Warren Buffett, the chairman and CEO of Berkshire Hathaway (BRK.A) (BRK.B) has built his reputation not only on investment performance, but also on his ability to explain business principles through plainspoken metaphors. One of his most enduring lessons for investors and managers alike was first captured in his 1989 letter to shareholders, “Good jockeys will do well on good horses, but not on broken-down nags.”
The analogy illustrates Buffett’s central belief that while capable management is valuable, it cannot overcome the structural disadvantages of a weak business. In other words, the quality of the enterprise itself matters more than the talent steering it. This perspective has guided Buffett’s investment philosophy for decades, emphasizing the importance of durable competitive advantages—what he often calls “economic moats”—over short-term leadership strategies.
The context of this remark lies in Buffett’s long history of assessing both people and companies. He has consistently praised effective managers, particularly those running Berkshire’s subsidiaries, but he has also cautioned investors against overestimating the power of leadership in industries with poor economics. A skilled executive, like a talented jockey, can maximize the potential of a strong company, but even the best jockey cannot win consistently on a failing horse.
This principle is reflected in Buffett’s early missteps as well as his later successes. His investment in the textile business that gave Berkshire Hathaway its name is a prime example. Despite his best efforts and the presence of competent management, the economics of textiles proved unfavorable, eventually leading Buffett to shift the company’s focus to insurance and other more promising sectors. The lesson was clear: great managers cannot salvage fundamentally flawed businesses.
By contrast, his long-term investments in companies like Coca-Cola (KO) and American Express (AXP) showcase the other side of the metaphor. These firms possess enduring brand strength and resilient business models, making them the “good horses” on which strong management can thrive. In these cases, Buffett’s backing allowed both leadership and underlying business quality to work in tandem, producing sustained shareholder returns.
The authority of this observation comes not only from Buffett’s track record but also from its alignment with broader economic history. Markets are filled with examples where poor business models undermined even talented executives, from airlines plagued by capital intensity to retailers unable to withstand shifts in consumer behavior. Conversely, companies with durable advantages have often flourished even when management was merely adequate.
In today’s markets, the metaphor remains highly relevant. Industries undergoing rapid disruption, such as media, technology, and retail, highlight the importance of distinguishing between companies with solid long-term prospects and those that are structurally disadvantaged. Investors and executives alike face the challenge of determining whether they are backing a good horse or a broken-down nag.
Ultimately, Buffett’s remark serves as a timeless reminder of where to focus attention in business and investing. While leadership matters, the foundation of success lies in the inherent strength of the enterprise itself. A good jockey may win races, but only if the horse is capable of running them.
