Berkshire Meeting Archive

Lessons from this meeting:

Ethics Are Hard to Gauge from the Inside
It’s often impossible for rank-and-file employees to discern whether leadership truly values integrity or just talks about it. Look at public commitments, published communications, and whether a company prioritizes stock price over substance—but recognize even those signals can be misleading.

Keep Regulators, Not Legislators, Setting Accounting Standards
When Congress overruled the FASB on expensing stock options in the 1990s, it accelerated a culture of “anything goes.” True accounting expertise belongs with independent standard-setters, not politicians seeking market gains.

Avoid Conflicts: Don’t Wear Two Hats in Fund Management
Managing outside client assets alongside colossal in-house capital invites inevitable conflicts. If you own most of your capital in one vehicle (like Berkshire), adding a second fund management arm is ethically and operationally untenable.

Infrastructure Investments Require Long-Term Vision
Expanding Omaha’s convention center to host nearly 20,000 shareholders shows that strategic civic projects—and the willingness to thank collaborators—can unlock tremendous growth opportunities over decades.

Play to Your Unique Strengths When Buying Businesses
Private equity firms may bid, but few can match Berkshire’s promise: no forced leverage, no consultant overhauls, and lifelong operational autonomy for sellers. That one-of-a-kind offer attracts owners unwilling to auction their life’s work to the highest bidder.

Align Incentives to Deter “Write-It-All” Underwriting
Berkshire’s insurance units make underwriters feel no pressure to chase volume—no layoffs for low premium years—so they never write policies just to hit quotas. The result: decades of consistent underwriting profits.

Open Economies Gain from High-Skill Immigration
When you combine America’s natural resources and ingenuity with the world’s top talent, GDP and innovation soar. History shows neither growth nor competitiveness suffers from attracting skilled immigrants.

Stock Splits Are a Symptom, Not a Solution
Refusing to split Berkshire’s stock filters for patient, investment-oriented owners and discourages short-termists. Splits aren’t evil, but high prices help cultivate a shareholder base that shares long-term management’s philosophy.

Differentiate Ownership from Speculation
Buying stock in a business is not the same as owning and running that business. You can comfortably hold shares of companies whose products you wouldn’t operate yourself; direct ownership demands a higher ethical and operational standard.

Sensible Derivatives vs. “Demented” Speculation
Insurers like Berkshire underwrite real-world risks people need covered. Complex financial derivatives, by contrast, often enable unmoored speculation, introduce cascading collateral calls, and threaten systemic stability far beyond traditional insurance.

Lessons from this meeting:

Read Everything, Ignore Management Hype, Wait for the Fat Pitch
All the actionable insight comes from public filings—10-Ks, annual reports, periodicals—so dig into the data. Skip management projections and face-to-face roadshows. Then pounce when the “fat pitch” shows up.

Intrinsic Value Is Key but Terribly Fuzzy
Value = discounted future cash flows—include built-in declines (e.g., pipelines facing competition) up front. Don’t wait for the haircut to show up later; bake it into today’s calculation.

Derivatives & Optionality Magnify Tail Risk
Complex hedges accentuate “six-sigma” shocks. Match mortgage optionality with care, know your counterparties, and never trust anyone who claims they can model true extremes.

Float & Cheap Capital Aren’t Free Money
Insurance float is just another source of funding—underwrite every policy like an investment, sit out soft markets, and price risk vs. return.

Circle of Competence & Ignore Macro Noise
Fed moves, bubbles, GDP forecasts—none change a business’s cash‐flow power. Stay within your expertise, demand a wider margin of safety for anything else, and always ask, “Would I hold it if markets closed for five years?”

Rigorous, Conservative Accounting: Depreciation & Pensions Matter
Depreciation is real cash outlay—calling EBITDA “bullshit earnings” isn’t a joke. Pension assumptions and goodwill write-downs must reflect economic reality, not accounting gambits.

Opportunity Cost Beats “Cost of Capital”
Rather than chasing textbook WACC, weigh each use of capital against all your alternatives. Maintain a hard hurdle (≈10 % pretax) across interest-rate regimes.

Deploy Capital Heavily in Proven Winners, Then Reallocate Excess
When you find a great business, load up: good ideas are too scarce for small stakes. Any excess cash beyond its reinvestment needs should be redeployed elsewhere in the portfolio.

Philanthropy Is a Moral Duty
Hitting the jackpot of birth in America imposes an obligation to give back: leave heirs “enough to do anything, but not enough to do nothing,” and send unearned wealth back to society.

Keep It Simple—No Insider Favors or Bloated Comp Plans
Don’t lean on friends for introductions. Executive pay should mirror business economics with minimal structural tinkering—no consultant-driven complexity, no retirement mandates, and no cross-subsidized targets.

Lessons from this meeting:

1. Don’t Cling to Obsolete Models
   • Blue Chip Stamps: $120 M→$46 K because they never modernized redemption.
   • Always ask, “Am I still solving customers’ problems the way they want?”
2. Shareholders Can Be Philanthropists
   • Investors who concentrate on Berkshire then donate proceeds (like Cleveland trips or the Othmers’ $750 M) amplify impact.
   • Berkshire’s culture → more owners giving back.
3. If You Want Pharma, Buy the Whole Basket
   • Health care as a group has earned great returns, but picking single names is a crapshoot.
   • Valuations too rich? Wait or use an index/fund.
4. Owning the Brand Beats Owning the Factory
   • Coke syrup (trademark) yields higher returns than capital-hungry bottling.
   • Leverage in bottlers is fine—but it just delivers “decent,” not “extraordinary,” profits.
5. Accounting Is Just a Starting Point
   • Don’t take GAAP at face value—adjust pension assumptions, non-cash charges, goodwill, etc., to reflect true economics.
   • New “no-amortization” goodwill rules align perfectly with Buffett’s long-time view.
6. Beware “Cultural Drift,” Not Just Bad Incentives
   • General Re hiccups weren’t due to pay plans but to lax underwriting discipline.
   • Key lesson: Keep incentives rational, but never lose your underwriting compass.
7. Stock Options Need a True Cost-of-Capital Charge
   • Late-career CEO grants without a hurdle rate are “demented” and “immoral.”
   • If you do grant options, embed a real cost-of-capital benchmark or repurchase trigger.
8. Float ≠ Free Money—Price Every Underwriting Like an Investment
   • $37 B float won’t force you into junk bonds—Berkshire’s scale + external earnings give flexibility.
   • “Cheap capital” only works if you price risk vs. return; walk away in soft markets.
9. Ignore Macro Noise—Value Is in Future Cash Flows
   • Gold prices, Fed moves, bubbles: none change what a business actually produces over time.
   • Always ask, “Would I still own this if markets closed for five years?”
10. Stay in Your Circle—When in Doubt, Sit It Out

• Only invest where you truly understand the economics (if you can’t explain it simply, it’s outside your circle).
• For novel or fast-changing sectors, demand a wider margin of safety—or skip it.

Lessons from this meeting:

Pharma vs. Tech: Predictability Matters
– Pharma: Industry-wide tailwinds (aging populations, recurring R&D payoffs) made the entire sector after ’93 a reasonable “sector play.”
– Tech: Far more dispersion and permanent failures—no obvious group‐wide rebound—so you can’t just buy “tech” as a block.

Corporate Actions & Taxes
– Class-A ↔ Class-B exchanges aren’t taxable events—but selling one “identical” share to buy the other likely is, since IRS sees them as substantially identical.

Holding‐Company vs. Regulated Subsidiaries
– Insurance: State regulators generally stop at the individual carrier—so as a non-insurer parent, you can deploy capital and acquire freely.
– Utilities: Federal PUHCA rules still constrain parent-company deals—you can own only up to 5% without extra review.

“Pain Today, Gain Tomorrow” Deals
– When you underwrite a loss now for long-run cheap float, disclose it clearly (quarterly, in the annual report).
– Distinguish these one-offs from your normal underwriting loss ratio—investors need that “adjusted” cost of float.

Mistakes of Omission Hurt the Most
– Big gains aren’t just blown trades—failing to commit meaningfully to your best ideas can cost you far more than a bad trade.

Legal Environment Shapes Risk
– Product-liability risks vary by industry; tobacco-style suits are unlikely against sugar/dairy—but general trend is toward more claims and larger awards, so build in extra reserves.

Dividend Policy: Economic Logic, Not Convention
– Retain earnings only when you can deploy $1 of capital to earn more than $1 (PV). Otherwise return it via repurchases or dividends—no fixed payout ratio makes sense.

When to Sell Controlled Businesses
– Never sell control just because someone offers a big premium—only if the fundamental moat erodes or you discover you were wrong about the business.

Stock Options & Accounting Integrity
– Expensing employee stock options is economically accurate, but political & industry pressure keeps GAAP from doing so. Only investor coalition can force the change.

Pension & Liability Assumptions
– Using a 9–10% expected return to underwrite future pension claims is wishful—it far outstrips bond yields and equity markets. Sooner or later, those assumptions must reset, hitting corporate earnings hard.

Auto Claims & Underwriting Edge
– Your underwriting power comes from finding the few right risk‐factors (e.g. credit history, urban vs. rural). That data edge—not corner-cutting—drives combined ratios.

Service vs. Commodity Businesses
– In fractional jets, premium service & reliability create a non-commodity moat—no airline can easily slingshot in at the same level without dismantling its existing cost structure.

Size Brings Both Clout & Constraints
– As you get bigger, more sellers compete for your deal flow (fewer cheap acquisitions), and your own organic growth rates inevitably slow.

Beware Extrapolating Past Bull Runs
– A 15% annual gain is mathematically incompatible with large scale and reasonable valuations. If everyone expects “more of the same,” prices become Rembrandt-like speculations.

Keep Learning, Keep Focused
– Whether you’re running a $10K mini-fund or a $100B conglomerate, the core question is always the same: What am I paying today for the cash I expect tomorrow?

Lessons from this meeting

Value Drives Growth (and vice versa)

• There’s no “growth vs. value” divide—every investment is a present-value calculation of future cash flows (birds in hand vs. birds in bush).
• Focus on how many “birds” you get, when, and at what discount rate.

Circle of Competence

• Only buy businesses you understand—if you can’t reasonably predict where it’ll be in 10 years, don’t invest.
• It’s fine for others to play in tech or farmland manias; if it’s outside your grasp, stay away.

Economic Moats Matter Most

• Seek durable competitive advantages (“moats”)—brands or business models that fend off competitors and compound value.
• Examples: Coke’s global bottling & vending footprint, Gillette’s blade-razor lock-in, See’s Candy’s reputation.

Intrinsic Value Trumps Accounting Metrics

• Ignore short-term P/E ratios or GAAP book value—focus on what the business can and will earn over time.
• Beware “look-through” metrics that claim precision—cash flows and qualitative durability are king.

Patience & Long Horizons

• Don’t get distracted by quarterly noise, macro forecasts, or currency swings you can’t forecast.
• Ask, “Would I buy and hold this if the market closed for five years?” If yes, you’re aligned with Buffett.

Avoid the Speculative Mania

• Manias transfer wealth; real wealth comes only from underlying business performance.
• Speculative bubbles correct—sometimes painfully—but solid businesses prevail.

Margin of Safety

• Pay significantly less than your estimate of intrinsic value to allow for errors, surprises, or miscalculations.
• As Aesop taught: a bird in the hand is worth two in the bush—timing and risk matter.

Rational Risk & Rewards

• In insurance (and investments), pursue only transactions where you have a mathematical edge.
• Expect surprises—seek managers who build moats, and use incentive plans that reward real economic gains, not “lottery tickets.”

Keep a Permanent Home Mindset

• If you control a business, treat it as if you’ll never sell—this aligns capital allocation with long-term value creation.
• Rarely sell even when offered rich multiples; only revisit if the moat erodes or a mistake forces a rethink.

Disciplined Capital Allocation

• Retain earnings only if you can redeploy them at returns above your cost of capital; otherwise return the cash.
• No arbitrary dividend policies—let logic (can we earn >$1 of value per $1 retained?) decide.

Embrace “Lazy” Focus

• Avoid spreading yourself thin chasing every hot sector—agnosticism about macro or fads frees you to concentrate on a few great businesses.

Study Winners & Losers

• Analyze both successes (Mrs. B at Nebraska Furniture Mart) and failures (New Coke, trading stamps) to understand what builds—or destroys—a moat.

Lessons from this meeting:

1. General Re’s Value Is a 10-Year Story
   • Float won’t grow meaningfully in 1999–2000; real benefits accrue over the longer term.
   • International expansion and tax synergies are the key levers for future upside.
2. Technology Is More Threat than Windfall
   • Rapid change makes many industries unpredictable; we favor businesses likely to look much the same in 10–20 years.
   • Coca-Cola’s century-old formula or See’s Candy’s recipe are far safer “moats” than most tech plays.
3. Stocks Can’t Outpace GDP Forever
   • U.S. profits can’t grow faster than GDP in the long run—15 % equity returns are mathematically unsustainable.
   • Reset your expectations: 4–5 % real profit growth plus dividends is a much more plausible base case.
4. True Philanthropy Is Low-Cost Service
   • The greatest contribution you can make is delivering goods or services more efficiently—think GEICO’s savings to consumers.
   • Corporate giving should be driven by shareholders, not by CEOs “owning” the charity budget.
5. Cable Facilities: Promise vs. Reality
   • So far, returns on cable infrastructure have been modest given its heavy capital demands.
   • Programming and distribution models may improve—but price in today’s lofty multiples and you risk disappointment.
6. Inheritance: Strike a Balance
   • “Enough to do anything, but not enough to do nothing” preserves meritocracy and discourages entitlement.
   • Heavy taxation on unearned wealth can help level the playing field without crushing ambition.
7. We’re Willing to Trade Big Upside for Certainty
   • Microsoft or Pfizer might deliver windfall gains—but we prefer the “certain payoff” of proven moats at sensible prices.
   • Betting big on volatility isn’t our game; we’d rather own fewer businesses with razor-sharp visibility.
8. Share Buybacks Require a Wide Margin
   • We’ll repurchase only if Berkshire is “dramatically underpriced” relative to intrinsic value—and only after finding no better use of capital.
   • Buying back at a small discount to fair value wastes opportunities elsewhere.
9. Moats and Management Are Qualitative Anchors
   • Assess a company’s “moat” by its sustainable pricing power and brand strength—e.g., Coca-Cola’s global share of mind.
   • Judge management by post-mortems: did past reinvestments actually enhance value?
10. Learn by Reading & “Nose-in-the-Facts” Investigation

• There is no single text: immerse yourself in annual reports, trade journals (e.g., Value Line), and good business biographies.
• Act like a reporter—interview competitors, suppliers, ex-employees—to build a firsthand, journalistic understanding of each business.

Lessons from this meeting:

1. Buy a Home When You Need One
   • Purchase when you genuinely require the space—waiting only ties up capital unnecessarily.
   • Factor the implicit “return” (~7–8 %) you forgo versus keeping money invested.
2. Pay for Performance, Not Mediocrity
   • Reward outstanding leadership generously; it creates real shareholder value.
   • Abolish or curb bloated pay for average executives—it’s both wasteful and demoralizing.
3. Class B Shares Achieved Their Goal
   • They thwarted high-fee fund “alternatives” while broadening your shareholder base appropriately.
   • Economically identical to As (1 A = 30 B), with only modest voting and program-eligibility differences.
4. Minimum Investible Size Drives Your Universe
   • Berkshire only targets opportunities large enough to move the needle—roughly $500 M+ positions.
   • That cutoff hurts relative returns but is unavoidable given your huge capital base.
5. Let Subsidiaries Run Themselves
   • Decentralize all decisions—marketing, vendors, meetings—just don’t tinker with successful managers.
   • HQ’s sole prerogative: allocate capital; leave operations “just short of total abdication.”
6. Float Is Cheap Capital—Underwrite Only When Paid Right
   • Insurance float funds investments; it isn’t free money, so price judiciously and sit out soft markets.
   • Treat each underwriting decision like an investment: risk vs. expected returns, no “blind” volume chase.
7. Inheritance: “Enough to Do Anything, Not Enough to Do Nothing”
   • Leave heirs sufficient resources for meaningful pursuits—but not so much they never work.
   • Society’s goal: meritocracy, not dynastic privilege; heavy taxation on unearned wealth promotes fairness.
8. Steer Clear of Airline Stocks
   • The industry “just melts net worth”—capital demands are massive, returns volatile, and decisions agonizing.
   • Debt deals (e.g. USAir notes) can work if structured well, but common equity? “Not intriguing.”
9. Focus on Businesses You Understand
   • Stick within your “circle of competence”—if you wouldn’t drive a truck across a shaky bridge, don’t invest.
   • For complex or rapidly changing sectors, demand a wide “margin of safety” or stay on the sidelines.
10. Ignore Macro Noise—Price & Value Alone Matter

• Fed moves, fund flows, tax changes? None affect what the business itself produces over time.
• Always ask, “Would I buy and hold this if the market closed for five years?” If yes, focus on fundamentals.

Lessons from this meeting:

1. Intrinsic Value Is Future Cash Flows
   • Estimate a business’s owner cash flows over its lifetime and discount them at the risk-free rate.
   • Compare the result to its price—buy only when there’s a meaningful margin of safety.
2. Filter for Understandable Businesses
   • Invest only in companies whose economics and competitive moats you can clearly grasp.
   • Avoid industries where technological or regulatory change makes cash-flow forecasts unreliable.
3. Concentrate via Opportunity Cost
   • Rank all potential investments against your best idea—if it isn’t superior, pass.
   • A focused portfolio of top convictions beats diversifying into mediocre names.
4. Use Treasuries as the Discount Yardstick
   • The government bond rate is your baseline “hurdle” for present-valuing any asset.
   • Even if you never buy bonds, they set the cost of capital for all comparative valuations.
5. Float Is Cheap, But Not Free
   • Insurance premiums held (“float”) fund investments—earn more than the cost of claims.
   • Underwrite only when pricing makes sense; sit out soft markets rather than chase volume.
6. Decentralize & Empower Subsidiaries
   • Let each business unit make its own operational and policy decisions.
   • Headquarters allocates capital and sets capital-charge hurdles, but trusts local managers.
7. Retain Earnings Only If You’ll Beat Payout
   • Keep cash only when you can deploy it for better returns than shareholders could get themselves.
   • Otherwise, return capital via dividends or share buybacks—no point in hoarding idle cash.
8. Share of Mind > Share of Market
   • Strong consumer brands (Coke, Disney) own durable “real estate” in billions of minds.
   • Premium pricing and global scale follow from top-of-mind awareness, not just shelf-space.
9. Learn from Others’ Mistakes & Your Omissions
   • Study big losses and missed opportunities; most Buffett regrets are not buying more of great companies.
   • Cultivate intellectual humility—vicarious learning beats repeating your own errors.
10. Ignore Macro Noise; Focus on Business Fundamentals

• Fed moves, fund flows or trade deficits don’t change what the company itself produces.
• Evaluate each stock as if the market closed for five years—would you still buy it?

Lessons from this meeting:

1. Be Neutral on Market Timing
   Key point: Dollar-cost–averaging into great businesses beats trying to “time” buys and sells.
   • Buffett won’t tell you to buy or sell Berkshire now, but systematic small monthly investments capture compounding without second-guessing the market.
2. Competitive Moats Matter
   Key point: Franchise strength trumps fleeting trends—American Express must re-differentiate to avoid commoditization.
   • A reactive entry once made AmEx dominant; today it needs unique value to withstand debit-card rivals and protect its travel-&-entertainment niche.
3. Management Quality Varies Widely
   Key point: Truly great businesses minimize reliance on “superman” CEOs—but when exceptional leaders emerge, back them heavily.
   • Buffett and Munger look for steady “.350 hitters” in companies with durable economic advantages; extraordinary managers in weak businesses still can’t overcome bad economics.
4. Diversification Is “Protection Against Ignorance”
   Key point: If you deeply understand a handful of outstanding businesses, owning dozens of average names dilutes returns.
   • Three top-tier, easy-to-predict companies often outperform fifty large caps; true expertise justifies concentrated bets over broad indexing.
5. Efficiency Requires Empathy
   Key point: Downsizing corrects past bloat but must include retraining and support for displaced workers.
   • Across industries—from textiles to oil—overstaffing invites painful cuts; Berkshire’s insurance arms won’t lay off people merely due to volume drops.
6. Insurance Success Depends on Patience
   Key point: Float is valuable only when deployed prudently; never chase premium volume at the expense of underwriting discipline.
   • Berkshire sits out soft cycles, never budgets for insurance growth, and quietly expands when price is right—mirroring its “wait for the fat pitch” investment ethos.
7. Focus Beats Diversion
   Key point: Stay in your lane—GEICO’s U.S. auto opportunity dwarfs any foreign startup; Coca-Cola and Gillette thrive by maximizing core strengths.
   • Spreading into new territories or lines can sap energy; Berkshire’s businesses excel by honing one mission, not chasing every emerging market.
8. Float vs. Cash: Growth Trumps One-Time Gains
   Key point: $7 billion of growing insurance float handcuffs “free” cash—it’s a compounding machine you wouldn’t swap for a lump sum.
   • Even nontaxed proceeds can’t match the value of perpetually reinvesting insurance premiums at high returns over decades.
9. Simplicity Over Complexity
   Key point: Seek businesses whose futures are easy to model—volatile, competitive industries (tech, Wall Street trading) lie outside Buffett’s “circle of competence.”
   • Durable franchises in chewing gum, shaving razors, or candy are far more predictable than high-tech platforms or speculative NASDAQ darlings.
10. Society Owes Its Winners a Duty
    Key point: Capitalism rewards some disproportionately; progress requires fair taxation and support for those ill-suited to its demands.

• Markets excel at delivering abundance, but the richly rewarded must help ensure opportunity and safety nets for citizens whose talents lie elsewhere.

Lessons from this meeting:

Ease of Entry, Power in Staying Power
Key point: In catastrophe reinsurance anyone can start up, but only deep pockets and staying power win.

• Small “spray-and-pray” entrants go bust once in ten tries; only a few like Berkshire can underwrite at scale and survive multi-billion-dollar hits.
• Clients chase carriers they trust to pay claims long after a disaster—capacity without capital strength is a nonstarter.

Ben Graham’s Yardsticks Apply to Tech Too
Key point: The same value-investing framework works for high-tech—if you understand the business.

• Buffett and Munger would insist on the same margin-of-safety and business-like approach, even if volatility and risk look higher.
• Lack of tech expertise, not flawed principles, keeps them out; a qualified “Bill Gates” applying Graham’s rules could build a tech fund.

“You Don’t Have to Make It Back the Way You Lost It”
Key point: Chasing losses in the same form often deepens the hole—investors must pivot to fresh opportunities.

• Berkshire’s write-down in USAir preferred is acknowledged but won’t drive them back into the same airline sector to recoup it.
• The first rule of recovering from a bad bet: don’t repeat the mistake; redeploy capital where odds are better, not where you last lost.

Videotaping Meetings Would Kill the Atmosphere
Key point: Berkshire values live engagement over mass broadcast—even great ideas aren’t worth empty seats.

• Management fears videotaping would sap turnout and genuine Q&A energy; a packed hall yields higher-caliber dialogue.
• Keeping shareholders in the room preserves the rare culture of direct accountability and spontaneous exchange.

Succession Is Almost a Non-Issue
Key point: With strong businesses and decentralized leadership, even an “idiot” could keep Berkshire humming.

• The operating units run autonomously under proven managers; headquarters needs surprisingly little hands-on direction.
• Capital allocation is the only key skill to replace—an advantage, not a crisis, given their bias toward buying stakes in great firms.

Options Give Optionality—Preferred to ‘Pay Up Front’
Key point: Issuing convertible preferred stock is a powerful way to raise capital without immediate dilution or debt strain.

• Berkshire prefers structures that offer the right, but not the obligation, to turn paper into equity over several years.
• Having flexibility to choose cash or stock on redemption dates keeps Berkshire ready to pounce on big acquisitions.

Economic Moat ≈ Scale + Alignment
Key point: A durable business combines scale advantages with managers whose interests match owners’.

• Scale—whether buying power, brand recall, or network effects—builds the protective moat around a high-return castle.
• Low “agency costs” (i.e., honest, owner-oriented managers) ensure castle keepers don’t strip away shareholder value.

Derivatives: Few, Understandable, Counterparty-Safe
Key point: Only employ derivatives when they’re the simplest, cost-effective way to achieve a clear hedge—and counterparty risk is nailed down.

• Buffett insists on two modest-sized derivative programs he fully grasps; sheer novelty or leverage without purpose is off limits.
• Never enter a paper swap unless you know you’ll collect the payoff—Berkshire underwrites only against rock-solid partners.

Projections Are Advertising, Not Analysis
Key point: Forecasts from sellers or advisors almost always reflect bias, not truth—skip the guff and trust organized common sense.

• Managers who push elaborate five-year models usually want to justify a pre-set deal; real due diligence is far simpler.
• Buffett once demanded past forecast accuracy alongside new projections—and found the track record laughably poor.

First Filter: Do You Understand It?
Key point: No matter how enticing the returns appear, if Buffett and Munger can’t grasp a business quickly, they won’t invest.

• The very first question is “Can I explain how this company makes money?” If not, move on—complexity is a warning sign.
• Only once the business model is crystal-clear do they probe economics, competitive position, and future cash-flow potential.