When CEOs play interior designer with your capital

Over the years, I have noticed a strange quirk among CEOs. Ask them about their business and they will give you a cautious, carefully worded response. But ask them about a potential acquisition and their eyes light up. Suddenly, they are fluent. They have got charts, synergy estimates, cultural fits, and a banker on speed dial. It's not that they don't know how to allocate capital—it's just that buying something feels a lot more exciting than sitting on cash or buying back stock. Buffett, in his 1994 letter, saw right through this. He didn't just talk about capital allocation or intrinsic value in abstract terms. He explained why most acquisitions destroy value, how compensation plans quietly misalign incentives, and why good investing is rarely complex but always requires clarity. This story is part of our ongoing series on Buffett's letters. And if there is one thing you take away from it, let it be this: capital allocation is not an art. It's a discipline. And most CEOs are far better artists than they are disciplined. The real measure of value Buffett offers important clarity on how book value is different from intrinsic value. The former tells you how much has been put into a business. The latter is about how much you can take out. In Buffett's words, intrinsi

This article was originally published on April 10, 2025.