The review on this page tests three conditions for keeping a business: the reasons for buying it still hold, the owner can still give it what it needs, and the money from a sale would not clearly do more somewhere else. Berkshire Hathaway's owner's manual, a booklet first issued to its shareholders in 1996, states a stricter keep rule of its own and admits that the rule costs the company some financial performance (Berkshire Hathaway, An Owner's Manual). The tax and legal questions in a sale belong to advisers who know the owner's situation.
Why owners misjudge what they own
Four findings from behavioral economics bear on the decision. They come from experiments and from investors' trading records; none of the studies measured business owners.
- The endowment effect. In experiments by Daniel Kahneman, Jack Knetsch and Richard Thaler, Cornell students given a coffee mug set median selling prices more than twice the median prices that students without one would pay (Journal of Political Economy, 1990).
- The sunk cost effect. Hal Arkes and Catherine Blumer's 1985 experiments describe it as a greater tendency to keep going with a project once money, effort or time has gone into it; in their field study, theater customers who had paid more for a season subscription went to more plays (Organizational Behavior and Human Decision Processes). A 2025 paper in Brain Sciences defines the effect as continuing to invest in a failing effort because of earlier investment that cannot be recovered, and reports that the standard sunk cost scenarios, tested on 395 participants, agree poorly with each other (Białek and Biesiada, 2025). The authors suggest those scenarios may tap several different tendencies rather than one bias.
- Status quo bias. Kahneman, Knetsch and Thaler opened a 1991 article with an economist whose $10 bottles of Bordeaux would now fetch $200 at auction, and who would neither sell one at that price nor buy another at it (Journal of Economic Perspectives, 1991). The article uses William Samuelson and Richard Zeckhauser's 1988 term, status quo bias, for a preference for the current state that holds him back from both buying and selling.
- The disposition effect. Hersh Shefrin and Meir Statman described a disposition among investors to sell winners too early and hold losers too long (Journal of Finance, 1985).
The studies point in both directions: toward keeping too long, and toward selling a winner too soon. The review below puts the owner's reasons on one page, beside the previous review's page.
Four questions for the review
The review answers four questions in a few sentences each, with the evidence behind each answer.
Whether the reason for buying still holds
The thesis, the memo written before the purchase, gets one of three marks: intact, drifted or broken, with the facts behind the mark. A thesis has drifted when the business is still good for reasons other than the ones written down. It has broken when something listed as proof of being wrong has come true. An owner who never wrote a thesis writes one for the business as it stands now; how to write an acquisition thesis shows the parts.
What the business needs from the owner
The review sets what the business needs from the owner in a normal month and in a bad one beside what the owner can give over the next three years. If a hire can close the gap, the review records the hire and its cost. If nothing can, a sale goes on the list of options.
Where the business is heading
Three years of revenue and margin, the share held by the largest customer, and whether the people who run it day to day are staying go into one sentence about the trend. The next review writes a new sentence and sets it beside this one.
What the money would do instead
This answer has two parts: what the owner would receive after selling costs and tax, and what that money would then do. IRS Publication 544 says the sale of a business is usually a sale of all its assets, each treated as sold separately, with the gain or loss on each figured separately; a partnership interest or corporate stock follows other rules (IRS, Publication 544). A tax adviser supplies the number. The estimate also counts fees for the advisers who run the sale, the months of the owner's attention a sale takes while the business still needs running, and any period after closing when the seller has agreed to help the buyer.
Berkshire's written keep rule
Berkshire Hathaway's owner's manual grew from principles set down in 1983 and was first issued as a booklet in 1996. Its eleventh principle is the keep rule. Berkshire will not sell a good business at any price. It also holds on to weaker businesses as long as they still bring in some cash and it trusts the people running them and its relations with their workers. The manual calls this an attitude that hurts Berkshire's financial performance, and says the company accepts the cost.
That is a stricter rule than this page's third condition: Berkshire keeps a weak business even where the money might do more elsewhere. The commentary also records where the rule stopped. Berkshire shut its textile business in the mid-1980s, two decades after taking it on, once it concluded the business would lose money year after year with no end in sight (Berkshire Hathaway, An Owner's Manual).
Telling conviction from inertia
The review asks one question in the owner's own words: "Knowing what I know, would I buy this business today at the price I would ask for it?" A clear yes points to conviction. A no, or a long pause, goes on the page as a finding. The costs of selling and the tax can still make keeping the better choice.
Signs a keep thesis has broken
- Something listed as proof of being wrong has come true, and the evidence can be pointed to.
- The business now depends on one customer or one person in a way it did not at the purchase.
- It needs more of the owner's time than the owner can give for the next few years, and hiring cannot close the gap.
- The owner would not buy it today at the price the owner would ask.
In this review, one sign is noted and carried to the next review. Two or more, recorded in two reviews running, are the point at which the owner takes the question to advisers.
The yearly review on one page
- Pick a date and put it on the calendar.
- Answer the four questions and the buy-it-today question on one page.
- Sign and date the page.
- Lay it beside the previous review and fill in the last column.
| Question | This review | Previous review | What changed |
|---|---|---|---|
| Does the reason for buying still hold | |||
| Can the owner still give it what it needs | |||
| Where is the business heading | |||
| What would the money do instead | |||
| Would the owner buy it today at the asking price |
Sources
- Berkshire Hathaway Inc., "An Owner's Manual," owner-related business principle 11 and its commentary (principles set down in 1983; booklet first issued in 1996, updated version): berkshirehathaway.com
- Daniel Kahneman, Jack L. Knetsch and Richard H. Thaler, "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy 98, no. 6 (1990), pages 1325 to 1348: doi.org
- Michał Białek and Emilia Biesiada, "On the Low Reliability of Sunk Cost Vignettes," Brain Sciences 15, no. 8 (2025), article 808: doi.org
- Hal R. Arkes and Catherine Blumer, "The Psychology of Sunk Cost," Organizational Behavior and Human Decision Processes 35, no. 1 (1985), pages 124 to 140: doi.org
- Daniel Kahneman, Jack L. Knetsch and Richard H. Thaler, "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives 5, no. 1 (1991), pages 193 to 206: aeaweb.org
- Hersh Shefrin and Meir Statman, "The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance 40, no. 3 (1985), pages 777 to 790 (abstract): doi.org
- Internal Revenue Service, Publication 544, "Sales and Other Dispositions of Assets" (2025), section "Sale of a Business": irs.gov