments … That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk.

Borrowed money has no place in the investor’s tool kit.

Market forecasters will fill your ear but will never fill your wallet.

You can’t get rich trading a hundred-dollar bill for eight tens.

If horses had controlled investment decisions, there would have been no auto industry.

It’s better to have a partial interest in the Hope diamond than to own all of a rhinestone.

When Wall Streeters tout EBITDA as a valuation guide, button your wallet.

Keep things simple and don’t swing for the fences.

When promised quick profits, respond with a quick “no.”

Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.

If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.

A climate of fear is your friend when investing; a euphoric world is your enemy.

Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.

We would rather be approximately right than precisely wrong.

To finish first, you must first finish.

A girl in a convertible is worth five in the phone book.

When it’s raining gold, reach for a bucket, not a thimble.

A climate of fear is the investor’s best friend.

Don’t ask the barber whether you need a haircut.

America’s best days lie ahead.

Borrowers who shouldn’t have borrowed being financed by lenders who shouldn’t have lent.

Beware the investment activity that produces applause; the great moves are usually greeted by yawns.

If merely looking up past financial data would tell you what the future holds, the Forbes 400 would consist of librarians.

Beware of geeks bearing formulas.

Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.

It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.

Quotes from other people

It is far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price. (Charlie Munger)

All I want to know is where I’m going to die, so I’ll never go there. (Charlie Munger)

Are we supposed to applaud because the dog that fouls our lawn is a Chihuahua rather than a Saint Bernard? (Charlie Munger)

If you want to guarantee yourself a lifetime of misery, marry someone with the intent of changing their behaviour. (Charlie Munger)

The advantage of being bi-sexual is that it doubles your chances for a date on Saturday night. (Woody Allen)

A bull market is like sex. It feels best just before it ends. (Barton Biggs)

Price is what you pay, value is what you get. (Ben Graham)

Too much of a good thing can be wonderful. (Mae West)

I owe my exalted position in life to two great American institutions – nepotism and monopoly. (Southern newspaper publisher)

Bonds promoted as offering risk-free returns are now priced to deliver return-free risk. (Shelby Cullom Davis)

It’s not what you look at that matters, it’s what you see. (Thoreau)

What the wise man does in the beginning, the fool does in the end. (Proverb)

You shape your houses and then they shape you.  (Winston Churchill)

This is worse than divorce. I’ve lost half my net worth – and I still have my wife. (Investor, 2009)

Economists are most economical with ideas: they make the ones learned in graduate school last a lifetime. (J K Galbraith)

More money has been lost reaching for yield than at the point of a gun. (Ray De Voe)

Customer: Thanks for putting me in XYZ stock at 5. I hear it’s up to 18. Broker: Yes, and in fact, the company is doing so well now, it’s an even better buy at 18 than it was at 5. Customer: Damn, I knew I should have waited. (Old Wall Street joke)

In God we trust – all others pay cash. (Restaurant sign)

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