Capital Discipline We allocate shareholder capital to opportunities where the risk and return are appropriately matched. Whether expanding existing businesses, acquiring new operating companies, investing in common stocks, or repurchasing Berkshire shares, we evaluate each opportunity based on its potential to permanently enhance Berkshire's per-share intrinsic value over the long term.
Berkshire's capital allocation principles and strategy guide our search for investment opportunities: - Invest in businesses we understand well, that possess durable competitive advantages, and have favorable long-term economic prospects. - Partner with managers of high integrity, who understand their customers' needs and act like owners. - Avoid businesses that could damage the social fabric or potentially harm Berkshire's reputation. - Act decisively, concentrating capital in a limited number of opportunities where we have high conviction. - Maintain discipline, allowing the power of compounding to work over time.
These criteria enable us to evaluate the wide array of opportunities that come our way efficiently and effectively. Despite our large size, we take pride in our agile and efficient corporate culture. Significant investment opportunities can be communicated to us confidentially, and we guarantee a prompt response (if we like the project, no additional financing preconditions are required). We decisively reject opportunities that do not meet our principles and actively pursue those that do. We recognize that the former will far outnumber the latter.
Throughout Berkshire's history, observers have occasionally interpreted our large cash position as a sign that we are stepping back from investing. This is not the case. We continue to evaluate numerous investment opportunities and will remain patient and disciplined in seeking suitable investments for the benefit of our shareholders. In 2025, our investment strategy led Berkshire to announce the acquisition of two distinctly different companies: OxyChem and Bell Laboratories.
OxyChem is a well-operated industrial chemicals business, which we initially encountered through our investment in Occidental Petroleum. It produces chlorine and caustic soda primarily for key markets such as construction and core industries. The company's management, supported by an integrated asset base and low-cost raw material supply, focuses more on operational efficiency than merely pursuing volume. For Berkshire, this acquisition added a high-quality segment to our portfolio of operating businesses and brought stable cash flows.
Last year, Warren received a letter from Steve Levy, CEO of Bell Laboratories, who wanted to bring to our attention this family business he runs for the daughters of its founder, Malcolm Starks. Steve's letter was pitch-perfect. Bell Laboratories fulfills a long-standing need: rodent control. In Steve's words, the business boasts "high operating margins, excellent historical growth and future growth potential, a simple and perpetually needed business, and an outstanding management team." In our words: it is a business with a superb manager, durable competitive advantages, and long-term growth prospects. Our only regret is that it wasn't ten times larger.
These investments have now been integrated into Berkshire's strong portfolio of operating businesses. Some of these businesses require little additional investment and generate excess cash for Berkshire; others present highly attractive investment opportunities capable of compounding value over the long term.
Share repurchases represent another important capital allocation option. We repurchase Berkshire shares when they trade below our conservatively estimated intrinsic value, ensuring that the buybacks enhance the per-share value for long-term shareholders. When opportunities arise, we may also acquire large blocks of shares directly from major shareholders. Such acquisitions allow shareholders to increase their proportional ownership of Berkshire's business assets without committing any additional capital of their own.
Our stance on cash dividends remains consistent: as long as there is a reasonable possibility that each dollar of retained earnings can create more than one dollar of market value for shareholders, Berkshire will not pay a dividend. The Board of Directors reviews this policy annually.
Whether acquiring an entire business, purchasing a partial stake in a public company, or repurchasing our own stock, we adhere to capital discipline. This principle remains unchanged regardless of the size of our cash and U.S. Treasury holdings. We will carefully assess value, act patiently, and hold for the long term—preferably forever.