Wednesday, January 9, 2019

Quotes of 2018

Here's a collection of quotes said or written at some point during 2018.

Warren Buffett: When a Non-Random Rule & Random Fluctuations "Swamp the Truly Important"
"...I would prefer to turn immediately to discussing Berkshire's operations. But...I must first tell you about a new accounting rule – a generally accepted accounting principle (GAAP) – that in future quarterly and annual reports will severely distort Berkshire's net income figures and very often mislead commentators and investors.

The new rule says that the net change in unrealized investment gains and losses in stocks we hold must be included in all net income figures we report to you. That requirement will produce some truly wild and capricious swings in our GAAP bottom-line. Berkshire owns $170 billion of marketable stocks (not including our shares of Kraft Heinz), and the value of these holdings can easily swing by $10 billion or more within a quarterly reporting period. Including gyrations of that magnitude in reported net income will swamp the truly important numbers that describe our operating performance. For analytical purposes, Berkshire's 'bottom-line' will be useless.

The new rule compounds the communication problems we have long had in dealing with the realized gains (or losses) that accounting rules compel us to include in our net income. In past quarterly and annual press releases, we have regularly warned you not to pay attention to these realized gains, because they – just like our unrealized gains – fluctuate randomly.

That's largely because we sell securities when that seems the intelligent thing to do, not because we are trying to influence earnings in any way. As a result, we sometimes have reported substantial realized gains for a period when our portfolio, overall, performed poorly (or the converse)." - Warren Buffett

Jeff Bezos on High Standards
"High standards are contagious. Bring a new person onto a high standards team, and they'll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread...I believe high standards are domain specific, and that you have to learn high standards separately in every arena of interest. When I started Amazon, I had high standards on inventing, on customer care, and (thankfully) on hiring. But I didn't have high standards on operational process: how to keep fixed problems fixed, how to eliminate defects at the root, how to inspect processes, and much more. I had to learn and develop high standards on all of that (my colleagues were my tutors).

Understanding this point is important because it keeps you humble. You can consider yourself a person of high standards in general and still have debilitating blind spots. There can be whole arenas of endeavor where you may not even know that your standards are low or non-existent, and certainly not world class. It's critical to be open to that likelihood." - Jeff Bezos

Berkshire 2018 Meeting Highlights - Part II
"...I have here a New York Times of March 12th, 1942. I'm a little behind on my reading. (Laughter)

And if you go back to that time, that — it was about, what? Just about three months since we got involved in a war which we were losing at that point.

The newspaper headlines were filled with bad news from the Pacific...I'd like you to imagine that at that time you had invested $10,000And you put that money in an index fund — we didn't have index funds then — but you, in effect, bought the S&P 500...[or]...Let's say you'd taken that $10,000 and you'd listened to the prophets of doom and gloom around you, and you'll get that constantly throughout your life. And instead, you'd used the $10,000 to buy gold...And you could look at it...But it didn't produce anything. It was never going to produce anything...So if you decided to go with a nonproductive asset — gold — instead of a productive asset, which actually was earning more money and reinvesting and paying dividends and maybe purchasing stock — whatever it might be — you would now have over 100 times the value of what you would have had with a nonproductive asset.

In other words, for every dollar you had made in American business, you'd have less than a penny by — of gain — by buying in this store of value, which people tell you to run to every time you get scared by the headlines or something of the sort." - Warren Buffett

"...the one thing we know is we think that long-term bonds are a terrible investment, and we — at current rates or anything close to current's almost ridiculous when you think about it. Because here the Federal Reserve Board is telling you we want 2 percent a year inflation. And the very long bond is not much more than 3 percent. And of course, if you're an individual, then you pay tax on it. You're going to have some income taxes to pay.

And let's say it brings your after-tax return down to 2 1/2 percent. So the Federal Reserve is telling you that they're going to do whatever's in their power to make sure that you don't get more than a half a percent a year of inflation-adjusted income...I think I would stick with productive businesses, or productive — certain other productive assets — by far.

But what the bond market does in the next year, you know — you’ve got trillions of dollars in the hands of people that are trying to guess which maturity would be the best to own and all that sort of thing. And we do not bring anything to that game that would allow us to think that we’ve got an edge. - Warren Buffett

" really wasn't fair for our monetary authorities to reduce the savings rates, paid mostly to our old people with savings accounts, as much as they did. But they probably had to do it to fight the Great Recession, appropriately.

But it clearly wasn't fair. And the conditions were weird. In my whole lifetime, it's only happened once that interest rates went down so low and stayed low for a long time...And it benefited the people in this room enormously because it drove asset prices up, including the price of Berkshire Hathaway stock. So we're all a bunch of undeserving people..." - Charlie Munger

Happy New Year,


Quotes of 2017 
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