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concept
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🎵Wisdom Density:
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🧭5 concepts
💬1 quotes
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St. Offset
St. Offset is "the patron saint for economists," a humorous term coined by Buffett to describe the phenomenon where successful investments or economic developments more than compensate for failures elsewhere in a portfolio.
📍 Origin
Introduced in the 1982 Letter.
"In some cases... retained earnings attributable to our ownership position have had insignificant or even negative impact on market value, while in other major positions a dollar retained by an investee corporation has been translated into two or more dollars of market value. To date, our corporate over-achievers have more than offset the laggards."
🧠 Key Principles
- The Net Benefit: Portfolio performance is the sum of its parts. You don't need a 100% hit rate if your "over-achievers" are potent enough.
- Economic Earnings Validation: Buffett uses St. Offset to justify his focus on "economic earnings" (all undistributed earnings) even when market recognition is irregular.
- Acceptance of Mistakes: Invoking St. Offset is a way of acknowledging that some capital allocation decisions will inevitably fail or lag.
🔗 Connections
- Concept: Economic Earnings
- Entity: GEICO (A primary over-achiever in 1982)
- Source: 1982 Letter
📚 Historical Mentions & Citations (1)
Click a reference document below to expand and read the exact paragraph(s) containing this concept in the archive.
📜1982 LetterExcerpt Available▼
1982 LetterExcerpt Available
Within this gigantic auction arena, it is our job to select businesses with economic characteristics allowing each dollar of retained earnings to be translated eventually into at least a dollar of market value. Despite a lot of mistakes, we have so far achieved this goal. In doing so, we have been greatly assisted by Arthur Okun’s patron saint for economists—St. Offset. In some cases, that is, retained earnings attributable to our ownership position have had insignificant or even negative impact on market value, while in other major positions a dollar retained by an investee corporation has been translated into two or more dollars of market value. To date, our corporate over-achievers have more than offset the laggards. If we can continue this record, it will validate our efforts to maximize “economic” earnings, regardless of the impact upon “accounting” earnings.