Warren Buffett is one of the greatest investors of all time. Warren Buffett has built one of the world's largest conglomerates in history, full of incredible companies from Seas Candies to Geico, from a standing start in 1965. When Buffett took the helm of Berkshire in 1965 its book value per share was $19.46 and its intrinsic value per share far, far lower. Today, its book value per share exceeds $200,000. The growth rate in book value per share during that period is about 19% compounded annually. Berkshire is now a holding company engaged in 80 distinct business lines. And it all started by acquiring a failing textile manufacturer, which is where Berkshire Hathaway got its name and then slowly reinvesting in compounding over decades.

Jump to any section of this page:

• How Warren and Todd Combs Select Investments
• Quotes from Warren Buffett
• What An Average Day is Like for Warren Buffett
• Warren's Testimony on Salomon Brothers (1991)
• Warren Buffett on Mental Fortitude
• Berkshire Hathaway Shareholder Letters
• Glossary of Terms Used by Warren Buffett
• Books on Warren Buffett
• All Articles on Warren Buffett

How Warren and Todd Combs Select Investments

At Graham & Dodd's Annual Breakfast in 2022, Todd Combs shared how he and Warren Buffett make investment decisions. They focus primary on asking the question: How many names in the S&P are going to be 15x earnings in the next 12 months? How many are going to earn more in five years (using a 90% confidence interval)? And how many will compound at 7% (using a 50% confidence interval)?

Combs goes to Buffett’s house on many Saturdays to talk, and here’s a litmus test they frequently use. Warren asks “How many names in the S&P are going to be 15x earnings in the next 12 months? How many are going to earn more in five years (using a 90% confidence interval), and how many will compound at 7% (using a 50% confidence interval)?” In this exercise, you are solving for cyclicality, compounding, and initial price. Combs said that this rubric was used to find Apple, since at the time the same 3-5 names kept coming up.

Quotes from Warren Buffett

“As a wise friend told me long ago, 'If you want to get a reputation as a good businessman, be sure to get into a good business.'”
— Warren Buffett, 2006 Berkshire Hathaway Shareholder Letter

“In our book, alignment means being a partner in both directions, not just on the upside.. Many 'alignment' plans flunk this basic test, being artful forms of 'heads I win, tails you lose.'”
— Warren Buffett, 1994 Berkshire Hathaway Shareholder Letter

“In all instances, we pursue rationality.”
— Warren Buffett, 1994 Berkshire Hathaway Shareholder Letter

On managers with truly aligned incentives:
“Managers eager to bet heavily on their abilities usually have plenty of ability to bet on.”
— Warren Buffett, 1991 Berkshire Hathaway Shareholder Letter

“Call this Noah's Law: If an ark may be essential for survival, begin building it today, no matter how cloudless the skies appear.”
— Warren Buffett, 2015 Berkshire Hathaway Shareholder Letter

On sharing bad news quickly:
“I can handle bad news but I don't like to deal with it after it has festered for awhile.”
— Warren Buffett, 2010 Berkshire Hathaway Shareholder Letter

On the strength of Berkshire's culture:
“Our compensation programs, our annual meeting, and even our annual reports are all designed with an eye to reinforcing the Berkshire culture, and making it one that will repel and expel managers of a different bent. This culture grows stronger every year, and it will remain intact long after Charlie and I have left the scene.”
— Warren Buffett, 2010 Berkshire Hathaway Shareholder Letter

“Eventually, our economic fate will be determined by the economic fate of the businesses we own, whether our ownership is partial or total.”
— Warren Buffett, 1987 Berkshire Hathaway Shareholder Letter

“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 the market does not overvalue the business.”
— Warren Buffett, 1987 Berkshire Hathaway Shareholder Letter

“Paradoxically, when 'dumb' money acknowledges its limitations, it ceases to be dumb.”
— Warren Buffett, 1993 Berkshire Hathaway Shareholder Letter

“Indeed, we believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic.”
— Warren Buffett, 1991 Berkshire Hathaway Shareholder Letter

“Growth benefits investors only when the business in point can invest at incremental returns that are enticing—in other words, only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring additional funds, growth hurts the investor.”
— Warren Buffett, 1992 Berkshire Hathaway Shareholder Letter

“In our view, though, investment students need only two well-taught courses: How to Value a Business and How to Think About Market Prices.”
— Warren Buffett, 1999 Berkshire Hathaway Shareholder Letter

When time is your friend:
“In a difficult business, no sooner is one problem solved than another surfaces—never is there just one cockroach in the kitchen. Time is the friend of the wonderful business, the enemy of the mediocre.”
— Warren Buffett, 1989 Berkshire Hathaway Shareholder Letter

On avoid problems rather than solving them:
“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.”
— Warren Buffett, 1989 Berkshire Hathaway Shareholder Letter

Bad economics always trumps brilliant management:
“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.”
— Warren Buffett, 1989 Berkshire Hathaway Shareholder Letter

On the power of a single zero:
“Over the years, a number of very smart people have learned the hard way that a long string of impressive numbers multiplied by a single zero always equals zero. That is not an equation whose effects I would like to experience personally, and I would like even less to be responsible for imposing its penalties upon others.”
— Warren Buffett, 2005 Berkshire Hathaway Shareholder Letter

On the difficulties of maintaining purchasing power:
“Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time.” (Note: This 86% drop happened over just 46 years from 1965–2011.)
— Warren Buffett, 2011 Berkshire Hathaway Shareholder Letter

On speculation:
“As bandwagon investors join any party, they create their own truth—*for a while*.”
— The Essays of Warren Buffett, Fifth Edition, Page 129

On long-term time horizons and patience:
“Lethargy bordering on sloth remains the cornerstone of our investment style.”
— The Essays of Warren Buffett, Fifth Edition, Page 132

On the pain of actual hard thought:
“Most men would rather die than think. Many do.”
— The Essays of Warren Buffett, Fifth Edition, Page 134

“It's optimism that is the enemy of the rational buyer.”
— The Essays of Warren Buffett, Fifth Edition, Page 134

Why every business has to be able to absorb shocks:
“The roads of business are riddled with potholes; a plan that requires dodging them all is a place for disaster.”
— The Essays of Warren Buffett, Fifth Edition, Page 135

On cherrypicked backwards looking data:
“Beward of past-performance 'proofs' in finance: If history books were the key to riches, the Forbes 400 would consist of librarians.”
— The Essays of Warren Buffett, Fifth Edition, Page 136

Why underinvestment isn't a great long-term strategy:
“Capital outlays at a business can be skipped, of course, in any given month, just as a human can skip a day or even a week of eating. But if the skipping becomes routine and is not made up, the body weakens and eventually dies.”
— The Essays of Warren Buffett, Fifth Edition, Page 141

On zero-coupon bonds:
“No financial instrument is evil per se; it's just that some variations have more potential for mischief than others.”
— The Essays of Warren Buffett, Fifth Edition, Page 143

On EBITDA and meeting interest expenses:
“Our advice: Whenever an investment banker starts talking about EBITDA—or whenever someone creates a capital structure that does not allow all interest, both payable and accrued, to be comfortably met out of current cash flow net of ample capital expenditures—zip up your wallet.”
— The Essays of Warren Buffett, Fifth Edition, Page 143

Competitive costs and commodity businesses:
“In an unregulated commodity business, a company must lower its costs to competitive levels or face extinction.”
— The Essays of Warren Buffett, Fifth Edition, Page 147

Why to avoid commodity businesses:
“In a business selling a commodity-type product, it's impossible to be a lot smarter than your dumbest competitor.”
— The Essays of Warren Buffett, Fifth Edition, Page 149

On derivatives and daisy-chain risk:
“History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times. … When a 'chain reaction' threat exists within an industry, it pays to minimize links of any kind.”
— The Essays of Warren Buffett, Fifth Edition, Page 157

The root of Berkshire's aversion to risk:
“Charlie and I believe Berkshire should be a fortress of financial strength—for the sake of our owners, creditors, policyholders and employees.”
— The Essays of Warren Buffett, Fifth Edition, Page 159

CEOs who run large derivatives books:
“From this irritating reality comes The First Law of Corporate Survival for ambitious CEOS who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won't do; it's mind-boggling screw-ups that are required.”
— The Essays of Warren Buffett, Fifth Edition, Page 163

The all important power of earnings:
“With unimportant exceptions, such as bankruptcies in which some of a company's losses are borne by creditors, *the most that owners in aggregate can earn between now and Judgement Day is what their businesses in aggregate earn*.”
— The Essays of Warren Buffett, Fifth Edition, Page 177

High fees in investment products:
“Performance comes, performance goes. Fees never falter.”
— The Essays of Warren Buffett, Fifth Edition, Page 182

On attracting the right shareholders:
“Through our policies and communications—our 'advertisements'—we try to attract investors who will understand our operations, attitudes and expectations. …We want those who think of themselves as business owners and invest in companies with the intention of staying a long time. And, we want those who keep their eyes focused on business results, not market prices.”
— The Essays of Warren Buffett, Fifth Edition, Page 189

Why low prices are your friend as a long-term investor:
“When Berskshire buys stock in a company that is repurchasing shares, we hope for two events: First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come; and second, we also hope that the stock underperforms in the market for a long time as well.”
— The Essays of Warren Buffett, Fifth Edition, Page 199

On repurchasing shares:
“My suggestion: Before even discussing repurchases, a CEO and his or her Board should stand, join hands and in unison declare, *'What is smart at one price is stupid at another.'*”
— The Essays of Warren Buffett, Fifth Edition, Page 202

The root of mistakes:
“Sometime our managers misfire. The usual cause of failure is that they start with the answer they want and then work backwards to find a supporting rationale.”
— The Essays of Warren Buffett, Fifth Edition, Page 208

On spending twenty years investing in their original textile businesses:
“I wanted the business to succeed and wished my way into a series of bad decision. … But wishing makes dreams come true only in Disney movies; it's poison in business.”
— The Essays of Warren Buffett, Fifth Edition, Page 208

Warren and Charlie's acquisition criteria:
“Here oue test is simple: Do Charlie and I think we can effect a transaction that is likely to leave our shareholders wealther on a per-share basis than they were prior to the acquisition?”
— The Essays of Warren Buffett, Fifth Edition, Page 208

On the eventual realities of small consistent mistakes:
“A cumulation of small managerial stupidities will produce a major stupidity—not a major triumph. Las Vegas has been built upon the wealth transfers that occur when people engage in seemingly-small disadvantageous capital transactions.”
— The Essays of Warren Buffett, Fifth Edition, Page 220

Overly acquisitive CEOs:
“When such a CEO is encouraged by his advisors to make deals, he responds much as would a teenage boy who is encouraged by his father to have a normal sex life. It’s not a push he needs.”
— The Essays of Warren Buffett, Fifth Edition, Page 223

Why determining the value of a business is so difficult:
“Common yardsticks such as dividend yield, the ration of price to earnings or to book value, and even growth rates having nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business.”
— The Essays of Warren Buffett, Fifth Edition, Page 237-238

On the reality that not all growth adds bottomline value:
“Growth is simply a component—usually a plus, sometimes a minus—in the value equation.”
— The Essays of Warren Buffett, Fifth Edition, Page 238

Why speculation is so hard to resist:
“Nothing sedates rationality like large doses of effortless money.”
— The Essays of Warren Buffett, Fifth Edition, Page 238

On companies built in speculative bubbles:
“Value is destroyed, not created, by any business that loses money over its lifetime, no matter how high its interim valuation may get. What actually occurs in these cases is wealth transfer, often on a massive scale.”
— The Essays of Warren Buffett, Fifth Edition, Page 239

The simplest defintion for intrinstic value:
“Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.”
— The Essays of Warren Buffett, Fifth Edition, Page 240

Why speculation is most dangerous when it looks easiest:
“A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons.”
— The Essays of Warren Buffett, Fifth Edition, Page 240

On Berkshire's hurdle rate for all retained earnings:
“It is our job to select businesses with economic characteristics allowing each dollar of retained earnings to be translated eventually into at least a dollar of market value.”
— The Essays of Warren Buffett, Fifth Edition, Page 251

Warren's advice for investors:
“The goal of each investor should be to create a portfolio (in effect, a 'company') that will deliver him or her the highest possible look-through earnings a decade or so from now.”
— The Essays of Warren Buffett, Fifth Edition, Page 251

Focus on future earnings over the current market price:
“In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard.”
— The Essays of Warren Buffett, Fifth Edition, Page 251

What matters is the return on capital reinvested:
“The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, account gimmickry, etc.) and not the achievement of consistent gains in earnings per share.”
— The Essays of Warren Buffett, Fifth Edition, Page 251

“Ultimately business experience, direct and vicarious, produced my present strong preference for businesses that possess large amounts of enduring Goodwill and that utilize a minimum of tangible assets.”
— The Essays of Warren Buffett, Fifth Edition, Page 252

What An Average Day is Like for Warren Buffett

A look at Warren Buffett's average day from an interview with his biography Alice Schroeder.

Miguel: Could you shed some light on Buffett’s daily life? What is his daily routine? Maybe you could comment on his interactions with the management teams.

Alice: Sure. He comes in the morning and his routine is to switch on CNBC with the sound muted and start reading while glancing at the crawl from time to time. The wooden shutters on the windows are always closed. You get no sense that a world exists outside, which is what he wants, no distractions. As far as I can tell, he doesn’t need sunlight.

He is already pretty well versed on the news by the time he gets in, through the Internet and television. But he still prefers newspapers. He reads the WSJ, NYT, Financial Times, Washington Post, the Omaha World-Herald. He reads some offbeat things like the NY Observer. He reads all sorts of trade press relating to the different businesses that Berkshire runs. American Banker, Oil & Gas Journal, A.M. Best, Furniture Today. There are stacks of reports from the different BRK subsidiary companies on his desk. Throughout his day he grazes through the reading pile.

Meanwhile he talks on the phone. He doesn’t make a lot of outgoing calls; people call him. That’s his day most of the time.

People do come to visit him and he’ll sit and spend an hour with someone or have lunch or dinner. A lot of days he doesn’t have anything on his schedule. His interaction with managers is minimal. Some of them call him regularly, but he’s not kidding when he says that others, he speaks to maybe a couple of times a year, or they communicate in writing. He responds if they call him. He almost never calls them. If they call him he’ll be very agreeable and talk but he keeps the conversation quite short. When they do call, he acts as a sounding board. The one thing he controls is capital decisions. But anything else, it’s pretty much up to them.

He is a very good listener who gives excellent advice, and he’s also pretty firm about not giving unasked advice. The managers vary in their desire (for asking for advice). The ones that do ask use words like “invaluable” to describe his advice.

Within headquarters he has low interaction with his staff other than with Debbie and the other secretaries. He talks to Marc Hamburg (the CFO) regularly, although not necessarily daily. He talks with his the bond trader. These conversations are very brief. You’ll notice this is a running theme… while he does have long conversations, it’s only with a few friends and only on occasions of his choosing.

In the office, he knows everyone’s name and occasionally walks down the hall and says hello to people. He is the furthest thing from a walk-around manager, though. He stays in his office (he is at one end of the hall) and everyone else sticks to their end.

Source: Interview with Warren Buffett’s Biographer Alice Schroeder

Warren's Testimony on Salomon Brothers (1991)

The opening statement of Warren E. Buffett, Chairman of Salomon Brothers, before the Subcommittee on Telecommunications and Finance of the Energy and Commerce Committee of the U.S. House of Representatives on September 5, 1991.

A short excerpt from Warren's testimony:

…in the end, the spirit about compliance is as important or more so than words about compliance. I want the right words and I want the full range of internal controls. But I also have asked every Salomon employee to be his or her own compliance officer.

After they first obey all rules, I then want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be read by their spouses, children, and friends, with the reporting done by an informed and critical reporter.

If they follow this test, they need not fear my other message to them: Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.

Warren Buffett on Mental Fortitude

Some of the more commercially minded among you may wonder why I am talking about value investing. Adding many converts to the value approach will narrow the spreads between price and value.

I can only tell you that the secret has been out for 50 years, ever since Ben Graham and Dave Dodd wrote Security Analysis. Yet, I have seen no trend towards value investing in the 35 years I have practiced it.

There seems to be some perverse human characteristic that makes easy things difficult.

Ships will sail around the world the world, but the flat earth society will flourish. There will continue to be wide discrepancies between price and value in the marketplace. And those who read their Graham & Dodd will continue to prosper.

Berkshire Hathaway Shareholder Letters

Warren Buffett is the Chairman of Berkshire Hathaway, a large public traded conglomerate based in Omaha, Nebraska. Every year, Warren writes Berkshire Hathaway's annual letter to shareholders — which are always generously filled with reflections, lessons learned, and wisdom on the true nature of business and investing.

• Archive of Berkshire Hathaway's Annual Letters‍
• The Essays of Warren Buffett: Lessons for Corporate America

Glossary of Terms Used by Warren Buffett

The following are terms and phrases that have appeared in Berkshire Hathaway's Annual Letters, written by Warren Buffett, over the years.

Cigar Butt Investing
A foolish method of investing akin to taking the last puff on a cigar. It is the purchase of a stock at a sufficiently low price that there will be some short-term profit, though the business' long-term performance is likely to be terrible.

Circle of Competence
The limits of one's ability to judge the economics of businesses. Intelligent investors draw a thick boundary and stick with companies they can understand.

Dividend Test
Retention of earnings is only justified if each dollar retained produces at least a one dollar increase in per share market value.

Double-Barreled Acquisition Style
A sensible acquisition policy of buying either 100% of businesses in negotiated acquisitions or less than 100% of businesses in stock market puchases.

Institutional Imperative
A pervasive force in organizations that leads to irrational business decisions from resistance to change, absorption of corporate funds in suboptimal projects or acquisitions, indulgence of the cravings of senior executives, and mindless imitation of peer companies.

Intrinsic Value
A hard-to-calculate but crucial measure of business value. It is the discounted present value of the cash that can be taken out of a business during its remaining life.

Look-Through Earnings
An alternative to GAAP rules governing investments in marketable securities of the investee less than 20%. This measures the investor's economic performance based on its percentage interest of the investee's undistributed earnings (after an incremental reduction for income taxes).

Margin-of-Safety
Probably the single most important principle of sound and successful investing. Ben Graham's principle says not to purchase a security unless the price being paid is substantially lower than the value being delivered.

Mr. Market
Ben Graham's allegory for the overall stock marketing. Personified as a mood, manic depressive that causes price and value to diverge — making superior intelligent investing possible.

Owner Earnings
A better measure of economic performance than cash flow or GAAP earnings. Equal to (a) operating earnings plus (b) depreciation and other non-cash charges minus (c) required reinvestment in the business to maintain present competitive position and unit volume.

Books on Warren Buffett

To make it easy to do your own research I've complied my favorite books written on Warren Buffett and Berkshire Hathaway.

• Buffett: The Making of an American Capitalist – Journalist Roger Lowenstein draws on three years of unprecedented access to Buffett’s family, friends, and colleagues to provide the first definitive, inside account of the life and career of this American original. Buffett explains Buffett’s investment strategy — a long-term philosophy grounded in buying stock in companies that are undervalued on the market and hanging on until their worth invariably surfaces — and shows how it is a reflection of his inner self.
• The Essays of Warren Buffett: Lessons for Corporate America – This is my favorite way to read all of Warren Buffett's shareholder letters. In this book, Prof. Lawrence Cunningham breaks apart Warren's letters and regroups them by theme.
• A Few Lessons for Investors and Managers From Warren Buffett – "I am a better investor because I am a businessman and a better businessman because I am an investor." Compiled by Peter Bevelin, this book will help investors like businessmen and vice versa.

All Articles on Warren Buffett

Browse all of the articles and book summaries I've written on Warren Buffett and Berkshire Hathaway.

• Interview with Warren Buffett’s Biographer Alice Schroeder
• How to Widen Your Moat Daily
• My Personal Dictionary: Terms and Ideas That Resonate With Me
• Some Thoughts On Selling Your Business from Warren Buffet
• Charlie Munger on "The Berkshire System" - 50th Anniversary Essay on Berkshire Hathaway
• The Essays of Warren Buffett: Warren's Ideas from 50+ Years Grouped by Topic
• Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger