Rare Fast-Moving Elephants — 1987

In his 1987 letter to Berkshire Hathaway shareholders, Warren Buffett explained why the company kept more financial firepower on hand than a purely conservative balance sheet would strictly require. His reasoning turned on a memorable piece of imagery: the kind of business worth buying in size — a large, high-quality company still capable of growing quickly — is genuinely rare, and when one appears, an investor needs to already be in a position to act.

The Concept

Most businesses, even good ones, eventually run into the arithmetic of size: as a company gets bigger, it gets harder for it to keep growing at the same percentage rate. A small company can double sales by finding a modest number of new customers; a giant one needs enormous absolute growth just to move the needle at all. That is why genuinely large businesses that are also still expanding briskly are unusual. Buffett's shorthand for this scarcity was to compare it to big-game hunting, and to explain why Berkshire kept more borrowing capacity in reserve than its day-to-day operations required.

Buffett laid out the reasoning in the 1987 letter's discussion of debt. Berkshire's taste for borrowing, he explained, stayed deliberately limited even though a heavier, still-conventional debt load probably would have improved the company's return on equity, and even though he believed Berkshire could likely carry that load safely through conditions worse than anything since the early 1930s. "Likely" wasn't the bar he wanted to clear, though — he wanted certainty that Berkshire could always meet its obligations, which meant running the business for acceptable results under extraordinarily adverse conditions rather than optimal results under ordinary ones, since risking the well-being of policyholders and employees for a modest boost in returns struck him as both foolish and unnecessary. None of this made Berkshire debt-averse outright; it simply preferred to raise money in anticipation of a future opportunity rather than in reaction to an immediate need, on the theory that the same tight-money conditions that make borrowing expensive are usually the conditions that make good businesses cheap to buy.

The practical upshot in the 1987 letter was about preparedness, not just patience. Buffett argued that Berkshire should maintain a stronger financial position and more available capital than day-to-day operations demanded, precisely because these rare opportunities do not announce themselves on a schedule. When a genuinely outstanding, fast-growing large business does become available — whether because of a market panic, an owner's personal circumstances, or plain bad luck for a competitor — the buyer needs cash and borrowing capacity ready immediately, not six months later. Waiting to raise capital after spotting the opportunity usually means missing it, since it will already be gone or fully priced by the time other buyers catch on. Buffett summed up the whole line of thinking in the letter's own closing image:

"Our basic principle is that if you want to shoot rare, fast-moving elephants, you should always carry a loaded gun."

This ties directly into the broader discipline behind value investing: rather than constantly trading in and out of mediocre opportunities, the approach is to wait — sometimes for a long time — for a rare, clearly superior opportunity, and then to act decisively and in size when it appears. Idle capital sitting around "doing nothing" is, in this view, not wasted; it is the ammunition that makes decisive action possible when the elephant finally walks by.

Why It Matters

The elephant metaphor is a useful corrective to two common investor mistakes. The first is impatience: constantly needing to be "doing something" with capital, which leads to settling for merely adequate opportunities instead of waiting for excellent ones. The second is unpreparedness: recognizing a rare opportunity too late to act on it because capital was already fully committed elsewhere or reserves were too thin to move quickly.

For everyday investors, the lesson scales down naturally. It argues for keeping some dry powder — cash or readily available capital — rather than being fully invested at all times, so that a rare and clearly attractive opportunity (a great business trading at a temporarily depressed price, for instance) can actually be acted on rather than just admired from the sidelines. It also reinforces a habit of selectivity: because truly outstanding opportunities are infrequent, most days call for inaction, and the discipline is in resisting the urge to force a decision when no elephant is actually in sight.