A letter a day!

A letter a day!

Letter #71 2017

Key learnings:

1.Here are four building blocks that add value to Berkshire:

(1) sizable stand-alone acquisitions.
(2) bolt-on acquisitions that fit with businesses they already own.
(3) internal sales growth and margin improvement at our many and varied businesses.
(4) investment earnings from our huge portfolio of stocks and bonds.

2.Berkshire’s criteria for acquiring new businesses:

1)Durable competitive strengths.
2) able and high-grade management.
3) good returns on the net tangible assets required to operate the business.
4) opportunities for internal growth at attractive returns.
5) sensible purchase price.

3.Buffett has always favored taking as much as less leverage as possible. He says:

“Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need. We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us. We also hold it today after a million or so “partners” have joined us at Berkshire.”

4.When major declines occur, however, they offer extraordinary opportunities to those who are not handicapped by debt.

“If you can keep your head when all about you are losing theirs . . .
If you can wait and not be tired by waiting . . .
If you can think – and not make thoughts your aim . . .
If you can trust yourself when all men doubt you…
Yours is the Earth and everything that’s in it.”

5.Though markets are generally rational, they occasionally do crazy things.

“Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.”