This feature of managers seems to be universally respected by great analysts, with Peter Lynch referring to low cost companies rising to dominate the competition bad times, making huge profits when others fold.

It is a bad sign when you hear that a company has announced a wave of cost cutting measures. It shows that the managers have not really woken up to the idea of how much harm high costs do to the owners of the business. "The really good manager", councils Buffet, "does not wake up in the morning and say, 'This is the day I'm going to cut costs,' any more than he wakes up and decides to practice breathing."

Great managers wage a constant war on expenses. Sam Walton, founder of America's Wal-Mart chose this name for the business because of all the names he was considering it was the shortest. While saving 20% off the cost of signage isn't by itself going to make the owners millionaires, it is just an indication of the fanatical drive Walton has toward cutting costs.

Other CEOs who have the same frugality are Wells Fargo's Carl Reichardt and Paul Hazen, and Tom Murphy and Dan Burke at Capital Cities/ABC, who as Buffett notes, "abhor having a bigger head count than is needed," and both teams "attack costs as vigorously when profits are at record levels as when they are under pressure."

Anecdotes about Buffett show that he himself is extremely frugal and admires this in others. When Buffett heard that an executive had turned down a request for an office-sponsored Christmas party, he admired this cheapscate so much he went out and bought the stock. Berkshire Hathaway's headquarters are small and unassuming, and Berkshire itself has surprisingly few staff. The entire headquarters of this multi billion dollar enterprise would fit any mid sized accounting practice easily. It employs no superfluous staff at all, no investor relations department, no human resources, no legal team, no messengers or limo drivers. As a result Berkshire Hathaway spends less than 1% of operating earnings, a figure that compares well with the norm which is around 10%. This of course means that the returns experienced by Berkshire shareholders are always going to be around 9% higher than normal, before even looking at the other advantages this company has.