There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the company has available funds — cash plus sensible borrowing capacity — beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively-calculated. To this we add a caveat: Shareholders should have been supplied all the information they need for estimating that value. Otherwise, insiders could take advantage of their uninformed partners and buy out their interests at a fraction of true worth. We have, on rare occasions, seen that happen. Usually, of course, chicanery is employed to drive stock prices up, not down...The business “needs” that I speak of are of two kinds: First, expenditures that a company must make to maintain its competitive position (e.g., the remodeling of stores at Helzberg’s) and, second, optional outlays, aimed at business growth, that management expects will produce more than a dollar of value for each dollar spent (R. C. Willey’s expansion into Idaho).

Source:   Berkshire Hathaway Shareholder Letters

There is [a subjective] element to an intrinsic value calculation that can be either positive or negative: the efficacy with which retained earnings will be deployed in the future. We, as well as many other businesses, are likely to retain earnings over the next decade that will equal, or even exceed, the capital we presently employ. Some companies will turn these retained dollars into fifty-cent pieces, others into two-dollar bills.

Source:   Berkshire Hathaway Shareholder Letters

I believe that in regard to a company's future sales curve there is one point that should always be kept in mind: If a company's management is outstanding and the industry is one subject to technological change and development research, the shrewd investor should stay alert to the possibility that management might handle company affairs so as to produce in the future exactly the type of sales curve that is the first step to consider in choosing an outstanding investment.

Source:   Common Stocks and Uncommon Profits

In no other major subdivision of business activity are to be found such great variations from one company to another between what goes in as expense and what comes out in benefits as occurs in research. Even among the best-managed companies this variation seems to run in a ratio of as much as two to one. By this is meant some well-run companies will get as much as twice the ultimate gain for each research dollar spent as will others. If averagely-run companies are included, this variation between the best and the mediocre is still greater.

Source:   Common Stocks and Uncommon Profits

An otherwise good management which increases dividends, and thereby sacrifices worthwhile opportunities for reinvesting increased earnings in the business, is like the manager of a farm who rushes his magnificent livestock to market the minute he can sell them rather than raising them to the point where he can get the maximum price above his costs. He has produced a little more cash right now but at a frightful cost.

Source:   Common Stocks and Uncommon Profits

Actually dividend considerations should be given the least, not the most, weight by those desiring to select outstanding stocks. Perhaps the most peculiar aspect of this much-discussed subject of dividends is that those giving them the least consideration usually end up getting the best dividend return. Worthy of repetition here is that over a span of five to ten years, the best dividend results will come not from the high-yield stocks but from those with the relatively low yield.

Source:   Common Stocks and Uncommon Profits

Worldwide, wealthy, educated customers are predisposed to try out new products with little delay. Global capitalism generates ever-rising amounts of capital for investment. Technology can be employed to build or to copy any number of configurations of products, quickly and efficiently. Global communications have transformed international markets into an electronic village where distance no longer matters. Imagine a marketplace where thousands of idea-driven, well-financed companies have quick access to millions of customers who, as they say, “have so much money that they don’t know what to do with it”. These are the building blocks of fast-cycle markets.

Source:   Renewable Competitive Advantage

The unfortunate consequence of bad strategy is undervalued assets. The idea of undervalued assets emphasizes that capabilities are suppressed when not deployed in the best possible way. Investors seek companies that achieve the best alignment, where capabilities are leveraged to yield the highest returns.

Source:   Renewable Competitive Advantage

A question we hear from managers working across economic time is: “Which economic time zone is better?” Long product cycles, while they appear attractive, are not necessarily better than short product cycles in this regard. This is because the total amount of cash flows and the speed at which they are received represent a tradeoff between the stability associated with longer profit cycles and the speed of payback associated with longer profit cycles. Thus economic time cycles create opportunities – but the speed and means by which cash flows from different economic time cycles create value are highly differentiating.

Source:   Renewable Competitive Advantage

In slow-cycle settings, cash flows can behave like annuities. Slow-cycle company products have stable, relatively certain payback periods. Then, as products are positioned further up in economic time, the velocity and uncertainty of cash flows associated with them increase. Similarly, investments in R&D, manufacturing, inventory, and marketing depreciate faster. The expected return from projects becomes less certain.

Source:   Renewable Competitive Advantage

The capital budgeting process for a standard-cycle company is managed through a hierarchy. Budget approval can require long journeys with reviews at many levels. Consensus over several years is needed to sustain large commitments. In contrast, capital requests for the development of fast-cycle projects should be drafted, reviews and responded to quickly. Market opportunities, and the cash flow associated with them, change rapidly – even during the process of fast cycle project evaluation.

Source:   Renewable Competitive Advantage

What is the historical relationship of your products to volume? How is competitive advantage strengthened by scale, or made stronger by an ever-increasing volume of product produced within the same fixed cost structure? As technological change becomes more rapid, fixed-cost investments age faster economically. The result is that the amount of time over which scale economies can be sustained is shortened. This reduces the importance of scale economies in the industry overall.

Source:   Renewable Competitive Advantage

We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.

Source:   Amazon Shareholder Letters

We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures.

Source:   Amazon Shareholder Letters

We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.

Source:   Amazon Shareholder Letters

We will share our strategic thought processes with you when we make bold choices (to the extent competitive pressures allow), so that you may evaluate for yourselves whether we are making rational long-term leadership investments.

Source:   Amazon Shareholder Letters

We will balance our focus on growth with emphasis on long-term profitability and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.

Source:   Amazon Shareholder Letters

Online selling (relative to traditional retailing) is a scale business characterized by high fixed costs and relatively low variable costs. This makes it difficult to be a medium-sized e-commerce company. With a long enough financing runway, Pets.com and living.com may have been able to acquire enough customers to achieve the needed scale. But when the capital markets closed the door on financing Internet companies, these companies simply had no choice but to close their doors. As painful as that was, the alternative—investing more of our own capital in these companies to keep them afloat—would have been an even bigger mistake.

Source:   Amazon Shareholder Letters

One of our most exciting peculiarities is poorly understood. People see that we’re determined to offer both world-leading customer experience and the lowest possible prices, but to some this dual goal seems paradoxical if not downright quixotic. Traditional stores face a time-tested tradeoff between offering high-touch customer experience on the one hand and the lowest possible prices on the other. How can Amazon.com be trying to do both? The answer is that we transform much of customer experience—such as unmatched selection, extensive product information, personalized recommendations, and other new software features—into largely a fixed expense. With customer experience costs largely fixed (more like a publishing model than a retailing model), our costs as a percentage of sales can shrink rapidly as we grow our business. Moreover, customer experience costs that remain variable—such as the variable portion of fulfillment costs—improve in our model as we reduce defects. Eliminating defects improves costs and leads to better customer experience.

Source:   Amazon Shareholder Letters

State management is the heart of any system that needs to grow to very large size. Many years ago, Amazon’s requirements reached a point where many of our systems could no longer be served by any commercial solution: our key data services store many petabytes of data and handle millions of requests per second. To meet these demanding and unusual requirements, we’ve developed several alternative, purpose-built persistence solutions, including our own key value store and single table store. To do so, we’ve leaned heavily on the core principles from the distributed systems and database research communities and invented from there. The storage systems we’ve pioneered demonstrate extreme scalability while maintaining tight control over performance, availability, and cost. To achieve their ultra-scale properties these systems take a novel approach to data update management: by relaxing the synchronization requirements of updates that need to be disseminated to large numbers of replicas, these systems are able to survive under the harshest performance and availability conditions. These implementations are based on the concept of eventual consistency. The advances in data management developed by Amazon engineers have been the starting point for the architectures underneath the cloud storage and data management services offered by Amazon Web Services (AWS). For example, our Simple Storage Service, Elastic Block Store, and SimpleDB all derive their basic architecture from unique Amazon technologies.

Source:   Amazon Shareholder Letters

Invention comes in many forms and at many scales. The most radical and transformative of inventions are often those that empower others to unleash their creativity – to pursue their dreams. That’s a big part of what’s going on with Amazon Web Services, Fulfillment by Amazon, and Kindle Direct Publishing. With AWS, FBA, and KDP, we are creating powerful self-service platforms that allow thousands of people to boldly experiment and accomplish things that would otherwise be impossible or impractical. These innovative, large-scale platforms are  not zero-sum – they create win-win situations and create significant value for developers, entrepreneurs, customers, authors, and readers

Source:   Amazon Shareholder Letters

Failure comes part and parcel with invention. It’s not optional. We understand that and believe in failing early and iterating until we get it right. When this process works, it means our failures are relatively small in size (most experiments can start small), and when we hit on something that is really working for customers, we double-down on it with hopes to turn it into an even bigger success. However, it’s not always as clean as that. Inventing is messy, and over time, it’s certain that we’ll fail at some big bets too.

Source:   Amazon Shareholder Letters