As one of the world’s most celebrated investors concludes his tenure, the principles he championed for decades remain a masterclass in financial discipline. For over half a century, annual communications from his corporate headquarters distilled complex market dynamics into clear, often witty, guidance for shareholders.
The journey began with the acquisition of a modest textile manufacturer, a move later famously labeled a strategic error, as the core business was in irreversible decline. The pivotal lesson was not the initial misstep, but the strategic freedom it unlocked: the realization that capital allocation was bound only by the ability to understand a business’s future. The ideal target, as stated years later, was the outright purchase of excellent companies at fair prices—a task described as extraordinarily difficult.
A cornerstone of this philosophy was a preference for cash over stock in acquisitions, a lesson cemented by a costly transaction where the price paid in shares vastly outweighed the value received. The investment approach was famously dual-pronged: taking significant positions in outstanding public companies while simultaneously seeking to purchase similar businesses outright. This eclectic strategy was likened to a significant social advantage, effectively doubling one’s opportunities.
The investor’s most cited axiom advises caution amid widespread euphoria and boldness during periods of pervasive fear. He observed that while cycles of emotion are inevitable in markets, predicting their turns is notoriously hard. A deep skepticism surrounded most corporate acquisitions, with particular disdain for the rosy financial projections provided by sellers. He suggested that executive overconfidence and ego, a “biological bias,” often override discipline, making deal-making an urge that requires no encouragement.
The engine of growth for the conglomerate was its insurance operations. The “float”—premiums held before claims are paid—provided low-cost capital to fund investments. Even the niche of super-catastrophe insurance proved profitable overall, despite occasional massive losses from events like major hurricanes. Such events exposed weaker players in the industry, leading to the memorable observation that a receding tide reveals who has been swimming without attire.
He issued early and stark warnings about complex financial instruments, describing them as latent “weapons of mass destruction” for the economy. His critique highlighted the dangerous interdependencies they created between large institutions, a web of mutual exposure that played a central role in a subsequent global financial crisis. He noted that in this arena, trouble could come indirectly, through one’s counterparties’ counterparties. Ironically, the sheer scale of potential failure, he argued, could paradoxically guarantee government rescue for the largest players, creating a perverse incentive for extreme risk-taking. His own firm, however, engaged in such contracts only when they were significantly mispriced at the outset.
The long-term objective was always to exceed the returns of the broader market. This required maintaining reserves to deploy aggressively when prices fell, turning economic storms into opportunities. The stated plan was to dream ambitiously and be prepared, so that when valuable assets rained down, the firm could collect them with large containers, not small utensils.
Management style was characterized by extreme decentralization of operations but centralization of capital decisions at the top. A stated preference for seasoned leaders came with a humorous nod to the difficulty of teaching new approaches to inexperienced managers. Shareholder letters often celebrated the remarkable stories of these leaders, such as the centenarian founder of a furniture empire who sold her business in her ninth decade but continued working for over a decade thereafter. Her story was later cited as a pointed, if lighthearted, reminder to other managers about retirement.
Succession planning was addressed with characteristic candor. For years, shareholders were informed that the board had identified capable, financially independent successors motivated by more than compensation. The founder himself once quipped that he had abandoned the fanciful idea of managing the portfolio posthumously, thereby forgoing a chance to redefine “thinking outside the box.”