Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A), is celebrated for his candid reflections on both his successes and mistakes in the world of investing. In his 1981 shareholder letter, Buffett offered a characteristically honest assessment of his experience with corporate acquisitions, stating, “We have tried occasionally to buy toads at bargain prices with results that have been chronicled in past reports. Clearly, our kisses fell flat. We have done well with a couple of princes — but they were princes when purchased. At least our kisses didn’t turn them into toads. And, finally, we have occasionally been quite successful in purchasing fractional interests in easily-identifiable princes at toad-like prices.”
This quote encapsulates a philosophy that has come to define Buffett’s investment approach: the preference for acquiring high-quality businesses — “princes” — at reasonable prices, rather than hoping to transform struggling companies — “toads” — through managerial intervention or through optimism alone. Buffett’s metaphor draws from the classic fairy tale, but its lesson is grounded in decades of real-world investing experience. It boils down to a simple idea: buy high-quality companies and let them continue to grow. Expanding on that core principle, it’s better to buy a high-quality company at an “ok” price than a bad company at a great price, because the quality company will ultimately deliver greater value, while the lower-quality company is likely to continue its decline.
Early in his career, Buffett was known for seeking out so-called “cigar butt” investments — companies trading at deep discounts to their intrinsic value, often because of operational or industry challenges. While these bargains sometimes yielded quick profits, Buffett found that time was rarely on the side of a mediocre business. As he and his longtime partner, the late Charlie Munger, evolved Berkshire Hathaway’s strategy, they shifted focus toward companies with durable competitive advantages, strong management, and the ability to compound earnings over long periods.
Buffett’s admission that his historical attempts to “kiss toads” have rarely produced miracles is supported by both his own track record and broader market evidence. Numerous studies and post-mortems on corporate acquisitions have shown that turnarounds are difficult to execute and often fail to deliver the hoped-for returns. By contrast, investments in well-run, fundamentally sound businesses — especially when purchased at attractive prices — have consistently been the cornerstone of Berkshire Hathaway’s long-term success.
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