Why Buffett Believes It's Better to Own Part of a Great Business Than All of a Mediocre One

By sagebytes — 04 Apr 2025

Intrinsic Business Value: Focus on businesses where the intrinsic value significantly exceeds book value. A business's intrinsic value comprises both quantitative measures (per-share investments and pre-tax earnings) and qualitative assessments.
Long-Term Perspective: "American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance." Avoid trying to time markets based on short-term concerns.
Quality Over Price: "It's far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price." Berkshire has sometimes reverted to bargain-hunting with "results ranging from tolerable to terrible."

Capital Allocation Priorities

Reinvest in Existing Businesses: Examine "moat-widening opportunities" within current operations first.
Strategic Acquisitions: Pursue unrelated acquisitions that leave shareholders wealthier on a per-share basis.
Stock Repurchases: Buy back shares when they trade below intrinsic value. "It's hard to go wrong when you're buying dollar bills for 80¢ or less."
Dividends: Generally the last priority at Berkshire. "If float is both costless and long-enduring... the true value of this liability is dramatically less than the accounting liability."

Outstanding Managers: Seek businesses with excellent leadership who operate their businesses "as if they were the only asset owned by their families."
Economic Moats: Prioritize businesses with sustainable competitive advantages.
Disciplined Financial Management: Maintain "many redundant layers of liquidity" and avoid obligations that could drain cash in material ways.

Rationality: "It's our job to increase intrinsic business value – for which we use book value as a significantly understated proxy – at a faster rate than the market gains of the S&P."
Independent Thinking: "The old line, 'The other guy is doing it, so we must as well,' spells trouble in any business, but none more so than insurance."
Counter-Cyclical Courage: "We don't share fears [about uncertainty], instead spending a record $9.8 billion on plant and equipment in 2012. We love investing large sums in worthwhile projects, whatever the pundits are saying."
Opportunity Cost Mindset: "At Berkshire we much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business."

Conservative Financial Structure: Maintain exceptional financial strength regardless of market conditions.
Margin of Safety: Ensure businesses can thrive even in severe economic downturns.
Sustainable Business Models: Focus on businesses with enduring economics that "will continue to play major roles in the American economy" a century hence.