In 1983, Warren Buffett wrote down 13 owner-related business principles outlining Berkshire Hathaway’s approach to investing and business management. These principles, which remain relevant today, provide a framework for making sound decisions that prioritize long-term shareholder value.

  1. Own a diversified group of businesses that generate cash and consistently earn above-average returns on capital.

This principle emphasizes the importance of diversification to reduce risk and the pursuit of businesses that can generate consistent and sustainable profits.

  1. Avoid management that is obsessed with meeting short-term earnings targets.

Buffett advocates for a long-term focus, prioritizing decisions that enhance the intrinsic value of the company over short-term financial gains.

  1. Avoid companies with bloated balance sheets and excessive debt.

Financial prudence is essential, and excessive debt can hinder a company’s flexibility and ability to withstand economic downturns.

  1. Seek managers who are passionate about their businesses and put shareholders’ interests first.

Effective management is crucial, and aligning the interests of management with those of shareholders ensures long-term value creation.

  1. Don’t make acquisitions to simply increase size or diversify into unrelated businesses.

Acquisitions should be driven by strategic opportunities that enhance the overall value of Berkshire Hathaway.

  1. Don’t overpay for businesses, even if they appear to be attractive.

Disciplined valuation is paramount, and acquiring businesses at inflated prices can erode shareholder value.

  1. Be patient and willing to wait for the right opportunities to arise.

Investing requires patience and discipline, and rushing into decisions can lead to suboptimal outcomes.

  1. Communicate openly and honestly with shareholders.

Transparency and clear communication foster trust and confidence among shareholders.

  1. Behave as partners, not masters, to your shareholders.

Berkshire Hathaway views shareholders as partners in its success, aligning its actions with their interests.

  1. Don’t let your emotions dictate your investment decisions.

Sound investment decisions are based on rational analysis, not emotional impulses.

  1. Remember that the stock market is a tool, not a gambling machine.

The stock market should be used as a means to acquire ownership in valuable businesses, not as a venue for speculative trading.

  1. Understand that stock prices can be irrational in the short term.

Market fluctuations can be unpredictable, and investors should focus on the long-term intrinsic value of businesses.

  1. Always strive to make decisions that will protect and enhance Berkshire Hathaway’s intrinsic value.

Every decision should be evaluated based on its impact on the company’s long-term value and its ability to deliver superior returns to shareholders.

These 13 owner-related business principles provide valuable insights into Warren Buffett’s investment philosophy and Berkshire Hathaway’s approach to business. By adhering to these principles, investors can make informed decisions that prioritize long-term value creation and sustainable financial success.