Decoding Warren Buffett in his 15 finest letters: “We are fearful when others are greedy and greedy only when others are fearful” | Business | EUROtoday

Warren Buffett is a dwelling fable on the earth of investing. Other managers have been kind of fleeting stars on the buying and selling ground, however nobody can boast such a constant document of service. Between 1965, the 12 months wherein it took management of Berkshire Hathaway, and 2024, it achieved a compound annual return of 19%, simply beating the S&P 500, which on this similar interval returned solely 10.4% yearly.

However, past the numbers, what has elevated the determine of the oracle of Omaha (a metropolis within the State of Nebraska the place the corporate’s headquarters is positioned) right into a type of lay saint of finance is his persona and an funding model to which he has been devoted for nearly six a long time. His imaginative and prescient of the world and the market has been mirrored within the letters written to his shareholders. The quite a few disciples he has world wide typically revisit this epistolary relationship seeking inspiration.

Buffett has perfected the so-called worth investing (worth investing) that his trainer, Benjamin Graham, invented. This philosophy could be summarized in shopping for shares of excellent corporations which might be undervalued and at all times doing so with a long-term imaginative and prescient. Only getting into companies that he was able to understanding, with good money flows and little debt, in sectors with limitations to entry for brand new opponents, and run by consolidated managers are among the maxims that he has strictly adopted. EL PAÍS has made a choice of some passages from his letters to Berkshire Hathaway shareholders that finest mirror the persona of the oracle.

• Bath of humility for insurance coverage corporations (1977)

“Insurance companies offer standardized policies that can be copied by anyone. Their only products are promises. There are no major competitive advantages in this business and there is very little differentiation on the part of consumers to distance themselves from rivals. It is common for companies’ annual reports to highlight the difference that people make. Sometimes this is true and sometimes not. But there is no doubt that the nature of the insurance business magnifies the effect that managers have on the company’s performance.”

• In favor of share buybacks (1979)

“One use of excess capital that we especially welcome when practiced by companies in which we have a stake is the buyback of their own shares. The reasoning is simple: if a good company trades on the market for much less than its intrinsic value, what safer and more profitable use of capital can there be than a significant expansion of the interests of all owners at that bargain price?”

• Overpaying in takeover bids or the hazard of kissing a toad (1982)

“Many managers, during their childhood, believed the story according to which a handsome imprisoned prince is freed from the body of a toad by the kiss of a beautiful princess. Now they are the ones who believe that their kisses will work miracles. Only this optimism explains why they try to convince their shareholders that they have to pay double the current market price for a rival company. In other words, investors can always buy toads at the current price of toads. If, on the other hand, investors finance Princesses who want to pay double for the right to kiss the frog, those kisses better have some dynamite. We have observed many kisses, but very few miracles.

• Fear and Greed (1987)

“Occasional outbreaks of these two super-contagious ailments, concern and greed, will at all times happen within the funding group. The timing of those epidemics is unpredictable. And the market aberrations they trigger are equally unpredictable, each in period and depth. Therefore, we by no means attempt to anticipate the arrival or disappearance of any of those epidemics. Our aim is extra modest: we merely attempt to be fearful when others are grasping and to be grasping solely when others are fearful.”

• Who is bathing bare? (1993)

“Hurricane Andrew destroyed some small insurers. Beyond that, it made some larger companies realize that their catastrophe reinsurance protection was far from adequate. And it’s only when the tide goes out that you see who was swimming naked.”

• Be cautious to not stick out an excessive amount of (1998)

“In a bull market, avoid the mistake of the smug duck who quacks proudly after a torrential storm, thinking that his swimming skills have led him up in the world. A sensible duck would instead compare his position after the downpour with that of the other ducks on the pond. Although we rowed furiously last year, the passive ducks who simply invested in the S&P index rose almost as fast as we did.”

“Even Inspector Clouseau could find the culprit for Berkshire Hathaway’s poor performance: its president. In 1999, my grade, without a doubt, was a scrapped pass. The responsibility for the underperformance lies entirely with me.”

• Weapons of mass destruction (2003)

“Charlie [Munger, su socio histórico en la compañía] and I believe that Berkshire should be a fortress characterized by financial strength. And it must be for the good of our owners, creditors, policyholders and employees. We try to be alert to any type of risks and that stance makes us very apprehensive about the growing number of long-term derivative contracts in the market and the enormous number of unsecured accounts receivable that are increasing in parallel. In our view, derivatives are financial weapons of mass destruction that carry dangers that, although now latent, can be lethal.”

• An irrepressible want to shoot down planes (2008)

“The worst kind of business is one that grows rapidly, requires significant capital to generate that growth, and then makes little or no money. Consider airlines. In this industry, since the time of the Wright brothers, it has been difficult to achieve a lasting competitive advantage. In fact, if a forward-thinking capitalist had been present at Kitty Hawk [localidad de Carolina del Norte]would have done his successors a great favor by taking down Orville (Wright, one of the pioneer brothers of aviation who, along with his brother Wilbur, achieved the first successful flights of a powered airplane in 1903). The demand for capital from the airline sector since that first flight has been insatiable. Investors have invested in a bottomless pit, attracted by growth when they should have been repelled by it.

• Bubbles, Fools and Wise Men (2012)

“Over the previous 15 years, each web shares and actual property have demonstrated the extraordinary excesses that may be created by combining an initially smart thesis with conveniently inspired rising costs. In these bubbles, a military of initially skeptical buyers succumbed to the take a look at the market supplied, and the variety of patrons, for a time, expanded sufficient to maintain the prepare transferring. But bubbles that develop too large inevitably burst. And then the case is confirmed as soon as once more. previous proverb: what the smart man does at the start, the idiot does on the finish.”

• I’m not prepared for Tinder but (2016)

“Nothing rivals the capitalist market system in producing what people want, and even less in delivering what people don’t yet know they want. My parents, when they were young, couldn’t imagine a television, nor did I, at 50, think I needed a personal computer. Both products, once people saw what they could do, quickly revolutionized their lives. For example, I now spend 10 hours a week playing bridge online. However, I’m not ready for Tinder.”

• If it rains gold, let’s take out a bucket (2017)

“Charlie and I haven’t got any magical plan to extend earnings besides to dream large and be mentally and financially ready to behave rapidly when alternatives current themselves. Every decade or so, darkish clouds cowl the financial sky and it rains gold for a brief time frame. When such downpours happen, it’s crucial that we run outdoors with buckets, not spoons.”

• I would never go to ‘Dancing with the Stars’ (2019)

“Almost all the managers I’ve met over time have been respectable, nice, clever folks. They dressed effectively, have been good neighbors and wonderful residents. I’ve loved their firm. However, many of those good human beings are folks I might by no means have chosen to handle cash or enterprise issues. It simply wasn’t their factor. They, in flip, would by no means have requested me to assist them extract a tooth, embellish their home or enhance their swing golf. What’s extra, if I have been ever chosen to look on the present Dancing with the celebrities, would instantly search refuge within the Witness Protection Program. We are all ineffective at one factor or one other. For most of us, the listing is lengthy. The necessary factor is to acknowledge that in case you are Bobby Fischer, you need to solely play chess for cash.”

• Of hamburgers, cokes and monkeys (2020)

“In 1958, Phil Fisher wrote a magnificent book on investing. In it he compared the management of a listed company with the management of a restaurant. If you are looking for diners, he said, you can attract a clientele and prosper by offering hamburgers with Coca-Cola or French cuisine accompanied by exotic wines. But you should not, Fisher warned, change capriciously from one to the other: your message to potential customers has to be consistent with what they will find when they enter your premises. At Berkshire we carry 56 years serving burgers and coke. And we appreciate the clientele that this food has attracted us. The tens of millions of investors and speculators in the United States and other countries have a wide variety of equity options that suit their tastes. Many of those investors will do quite well. At the end of the day, owning stocks is a positive-sum game. In fact, a patient and sensible monkey would build a portfolio by throwing 50 darts at a board that lists them all. “The S&P 500 values may have dividends and capital positive factors over time. It simply takes time, calm, broad diversification, and minimal transactions and commissions. Still, buyers ought to always remember that their bills are Wall Street’s earnings. And, in contrast to the monkey in my instance, Wall Street employees do not work for peanuts.”

• Farewell message (2025)

“I’m joyful to say that I really feel higher in regards to the second half of my life than I did in regards to the first. My recommendation: Don’t beat your self up about previous errors, study at the very least a bit from them and transfer on. It’s by no means too late to enhance. Find the suitable heroes and duplicate them. Remember Alfred Nobel, later of Nobel Prize fame, who is alleged to have learn his personal obituary, which was printed by mistake when his brother died and a newspaper acquired confused. He was horrified by what he mentioned. “He read and realized that he had to change his behavior. Don’t count on a misprint: decide what you would like your obituary to say and live the life that makes you deserve it. Greatness is not achieved by accumulating money, fame or great power of influence in the Government. When you help someone in any of the thousands of possible ways, you help the world. Kindness costs nothing, but it is also priceless.”