Enough

1. The Financial System Subtracts Value: Costs Devour Investor Returns.

On balance, the financial system subtracts value from our society.

Costs are relentless. The core truth of finance is simple arithmetic: gross market return minus system costs equals net investor return. The financial industry, now the largest sector of the U.S. economy, extracts enormous value through fees, commissions, and expenses, leaving investors with significantly less than the market provides. This "relentless rule of humble arithmetic" means the more the system takes, the less the investor makes.

A costly food chain. The financial sector has grown by trading paper rather than creating tangible goods or services. This complex food chain involves numerous intermediaries—brokers, managers, bankers, lawyers—all taking a cut. While the system facilitates capital allocation and liquidity, its costs have ballooned, reaching hundreds of billions annually, overwhelming the value it creates for investors.

Tyranny of compounding costs. Over decades, the magic of compounding returns is easily overwhelmed by the tyranny of compounding costs. Historically, a significant portion of potential long-term investment gains has vanished into the financial system's expenses and taxes. This drain seriously undermines citizens' ability to accumulate savings for essential goals like retirement.

2. Investing is a Winner's Game; Speculation is a Loser's Game.

In the long run, the aggregate gains made by Berkshire shareholders must of necessity match the business gains of the company.

Investment vs. Speculation. Investing is the long-term ownership of businesses, focused on intrinsic value derived from corporate earnings and dividends. Speculation is short-term trading based on forecasting market prices, driven by emotion and expectation. While speculation dominates in the short run, history shows that long-term stock returns are almost entirely determined by the reality of business investment returns, not speculative price changes.

A giant distraction. The stock market, in the short term, acts as a "voting machine" driven by sentiment, but in the long run, it's a "weighing machine" reflecting business reality. Today's market is dominated by speculation, with high turnover rates and massive derivatives trading, creating volatility and turbulence. This focus on short-term price movements is a "giant distraction" from the fundamental business of investing.

Odds favor investors. As a group, investors who buy and hold the market portfolio capture its full gross return. Speculators, trading among themselves, incur costs that guarantee they capture less than the gross return as a group. Betting on expected numbers and ginned-up returns through speculation is a loser's game compared to betting on real business returns through long-term investment.

3. Simplicity, Not Complexity, is the Investor's Best Friend.

The fundamental market failure in the mutual-fund industry involves the interaction between sophisticated, profit-seeking providers of financial services and naïve, return-seeking consumers of investment products.

Complexity benefits creators. In finance, innovation often follows a "reverse Occam's razor," favoring complex and costly products over simple and cheap ones. Instruments like CDOs, SIVs, and complex derivatives generate enormous fees for their creators and marketers, even as their unfathomable nature builds in risk and opacity for those who own them. This financial alchemy turns lead into apparent gold, enriching insiders while harming clients.

Innovation run amok. The mutual fund industry mirrors this trend, flooding the market with hundreds of narrowly defined, often fad-driven funds designed for trading rather than long-term holding. This product proliferation, fueled by marketing, encourages counterproductive investor behavior like performance chasing and results in high fund failure rates. The industry's drive for profits overwhelms its fiduciary responsibility.

Simplicity is the gold standard. The most productive investing is simple, low-cost, tax-efficient, and long-term. Broadly diversified index funds, which simply track the market, represent this ideal simplicity. Despite the industry's rush to complexity, the evidence shows that simple, low-cost strategies consistently outperform complex, high-cost ones over time, proving that investors get precisely what they don't pay for.

4. Trust, Not Just Counting, is the Foundation of Sound Business.

Not everything that counts can be counted, and not everything that can be counted counts.

Limits of quantification. While measurement is essential in business, relying solely on numbers is a form of blindness. Government statistics (GDP, unemployment, CPI) are often flawed or manipulated. Financial metrics attribute false certitude to history (e.g., using past returns to project future ones) and are prone to optimistic bias. Business numbers (earnings guidance, operating earnings) are easily managed and distorted.

Numeric economy undermines real economy. Over-reliance on quantifiable metrics leads to real-world consequences:

• Investors make unwise decisions based on flawed data.
• Pension plans face funding shortfalls when unrealistic return assumptions fail.
• Corporations are pressured to achieve unsustainable growth targets, leading to aggressive, value-subtracting strategies like serial acquisitions.
• Loose accounting standards create illusory profits.

Judgment and trust are vital. Sound business requires balancing counting with judgment and trust. Building an enterprise based on common sense, ethical standards, and a bond of trust with clients is more enduring than one driven solely by quantitative goals. Trust fosters a culture where people are treated as human beings, not just numbers, and where ethical principles guide decisions, even when unquantifiable.

5. Prioritize Professional Stewardship Over Business Salesmanship.

I will create value for society, rather than extract it.

Professions become businesses. Many professions—medicine, law, accounting, journalism, and money management—have shifted from prioritizing client and societal welfare to maximizing commercial interests. This move from a "calling" to a "business" undermines traditional ethical standards and trust. The financial services industry, in particular, has become a prime example of this shift.

Extraction vs. Creation. True professionals create value for society. Money management, however, primarily extracts value from the returns generated by productive businesses. This focus on maximizing the firm's own profits, often through high costs and complex products, conflicts with the fiduciary duty to serve clients' best interests.

Salesmanship trumps stewardship. The mutual fund industry's transformation over decades exemplifies this decline. It has grown enormously, but costs have soared, investment horizons have shortened, and focus has shifted from long-term stewardship of assets to short-term salesmanship and asset gathering. This has resulted in counterproductive investor behavior and inadequate returns for shareholders, proving that the interests of managers and shareholders are often misaligned.

6. Leadership Doing the Right Thing Trumps Management Doing Things Right.

The manager does things right; the leader does the right thing.

Management vs. Leadership. While both are essential, management focuses on administering systems and doing things efficiently, while leadership focuses on vision, direction, and doing the right things. Organizations need leaders to set character and strategy and managers to implement them effectively.

Building a great organization. Effective leadership and management require:

• Making caring for the institution and its people the soul of the organization.
• Treating colleagues as "crew members," not just employees.
• Setting and adhering to high standards and values, like integrity and fair dealing.
• Communicating values endlessly ("talk the talk") and embodying them through actions ("walk the walk").
• Avoiding overmanaging by recognizing the value of intangible human qualities like character and spirit.

Long-term perspective and loyalty. Great organizations are built for the long term, resisting short-term pressures that compromise values or people. Leaders and managers must view their workforce as a long-term asset and demonstrate loyalty, making it a two-way street. Ultimately, building a "superior company" requires a liberating vision and the courage to pursue it, blending strong management with genuine leadership focused on human principles and purpose beyond just making money.

7. Measure Life by Commitment and Character, Not Material Things.

Where are the things by which one measures one’s life?

Things are ephemeral. In a society of material abundance, it's easy to fall into the trap of measuring life by possessions or conventional "success" (wealth, fame, power). However, material things are transitory and ultimately inconsequential compared to the intangibles that truly matter. The pursuit of wealth for its own sake can be a "false rabbit."

Commitment summons providence. True measures of life include boldness and commitment. Committing oneself wholeheartedly to a worthy endeavor—whether work, family, community, or a cause—often leads to unforeseen opportunities and assistance, a form of "providence." This applies not just to grand projects but also to accomplishing humble tasks with dedication.

Character endures. While what you have may come and go, who you are—your character—will endure. Character is built through adversity, contemplation, determination, and honor. It is the "impartial spectator" within us, guiding us toward generosity, justice, and the love of what is honorable and noble. Focusing on building character and contributing to the well-being of others provides a more meaningful and enduring measure of a life well lived than the accumulation of things or conventional success.

8. Reclaim 18th-Century Values of Virtue and Public Good.

Soon we shall know everything the 18th century didn’t know, and nothing it did, and it will be hard to live with us.

Information vs. Wisdom. In the 21st century, we are drowning in information but starving for wisdom. We prioritize "truthiness"—what we wish to believe—over truth, especially when self-interest is involved. This contrasts sharply with the 18th-century Age of Reason, which valued reason, social reform, moral authority, and the public good.

Entrepreneurship for the public weal. Figures like Benjamin Franklin embodied 18th-century values. His entrepreneurship and inventions were aimed at community benefit, not personal enrichment. He believed knowledge should be common property. This contrasts with today's focus on personal wealth accumulation and patent wars, highlighting a shift away from the "impartial spectator"—the inner voice guiding us toward the greater interests of others.

Virtue as a guiding principle. The 18th century emphasized virtue—qualities like temperance, industry, sincerity, justice, and humility. While the word may make us uneasy today, it was central to building character and guiding actions. Reclaiming these values means prioritizing ethical principles, integrity, and a sense of common purpose in business and society, recognizing that true success involves contributing to the general welfare, not just personal gain.

9. True "Enough" is Found in Contribution, Not Conventional Success.

The knowledge that I’ve got enough.

Beyond wealth, fame, and power. Conventional definitions of success centered on wealth, fame, and power are flawed. Financial wealth is a shallow measure; true wealth includes a life well lived, loving family, and contributing to mankind. Fame is often transitory and ill-deserved. Power is only worthy when used for noble purposes, enabling others and serving the greater good.

Contribution defines success. Real success is not measured by what we attain for ourselves, but by what we contribute to society. This is exemplified by those in professions focused on serving others (doctors, teachers, scientists) and the "unsung heroes" who do the world's essential work without seeking wealth or fame. They chase "real rabbits" by serving their fellow man.

Character is the ultimate measure. The challenge for those in lucrative fields like business and finance is to ensure they are chasing real rabbits, not just money. This requires challenging oneself to pursue careers that create value for society, where personal wealth is a by-product, not the goal. Ultimately, the measure of a life is not material wealth or conventional success, but character—high in nobility, scorn of meanness, magnanimity, and a fine sense of what is right.

Last updated: April 30, 2025