Widening The Moat

Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger.  If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength.  But if we treat customers with indifference or tolerate bloat, our businesses will wither.  On a daily basis, the effects of our actions are imperceptible;  cumulatively, though, their consequences are enormous.
When our long-term competitive position improves as a result of these almost unnoticeable actions, we describe the phenomenon as “widening the moat.”  And doing that is essential if we are to have the kind of business we want a decade or two from now.  We always, of course, hope to earn more money in the short-term.  But when short-term and long-term conflict, widening the moat must take precedence.  If a management makes bad decisions in order to hit short-term earnings targets, and consequently gets behind the eight-ball in terms of costs, customer satisfaction or brand strength, no amount of subsequent brilliance will overcome the damage that has been inflicted.  Take a look at the dilemmas of managers in the auto and airline industries today as they struggle with the huge problems handed them by their predecessors.  Charlie [Munger] is fond of quoting Ben Franklin’s “An ounce of prevention is worth a pound of cure.”  But sometimes no amount of cure will overcome the mistakes of the past.
—     Warren Buffett
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Following His Own Path

The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard.  It helps if you can be satisfied with an Inner Scorecard.
—     Warren Buffett
[Happy birthday, Bro!  You demonstrated the meaning of an “Inner Scorecard” for me long before it was ever a thing or had a name.   —    KMAB]
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Yo-yo Management

We neither understand the adding of unneeded people or activities because profits are booming, nor the cutting of essential people or activities because profitability is shrinking.  That kind of yo-yo approach is neither business-like nor humane.
—     Warren Buffett
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Historians, Not Librarians

If past history was all there was to the game, the richest people would be librarians.
—    Warren Buffett
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It Still Isn’t

A public-opinion poll is no substitute for thought.
—    Warren Buffett
[We are a republic because the “Founders” did NOT believe in the shared ignorance of the common man to run a government.  They believed representatives could gain expertise, but would fundamentally vote their conscious for a common good.  It is not at all clear the latter assumption remains true.  It is increasingly difficult to vote out of office ANYONE who no longer represents the electorate, because of the massive amounts of monies required to conduct modern campaigns.  Without the check of a suitable AND viable alternative replacing you at every election cycle, today’s politicians tend to vote in their interest and not in the interest of the electorate.  This is both the power of and threat from office holder incumbency.
In fairness to the “Founders”, it is also highly unlikely they imagined modern medicine would extend the lives (and working careers) of an average politician into their 70’s and 80’s.  The working assumption was political office would be a part-time thing or a crowning lifetime achievement, and not a life-long career.  The expectation was that most would HAVE to go back to look after their families, their farms / land, or their businesses.  This is obviously no longer the case – as long as you can retain the power of your elected office.    —    KMAB]
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It Also Helps To Marry Well

It’s better to hang out with people better than you.  Pick out associates whose behavior is better than yours and you’ll drift in that direction.
—    Warren Buffett
Happy Birthday, Hil!!  Our friendship / marriage has definitely made me a better person…
All my love,
Always!
Your Kev
XXX
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Givin’ It All Away

The only way to get love is to be lovable.  It’s very irritating if you have a lot of money.  You’d like to think you could write a check:  ‘I’ll buy a million dollars’ worth of love.’  But it doesn’t work that way.  The more you give love away, the more you get.
—    Warren Buffett
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A Model Democrat

Whatever the future holds, I make you one promise:  I’ll keep at least 99% of my net worth in Berkshire for as long as I am around.  How long will that be?  My model is the loyal Democrat in Fort Wayne who asked to be buried in Chicago so that he could stay active in the party.  To that end, I’ve already selected a “power spot” at the office for my urn.
—    Warren Buffett
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Still Dangerous

Derivatives are dangerous.  They have dramatically increased the leverage and risks in our financial system.  They have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks.
—     Warren Buffett
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The Margin Of Safety

Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.  The worst business to own is one that must, or will, do the opposite – that is, consistently employ ever-greater amounts of capital at very low rates of return.  Unfortunately, the first type of business is very hard to find:  Most high-return businesses need relatively little capital.  Shareholders of such a business usually will benefit if it pays out most of its earnings in dividends or makes significant stock repurchases.
Though the mathematical calculations required to evaluate equities are not difficult, an analyst – even one who is experienced and intelligent – can easily go wrong in estimating future “coupons.”  At Berkshire, we attempt to deal with this problem in two ways.  First, we try to stick to businesses we believe we understand.  That means they must be relatively simple and stable in character.  If a business is complex or subject to constant change, we’re not smart enough to predict future cash flows.  Incidentally, that shortcoming doesn’t bother us.  What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.  An investor needs to do very few things right as long as he or she avoids big mistakes.
Second, and equally important, we insist on a margin of safety in our purchase price.  If we calculate the value of a common stock to be only slightly higher than its price, we’re not interested in buying.  We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success.
—     Warren Buffett
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True Fervor

Our prototype for occupational fervor is the Catholic tailor who used his small savings of many years to finance a pilgrimage to the Vatican.  When he returned, his parish held a special meeting to get his first-hand account of the Pope.  ‘Tell us,’ said the eager faithful, ‘just what sort of fellow is he?’  Our hero wasted no words:  ‘He’s a forty-four, medium.’
—     Warren Buffett
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One Likely Consequence

Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel.  These once unthinkable dosages will almost certainly bring on unwelcome after-effects.  Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.
—    Warren Buffett
[Government handouts can get you through a non-market caused depression (like the one recently caused by COVID / relief payments), but without an employment plan which improves the general welfare (like a massive infrastructure bill), only the wealthy will benefit when inflation inevitably begins to roar.  Infrastructure will improve the national resource base (bridges, roads, levies, dams, drainage, parks, beaches, river-fronts, water and waste treatment, trains and airports, etc.), it will also provide medium and long-term employment to re-build our middle class.  The longer the delay in passing a major bill, the less time available for its impact to begin before the next election cycle and the greater the opportunity for the “do-nothing” Republicans to blame the lack of progress on Democrats who wanted more than they could deliver and then failed to deliver anything.  The danger is too little and too late.  With or without jobs, inflation is coming (IMHO).  The question is:  who will gain from it and who will suffer for it?    —    KMAB]
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We Need Professional Journalists AND The First Amendment

The smarter the journalists are, the better off society is.  For to a degree, people read the press to inform themselves – and the better the teacher, the better the student body.
—    Warren Buffett
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I’d Argue Wealth, Then Income

I just think that – when a country needs more income and we do, we’re only taking in 15 percent of GDP, I mean, that – that – when a country needs more income, they should get it from the people that have it.
—    Warren Buffett
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We Will Get Through This

We always live in an uncertain world.  What is certain is that the United States will go forward over time.
—    Warren Buffett
[And the whole world will get through this, too…    —    KMAB]
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