In his 1991 Berkshire Hathaway Annual Letter, Warren Buffett uses the quote, “If at first you do succeed, quit trying.” It’s a tongue-in-cheek way of saying that once you find a great investment, you should hold on to it. This is because great businesses are rare and difficult to find. Here’s an excerpt from the letter:
If my universe of business possibilities was limited, say, to private companies in Omaha, I would, first, try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price.
I certainly would not wish to own an equal part of every business in town. Why, then, should Berkshire take a different tack when dealing with the larger universe of public companies? And since finding great businesses and outstanding managers is so difficult, why should we discard proven products? (I was tempted to say “the real thing.”) Our motto is: “If at first you do succeed, quit trying.”
John Maynard Keynes, whose brilliance as a practicing investor matched his brilliance in thought, wrote a letter to a business associate, F. C. Scott, on August 15, 1934 that says it all: “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.
It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which
one knows little and has no reason for special confidence. . . .
One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”
You can read the entire letter here:
1991 Berkshire Hathaway Annual Letter
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One Comment on “Warren Buffett: If At First You ‘Do’ Succeed, Quit Trying”
Another letter that Keynes wrote to Scott contains the focus of value investing that I pursue. Keynes wrote: “I am still convinced that one is doing a fundamentally sound thing, that is to say, backing intrinsic values, enormously in excess of market price, which at some unpredictable date will in due course bring the ship home.”
The problem that I have with emphasizing confidence in management is that it is so difficult to measure. History is strewn with the ashes of companies that were perceived to be very well managed until shortly before they went bankrupt. Enron fits this description, as does Nortel.
The Acquirers’ Multiple is an excellent way to initially screen for intrinsic value relative to market price.