Walking on Clouds

A pessimist sees only the dark side of the clouds, and mopes;
a philosopher sees both sides, and shrugs;
an optimist doesn't see the clouds at all. He's walking on them.
Leonard Louis Levinson

Warren's Wisdom

An annual report to investors is supposed to be dusty collection of numbers and indecipherable corporate speak. But pick up Warren Buffett’s recently released dispatch on Berkshire Hathaway and you'll find these bits of homespun wisdom from the self-made billionaire investor:


You only learn who has been swimming naked when the tide goes out.

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

There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so.

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here is a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.


(Commenting on his own investment blunders) If his I.Q. was any lower, you would have to water him twice a day.

A line from Bobby Bare’s country song explains what too often happens with acquisitions: "I’ve never gone to bed with an ugly woman, but I’ve sure woke up with a few.”

I should emphasize that we do not measure the progress of our investments by what their market prices do during any given year. Rather, we evaluate their performance by the two methods we apply to the businesses we own. The first test is improvement in earnings, with our making due allowance for industry conditions. The second test, more subjective, is whether their “moats” – a metaphor for the superiorities they possess that make life difficult for their competitors – have widened during the year.

We are always ready to trade increased volatility in reported earnings in the short run for greater gains in net worth in the long run. If a business requires a superstar to produce great results, the business itself cannot be deemed great. A medical partnership led by the your area’s premier brain surgeon may enjoy outsized and growing earnings, but that tells little about its future. The partnership’s moat will go when the surgeon goes. You can count, though, on the moat of the Mayo Clinic to endure, even though you can’t name its CEO.