The Essays of Warren Buffett: Lessons for Investors and Managers

by Lawrence A. Cunningham

En esta obra, el lector encontrará las ideas de Warren Buffett, universalmente conocido como uno de los inversores más brillantes de todos los tiempos. Lawrence A. Cunningham presenta, en forma de ensayos, una colección de cartas de Warren Buffett a los accionistas de Berkshire Hathaway en las que se exponen los fundamentos de una buena gestión, precisando que el papel de un buen directivo es estar al servicio del capital de los accionistas. Para Buffett, el papel de los accionistas no debe limitarse a aportar el capital sino a entender el negocio y actuar como un propietario. Estos ensayos, llenos de lucidez, abordan un amplio abanico de temas como el reclutamiento de dirigentes, las decisiones de inversión, la evaluación de empresas o la información financiera, entre otros.

Genres: Finance, Business, Nonfiction, Economics, Money, Personal Finance, Leadership

320 pages, Paperback

First published April 9, 2002

About the author

Lawrence Cunningham, who goes by Larry, has published many books, including:

Berkshire Beyond Buffett: The Enduring Value of Values

The Essays of Warren Buffett: Lessons for Corporate America

Contracts in the Real World: Stories of Popular Contracts and Why They Matter

The AIG Story

He loves teaching (a prawf at GW), windsurfing, reading, and spending time with his wife and two daughters, preferably at the beach.

On Amazon, Cunningham has been ranked one of the top 100 authors in the category of business and investing.

Reviews

[Henrik Haapala · Rating 5 out of 5]

2021-06-13 update:

“The bird in the bush” (YouTube: “Warren Buffett speech” for video version) idea from Aesop.

Investing = exchanging one bird in your hand for two in the bush.

From the book:
“At Berkshire, we make no attempt to pick the few winners that will emerge from an ocean of unproven enterprises. We’re not smart enough to do that, and we know it. Instead we try to apply Aesop’s 2600-year old equation to opportunities in which we have reasonable confidence as to how many birds are in the bush and when they will emerge.” Page 242-243

————————————————-

• "Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly- profitable subsidiaries because a small move in the Federal Re- serve's discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses?"
• "To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to sug- gesting that the Bulls trade Michael Jordan because he has become so important to the team."
• "Let me add a few thoughts about your own investments. Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals."
• "If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term per- formance of the business may be terrible. I call this the "cigar butt" approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the "bargain purchase" will make that puff all profit."
• "Unless you are a liquidator, that kind of approach to buying businesses is foolish. First, the original "bargain" price probably will not turn out to be such a steal after all. In a difficult business, no sooner is one problem solved than another surfaces-never is there just one cockroach in the kitchen. Second, any initial advan- tage you secure will be quickly eroded by the low return that the business earns."
• "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner. But now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements."

• "A further related lesson: Easy does it. After 25 years of buy- ing and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them."
"If your actions are sensible, you are certain to get good results; in most such cases, leverage just moves things along faster. Charlie and I have never been in a big hurry: We enjoy the process far more than the proceeds-though we have learned to live with those also."
"In the final chapter of The Intelligent Investor Ben Graham forcefully rejected the dagger thesis: "Confronted with a challenge to distill the secret of sound investment into three words, we ven- ture the motto, Margin of Safety." Forty-two years after reading that, I still think those are the right three words. The failure of investors to heed this simple message caused them staggering losses as the 1990s began."
• "We only want to link up with people whom we like, admire, and trust."
• "One of the ironies of the stock market is the emphasis on ac- tivity. Brokers, using terms such as "marketability" and "liquid- ity", sing the praises of companies with high share turnover (those who cannot fill your pocket will confidently fill your ear). But in- vestors should understand that what is good for the croupier is not good for the customer. A hyperactive stock market is the pick- pocket of enterprise."
• "Charlie and I feel totally comfortable with this eggs-in-one- basket situation because Berkshire itself owns a wide variety of truly extraordinary businesses. Indeed, we believe that Berkshire is close to being unique in the quality and diversity of the busi- nesses in which it owns either a controlling interest or a minority interest of significance."
• "Whenever Charlie and I buy common stocks for Berkshire's insurance companies (leaving aside arbitrage purchases, discussed [in the next essay]) we approach the transaction as if we were buy- ing into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay. We do not have in mind any time or price for sale. In- deed, we are willing to hold a stock indefinitely so long as we ex- pect the business to increase in intrinsic value at a satisfactory rate. When investing, we view ourselves as business analysts-not as market analysts, not as macroeconomic analysts, and not even as security analysts."
• "In fact, the true investor welcomes volatility. Ben Graham ex- plained why in Chapter 8 of The Intelligent Investor. There he in- troduced "Mr. Market," an obliging fellow who shows up every day to either buy from you or sell to you, whichever you wish. The more manic-depressive this chap is, the greater the opportunities available to the investor. That's true because a wildly fluctuating market means that irrationally low prices will periodically be at- tached to solid businesses. It is impossible to see how the availabil- ity of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly."
• "Is it really so difficult to conclude that Coca-Cola and Gillette possess far less business risk over the long term than, say, any com- puter company or retailer? Worldwide, Coke sells about 44% of all soft drinks, and Gillette has more than a 60% share (in value) of the blade market. Leaving aside chewing gum, in which Wrigley is dominant, I know of no other significant businesses in which the leading company has long enjoyed such global power."
• "Moreover, both Coke and Gillette have actually increased their worldwide shares of market in recent years. The might of their brand names, the attributes of their products, and the strength of their distribution systems give them an enormous com- petitive advantage, setting up a protective moat around their eco- nomic castles. The average company, in contrast, does battle daily without any such means of protection. As Peter Lynch says, stocks of companies selling commodity-like products should come with a warning label: "Competition may prove hazardous to human wealth."
• "On the other hand, if you are a know-something investor, able to understand business economics and to find five to ten sensibly- priced companies that possess important long-term competitive ad- vantages, conventional diversification makes no sense for you. It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices-the businesses he understands best and that present the least risk, along with the greatest profit potential. In the words of the prophet Mae West: "Too much of a good thing can be wonderful."
• "Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient."
• "John Maynard Keynes, whose brilliance as a practicing inves- tor matched his brilliance in thought, wrote a letter to a business associate, F.e. Scott, on August 15, 1934 that says it all: "As time goes on, 1 get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence .... One's knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence. "
• "Our equity-investing strategy remains little changed from what it was ... when we said in the 1977 annual report: "We select our marketable equity securities in much the way we would evaluate a business for acquisition in its entirety. We want the business to be one (a) that we can understand; (b) with favorable long-term pros- pects; (c) operated by honest and competent people; and (d) avail- able at a very attractive price." We have seen cause to make only one change in this creed: Because of both market conditions and our size, we now substitute "an attractive price" for "a very attrac- tive price."
• "
If a business is complex or subject to constant change, we're not smart enough to predict future cash flows. Incidentally, that short- coming doesn't bother us. What counts for most people in invest- ing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistakes.
Second, and equally important, we insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buy- ing. We believe this margin-of-safety principle, so strongly empha- sized by Ben Graham, to be the cornerstone of investment success."

[Filip Kis · Rating 5 out of 5]

This is a MUST read for anybody interested in investment, management or business in general. It not only provides, in my opinion, the most sound investment strategies and advice, but also provides guidelines on how to run businesses with moral integrity and focus on providing value. It heavily criticizes various self-serving practices of "modern" CEOs, while at the same time not saying CEOs should not be well compensated. In other words, Buffet and by extension Berkshire demonstrate how you can actually create value and be wealthy by being honest and hard-working and not doing so on expense of your shareholders (or customers). He also analyses several economically important historic events (e.g. the 2008 sub-prime loans situation) and explains what went wrong in those instances.

The book is a collection of excerpts from selected letters from Warren Buffett (and on occasion Charlie Munger) to their shareholders at Berkshire one of the most valuable US corporations. These letters in general available on their website, but how Lawrence Cunningham made a valuable selection and organization of (probably) most meaningful ones in this book. The organization adds value as it groups excerpts not in chronological order, but first grouped in various topics addressed (e.g. corporate governance, common stocks, investment alternatives) and then by importance. This gives an interesting perspective on how some things developed over years.

While there is obviously some repetition, in the instance of this book this makes sense. The letters were written in various times (1986-2011) and repetition only demonstrates how Buffett's strategies are consistent and longterm (and that is the main reason for their success).

Buffett's writing style is superb and often humorous. However, reading the book requires some understanding of economics and investing in general. It's uses quite some investment jargon (which I guess Berkshire shareholders are familiar with) which might be hard to get past if you're new to this domain. I am sure I will come back to this book (or the letters directly) several times as even with my fair grasp of the domain, certain things didn't yet full resonate.

Finally, Buffett's main investment advice is easy to summarize:

"We want the business to be one (a) that we can understand; (b) with favorable long-term prospects; (c) operated by honest and competent people; and (d) available at a very attractive price."

[Roy Chua · Rating 5 out of 5]

The whole book was a joy to read but I would imagine it being tough to read for a person who have little background in investments/finance.

I especially enjoyed Buffet thoughts good managers and good corporate governance. It was something I rarely picked out from other investment related books.

Throughout his letters he emphasised heavily on buying quality businesses at a fair price (not necessarily cheap) and ran by great people. This I thought was really fundamental, but ignored by so many investors themselves.

I hope business/accounting schools around the world put more emphasis into his words.

[N · Rating 4 out of 5]

Pg 33: our long term objective is to maximize per share intrinsic value
Pg 36: deferred tax liabilities bear no interest...liabilities without covenants or due dates (I.e. insurance) have the benefit of debt without the drawbacks.
Pg 37: We don't want to sell sub par businesses as long as we expect them to generate some cash and as long as we are comfortable with labor relations and management.
Pg 38: unintelligible footnotes usually indicate untrustworthy management -- be wary of companies that trumpet earnings and growth projections.
Pg 54: we give our managers simple mandates: run it like you own 100% of it (and the only asset you own) and as if it were to last a century. Also don't let accounting get in the way of sound business judgment.
Pg. 60: don't throw good money after bad and simply exist businesses that aren't working rather than try to repair them
Pg 81: auditors should ask these questions:
1. If auditor himself were to prepare statements what would he have reported differently (both material and non-material differences).
2. If auditor were an investor would he have received in plain English the information essential to understanding the company's performance
3. Is the company following the same internal audit procedure that would be followed if the auditor himself were CEO? What are the differences and why?
4. Is the auditor aware of any actions - either accounting or operational that have had the purpose and effect of moving revenues or expenses from one period to another?

Pg 90: evaluating arbitrage
1. How likely is it that the promised event will occur?
2. How long will your money be tied up?
3. What chance is there that something still better will transpire? E.g. Competing bid
4. What will happen is the event does not take place because of anti-trust action, financing hiccups, etc.

Pg 106: our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price.

Pg 110: the best business to own is one that over a long period can employ large amounts of incremental capital at very high rates of return. The worst are ones that have high capital needs at very low rates of return.

Pg 116: loss of focus is what most worries Charlie and me when we contemplate investing in businesses that in general look outstanding.

Pg 121: time is the friend of a wonderful business and the enemy of a mediocre one.

Pg 123: we've never succeeded in making a good investment with a bad person

Pg 177-178: restricted earnings are seldom valueless to owners but they must be discounted heavily: for every dollar retained by corporations at least one dollar of market value will be created for owners if the capital retained produces incremental earnings equal to or above those generally available to investors.

Pg 197: companies best suited for an inflation environment are ones with an ability to increase prices easily without fear of loss of market share/unit volume and an ability to accommodate large dollar volume increases in business with only minor additional investment in capital.

Pg 228: quirk: owning 50%+ of a company means you report revenue and expenses of subsidiary. If 20-50% just report the net income share.

Pg 237-238: Any unleveraged business that requires some net tangible assets to operate is hurt by inflation. Businesses with few tangible assets are hurt the least. He uses the See's vs manufacturer example. See's earns 2mio on 8mio of asset vs manufacturer with 2mio of earnings on 18mio of assets. In inflationary world they need to replace assets at double the price (16mio vs 36mio). For every new dollar invested only one dollar of value was created for the manufacturer while for See's an incremental dollar invested created four dollars in value.

Pg 238 Any unleveraged business that requires some net tangible assets to operate is hurt by inflation. Businesses needing little in the way of tangible assets simply are hurt the least.

WM: I don't know that's really dependent on inflation. Deflation benefits asset heavy companies?

Pg 240: In analysis of operating results - that is in evaluating the underlying economics of business unit -- amortization charges should be ignored.

Pg 250: Are there tax advantages to buying companies will large goodwill (so you can write off phantom amortization)?

Pg 291: Tax code makes Berkshire's owning 80% or more of a business far more profitable for us than owning a smaller share. When a company we own all of earns $1mio after tax, the entire amount injures to our benefit. If the $1mio is upstreamed to Berkshire we owe no tax on the dividends. And if the earnings are retained and we were to sell the subsidiary - not likely at Berkshire - for $1mio more than we paid for it, we would owe no capital gains tax. That's because our tax cost upon sale would include both what we paid for the business and all earnings it subsequently retained.

A lot of stupid baseball analogies about investing (high batting average arguments). This is a terrible analogy because not all swings cost the same and if properly risk managed then you can do well with a terrible batting average but high skew in returns (e.g. Soros). "Striking out" is not proportional to the number of swing taken. This sort of advice has hurt me much in life. Like Bezos says, you should proceed while you have an imperfect understanding because if you wait for the high level of confidence the opportunity has likely been missed.

Also a lot of nonsense about wanting businesses that have market values dropping below intrinsic value. This is an absurdity in the real world. As he says on page 85 "we will sell a security that is fairly valued or even undervalued because we require funds for a still more undervalued investment or one we believe we understand better." Indeed what you want is fast mean reversion and an abundance of opportunities. You don't want nonstop MTM losses. In fact you should consider the possibility that you're wrong and the market is right (ever more likely as MTM losses mount). So this investing aphorism is pure stupidity.

He also goes on to condemn debt etc when his whole empire is predicated on insurance float. That's LEVERAGE.

On long term compounding he's relying on the experience of the US - the most successful country of the last two centuries...but would it be wise to be a long term passive holder of Russian and Chinese stocks before the red revolutions?

[Stefan Bruun · Rating 5 out of 5]

An impressive and structured walkthrough of many of the lessons from Berkshire's letters to its shareholders.

For anyone without the patience or time to read through all of the letters, this book provides a great overview structured and divided into topics across letters.

[InvestingByTheBooks.com · Rating 5 out of 5]

Warren Buffett is fond of saying that he loves Coca-Cola (the stock) because of the virtue of knowing how its business will look a decade from now (i.e. the same). One can almost certainly say the same about his own writings: A century from now people will still marvel at the insights and resonance from Buffett ́s annual shareholder letters and other publications, trying to apply them in their own investments. If Security Analysis (Ben Graham) laid the foundations for valuing companies and Philip Fisher ́s Common Stocks...detailed how true business analysis should be done, then Essays of... will be referred to as the advisory blueprint of combining these two to create an outstanding- and lasting investment result, all the while having impeccable ethical standards. Given the fact that there are 53 million hits on “Warren Buffett blogs”, there simply is no substitute to reading the actual words of the best investor of our time.

Due to Berkshire ́s massive success in all aspects of the word, Buffett has transformed into a cartoon-like figure, with even professional investors knowing him more by punchy one-liners such as “our favourite holding period is forever”. As headline-ish as this is, it is akin to judging the merits of Usain Bolt from a Puma-commercial. To me, apart from the Berkshire-numbers themselves, what has always been the standout attribute of Buffett and his letters are the ability to synthesise immensely complex matters into common-sense opinions. Has there been better real-life practitioners than Buffett and Munger of Einstein ́s quote “everything should be made as simple as possible, but not simpler”? The shareholder letters are filled with discussions around everything from board practices, arbitrage, “value” investing, junk bonds, accounting, tax policy, stock-options and countless other topics.

Essays of... consists of chosen parts of Buffett ́s letters to Berkshire shareholders throughout the years, organized according to coherent themes. By compiling them in this way, Cunningham clearly did all us Buffett-lemmings a massive favour. But not only that. I believe that this book has given – and is destined to increasingly do so in the future – Buffett’s writings the attention they deserve among a wider audience. Not merely as a convenient go-to source for journalists to get his views on the flavour-of-the-day topic, but more importantly as mandatory reading for business school students and corporate decision-makers. As Cunningham states: “Many of Buffett ́s lessons directly contradict what has been taught in business and law schools during the past thirty years, and what has been practiced on Wall Street and throughout corporate America during that time”. This collection of essays can truly re-educate a generation of students and continue the education of others. This is more important than it sounds, because if the gospel of modern finance theory and using complexity for its own sake had done enough harm upon this book ́s publishing date in 1997, it has doubled down on its effort as of today.

In my mind, some of the most interesting letters are the ones written in the late 70s and 1980s. It was during this time Buffett transformed from cigar-butt and “work-out” investing to the methods most people define him by today; predictable corporations with a competitive moat bought at a fair price. One of the first investments made along this line of thinking, at the behest of partner Charlie Munger, was the 1972 acquisition of See ́s Candy from the See-family. The letter(s) that go through this thought-process are superb in describing the merits of investing in high-return business. As a side-note, despite paying only 6x profits, the relatively high P/B multiples actually made Buffett reject the deal before finally completing it.

Some books just provide the reader with that “intangible” value of being worth more than the sum of its words. It leaves you with an extra layer of conviction of what ́s right and wrong, what ́s permanent knowledge and what ́s more fleeting. Essays of... has that invaluable quality.

[Myles · Rating 5 out of 5]

Although I have no formal background education or professional training in business or finance this collection has elevated my financial literacy as measured against peer-based discussions with a Senior Financial Analyst at a major commercial banking institution, a former Solomon distressed assets broker, and my general reading comprehension of business sources such as Motley, WSJ, Financial Reports, and more. In sum, Buffet's financially conservative, honest, owner-oriented, likeable-admirable-trustworthy-based-measure appears as a beacon in a field rampant with sharks, wolves, charlatans, and deceivers. In simple prose, Buffet professes financial wisdom equally applicable to the lay as the accredited investor. Remarkably, there remains much else to be admired.

A caveat: Although self-censorship may be legally required or merely prudent I wonder how Buffet personally feels about the implications of owning stock in corporations dealing products of dubious quality of life indicators. For example, Berkshire Hathaway is the largest owner of Coca-Cola stock. However, HFCS appear strongly correlated if not causative of obesity and other coronary-related-illnesses. In other words, although Buffet criticizes accounting legerdemain, what is his opinion on investor obligations to disclose, inform, or reform the production of unsalutary products? A defense on libertarian lines, appeals to authority, or discrediting of scientific investigations appear inadequate.

[James Ford · Rating 3 out of 5]

It was enjoyable, a little long and dry but lots of good content. Not sure how much I will really take away other than some big picture ideas and a better sense of Warren Buffet's style and way of thinking.

[Jim · Rating 5 out of 5]

If one were to be forced to judge a book on its projected utility - personal, professional, moral etc - I suspect this might go down as one of the most important books I ever read.

[Pascal · Rating 5 out of 5]

Buffet makes a great case that for success in life and in business, it is critical to treat others like you want to be treated. Plus, he shares much more of his wisdom.

[Herman Østensen · Rating 5 out of 5]

An investment Bible. Must read for finance interested. Will read again

[Akshat Solanki · Rating 3 out of 5]

Again

The Essays of Warren Buffett, as the name suggests is the book about the investing style of Warren Buffett and his approach when it comes to investing in the businesses or buying them out.

The author has chosen these broad topics on which Warren Buffett have talked about to the Berkshire Hathaway shareholders through the company's Annual Report.

1. Corporate Governance
2. Merger & Acquisitions
3. Accounting Principles
4. Business ownership

You will get to read what does the great investor thinks about these 4 main sections and other subsections when investing in the companies, businesses.

This book is the collection of Warren Buffett's annual letter, so if you have read his letters and a book called The Warren Buffett Way: Investment Strategies of the World's Greatest Investor
then I think reading this book will surely be the waste of time.

But in case, if you think you've forgotten what he's written, then you may read this book.

Akshat Solanki

[Benedikte · Rating 4 out of 5]

This is a great overview of Warren Buffet’s annual shareholder letters, categorized by topic and ranked by date. It’s a heavy read though. I had hoped it included a plethora of Buffet wisdom on the economy and markets but it’s more detailed on specific acquisitions and events. It goes into depth on accounting methods such as how to treat minority interests, accounting for goodwill, non-recurring expenses and options as well as stuff like bonds, preferred stock, derivative contracts, stock splits etc. He also discusses Berkshire’s investment strategy and his three principles for investing from Benjamin Graham; margin-of-safety, Mr Market and circle of competence.

I liked his wisdom of how to choose competent management, investing for the long-term, buyback logic and the types of shareholders Berkshire wants to attract as well as the many brilliant oneliners and anecdotes.

Key takeaways:
- Buffett thinks most markets are not purely efficient and equating volatility with risk is a gross distortion
- For more than 40 years, Buffett has generate average returns of 20% or better, which double the market average
- Buffett point out the absurdity of beta by observing that “a stock that has dropped very sharply compared to the market… becomes riskier at the lower price than it was at a higher price” - that is how beta measures risk
- Buffett jokes that calling someone who trades actively in the market an investor “is like calling someone who repeatedly engages in one night stands a romantic”
- Graham held that price is what you pay, value is what you get
- Graham’s margin-of-safety principle: one should not make an investment in a security unless there is sufficient basis for believing that the price being paid is substantially lower than the value being delivered
- Graham’s Mr Market: allegory for overall stock market, a moody manic-depressive entity where price and value diverge, making superior intelligent investing possible
- Buffett’s circle of competence principle: consider investments only concerning businesses they are capable of understanding with a medium of effort
- Intrinsic value: the discounted value of cash that can be taken out of a business during its remaining life
- If we have long-term expectations, short-term price changes are meaningless except to the extent they offer us an opportunity to increase our ownership at an attractive price
- For a terrific discussion of the mutual fund business, read John Bogle’s Common Sense on Mutual Funds
- Berkshire subsidiary CEOs get a simple mission: run the business as if 1) you own 100% of it, 2) it is the only asset in the world you and your family have or will ever have and 3) you can’t sell or merge it
- In our books, alignment between interests of managers and shareholders means being a partner in both directions, not just the upside
- As I’ve said in these memos for the last 25 years “We can afford to lose money - even a lot of money. But we cannot afford to lose reputation - even a shred of reputation”
- Graham’s key to successful investing: buying shares in good businesses when market prices were at a large discount from underlying business value
- Tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear if your friend when investing; a euphoric world is your enemy
- If you expect to be a net saver during the next five years, should you hope for higher or lower stock market during that period? Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective buyers should much prefer sinking prices
- When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever
- By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals
- Value investing typically connotes the purchase of stocks having attributes such as a low ratio of P/B and P/E or high dividend yield
- If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes
- Cigar Butt investing: a foolish method of investing akin to taking the last puff of a cigar, it is the purchase of a stock at a sufficiently low price that there will be some short-term profit, though the business’ long-term performance is likely to be terrible
- Over working level for liquidity is $20B; $10B is our absolute minimum
- Lethargy bordering on sloth remains the cornerstone of our investment style
- Beware of past performance: if history books were the key to riches, the Forbes 400 would consist of librarians
- You don’t have to make it back the way you lost it
- For investors as a whole, returns decrease as motion increases
- Both large and small investors should stick with low-cost index funds
- The professionals however face a problem; can you imagine an investment consultant telling clients year-after-year, to keep adding to an index fund replicating the S&P 500?
- If a stock is selling well below intrinsic value, repurchases usually make sense. However, I cannot help but feel that too often today’s repurchases are dictated by management’s desire to “show confidence” or be in fashion rather than by a desire to enhance per-share value. Value is destroyed when purchases are made above intrinsic value
- During inflation, Goodwill is the gift that keeps giving
- Black-Scholes is the accepted standard for option valuation - almost all leading business schools teach it - and we would be accused of shoddy accounting if we deviated from it
- Cash is to a business as oxygen to an individual: never thought about when it is present, the only thing in mind when it is absent
- It is madness to risk losing what you need in pursuing what you simply desire

[Jules · Rating 3 out of 5]

Book provides a good selection of Buffett's essays and writings, organised in a clear topics. Buffett's writings are written with the average off-the-street person in mind, and is hence suitable for anyone with an interest in finance, who wants to learn more about Buffett's views on investing and management. Fundamental ideologies of Buffett can clearly be identified, and the book's layout makes it easy to refer to specific topics of interest. I did feel however, that some of the pieces were a bit dated (a number of them were from the 80's) and not really applicable in today's times.

[Vincent Tsao · Rating 5 out of 5]

Every year, I come across coverage of Berkshire's annual shareholder meeting, but I never mustered the energy to read the actual letters. I even considered myself to be decently knowledgeable on personal finance and retail investing, but reading Buffett's essays exposed some size-able gaps in my investing toolkit. I'm disappointed in myself for not reading these letters earlier, but I'll definitely read them going forward!

These letters also contain many useful nuggets for running and building companies (for the "managers" in the collection title), covering topics such as acquisitions, capital allocation, and compensation.

Whether one fervently adopts or rejects Buffet's teachings, it's fair to say that many of his thoughts go against conventional wisdom, which means there's tremendous value in at least understanding opposing arguments to form a sharper opinion. To get full value from these letters, however, a reader needs a baseline understanding of investing and financial markets. If you haven't bought stocks or ETFs before, don't start here.

Some of the quotes and examples can be difficult to follow (or just of a different era), but Buffet does a tremendous job of making dense subject matter relatively easy for readers to consume while eliciting a wry chuckle here and there.

[Ravij Reagen · Rating 4 out of 5]

My Personal Experience

What better to learn from the Richest Investor than from his book?

The Essay of Warren Buffet consists of the collection of the shareholder letters that Warren Buffet provides in the Berkshire Hathaway meetings.

Buffet urges us to buy a great business at a sensible price, rather than a mediocre business at a bargain price. The mediocre companies might be a lot cheaper, but you will have to buy many such companies before one of them brings you a good profit.

Moreover, don’t diversify too much! It takes way too much time. Diversifying comes from not knowing what’s going to happen.

If you don’t understand the business, then don’t buy its stocks at all. Only stick with the businesses that you understand.

It’s also not enough to buy businesses based on just their financial numbers. You have to make sure these companies have great management as well.

Likewise, while most of us fear stock market fluctuations, Buffet thinks otherwise. When the market goes down, it provides greater buying opportunities than it was possible earlier.

If you would like to read more, then please visit https://proinvestivity.com/2020/04/25...

[Lord Zion · Rating 3 out of 5]

If there is a God for investors, it must be Warren Buffett. Reading this book, his love for his work and his knowledge are there to behold. His common sense approach to investment has clearly worked in his favour and, as this book is essentially a collection of his yearly reports to holders of Berkshire Hathaway stock, his humour and hubris is also ever-present.

Of course, we would all benefit from buying Coca-Cola stocks in the 1950s and, to a large extent, he is a product of his time, benefiting from post-war economic booms along with a much more measured approach to investing overall.

Most of the essays are from the 80s and 90s so, although nice to read for nostalgia, largely irrelevant today. I would posit that attempting to trade like Buffett in 2020 would be tricky. Computer algorithms did not exist back then and their whims seem to dictate the price of stocks and shares as much as large corporate investors.

Having said that, he is a good writer and it is always nice to be in the presence of someone with a brain much bigger than your own. There is something to learn from this book - more so if you are a buy-and-hold investor - so worth a read if the subject is of interest.

[Abhisheka Jhunjhunwala · Rating 5 out of 5]

To get an in-depth view into the investing philosophy of the Oracle of Omaha, this book is a very good collection of his essays. Lawrence Cunningham has organised them in good order so that one can choose which chapters to read depending on one's topic of interest.

The book covers not just equities, but other financial instruments as well - M&A, Valuation, Accounting Shenanigans to name a few, and on each subject Buffett gives his unique views.

As opposed to a university course, here is content that someone who has actually lived through different economic cycles, and made investment decisions (mostly successful ones), has written about. In my opinion, this book carries a lot of valuable content (Weighted Average Cost of Content maybe?).

The book covers ALL aspects of corporate finance, and Buffett further explains concepts using very simple analogies - for students of university corporate finance courses, his essays could actually clear up a lot of foggy concepts! (it worked for me)

The tax section is not really relevant to non-US readers but his logic is useful if you can absorb it. I would also have preferred if there were more recent essays in the book.

[Peter · Rating 5 out of 5]

I feel privileged to have read the thoughts and principles of Warren Buffet.

Many of the poor reviews of this book said the information was dated. When are honesty and superior intelligence ever dated? Others claimed there wasn't any information about trading, but as Buffet says, comparing trading to investing is like comparing a one night stand with romance. Secondly, no trader in history has ever sustained the returns that Buffet has achieved. Comparing traders (paper shufflers) with Buffet is like comparing sludge with Perrier.

These essays should be compulsory reading for company directors, and CEOs who prefer to cook the books rather than produce tangible profits. They would learn something from Buffet and Charlie Munger's integrity, and corporate America would be the better for it.

In 100 years time, Warren Buffet will be talked about in the same breath as J P. Morgan, Carnegie and Rockefeller. He is a giant of his time.

A wonderful book about a man who values honesty, integrity and humility more than money.

[Sagar Acharya · Rating 5 out of 5]

Deep!

When Warren speaks, his words have a tinge of all point of views and while you may understand some prospects of the book, it's very difficult to understand everything since he has a diverse understanding of psychology, accounting, economics: both micro and macro and many more disciplines. Across the book, which is nothing but a mere compilation of the letters written by Warren to Berkshire Hathaway in his annual meetings plus some other short material written by him has been segregated into relevant topic heads. This helps to see what context he's talking in and although I was fortunate that most of the book I understood, I will have to give it a second read to understand it fully!

It's a very content rich book and when you comprehend on his ideas, you can feel his constant developing through 80 years!

[Dhyey Desai · Rating 4 out of 5]

This book gives a good insight in to the mind of Warren Buffett and his investing philosophy, creating Berkshire into an institution that would survive the test of time. Lawrence Cunningham has gone through the annual letters that Buffet releases as part of his annual report, picked and arranged them by topics to make it easy to read. As is always the case, the investor does not give any insight into the actual calculations that are involved in evaluating an investment opportunity but rather things to watch out for when considering an investment. The Berkshire system that Buffett has created is something that is anachronistic. It is a set of ideals and values that if America.inc followed, would create a far better world. His letters should be a required reading to all the MBA cohorts before they embark on their managerial pursuits.

[Rob · Rating 4 out of 5]

Sometimes with these reviews, it’s not so much about whether the book was good for me, but whether I was suited to the book. I can see, for some people, this book would be exceptionally valuable. Buffett’s insights, here categorised for clarity, show a depth of understanding not limited to business acumen, but human management, leadership, and surprisingly, morality.

There were some useful concepts here which can be taken specifically or generally, such as Buffett’s attitude to the benefits of incremental long-term gain over short term dalliances.

Dry in parts for me, but still interesting.

[Will Denman · Rating 5 out of 5]

Buffett's essays are full of wisdom and advice that's worth spending time with. He has a real ability to speak plainly and in common terms about sophisticated economics. His framework is simple. His execution and performance is anything but.

To be clear, this is a book for a specific audience - someone with genuine interest in finance, economics, and investing. The organization of the essays made digestion easier, although most topics do still require a modest financial literacy to digest.

Will definitely revisit from time to time and would recommend if you're interested in understanding the mindset of one of the greatest investors of our time.

[Joshua · Rating 5 out of 5]

Warren Buffett has never written a book - in the absence of one, one can easily imagine that the wealth of information contained in this collection of his essays to Berkshire Hathaway shareholders would be the closest piece of work that accurately distills his investment and management philosophies. For those who find The Intelligent Investor or Security Analysis too tedious, this book also acts as an excellent summary of Benjamin Graham's principles. With copious wit to boot, it makes for a very informative and good read.

[Luke Durbin · Rating 5 out of 5]

Could be double the size now as there have been two and half decades of letters from Buffett since publishing, but the advice and business wisdom still very much applies today and will, I'm sure, for many years to come.
What I lovemost about Buffett is that he is not afraid to be honest with investors. If the business experiences and adverse externality he will tell it how it is; if Buffett screwed up, he's the first one to place blame on himself; and if Berkshire is overvalued at the time of issuing stock, he will tell you so.

[Leandro Melendez · Rating 5 out of 5]

Defintivamente una lectura que tendre que repetir varias veces debido a el monton de sabiduría que contiene y en cierto modo el grado de complejidad.
Impresiona el ver como Buffet usa sin ningún problema, términos que a mi entender son algo complicados. Pero leyendo con calma, investigando y analizando lo escrito me impresiono la profundidad de las sencillas parabolas.


Esto debe ser la biblia de cualquier inversionista, definitivo!

[Kristoffer · Rating 5 out of 5]

Among many interesting topics covered in Buffett’s essays, I found the first chapter on corporate governance the most valuable read. Here Buffet addresses the importance of having managers that think like owners in making business decisions. They are stewards of shareholder capital.

He gives straightforward suggestions on how managers should communicate to investors, think about allocation of capital and resist the institutional imperative.

[Daniel Smith · Rating 4 out of 5]

Succinct in its review of key investment principles. Understandably dates examples used in the book but that doesn’t take away from the sage and timeless advice. Perhaps a little too detailed in some financial topics for the casual reader interested in investment with a few chapters lacking relevant for most people. I’d treat the book as more a guide in which to choose those chapters most interesting for you.

[Lavanya · Rating 5 out of 5]

Now I understand what it means to say that a book is vascular - that if you cut the words, they bleed. I expected Buffet to be a great investor, but he is also an influential writer and thinker who is deeply self-reflective of his mistakes, and who beautifully comprehends human and institutional behavior like no other. Excellent read - took 15 pages of notes. Highly recommended

[Sumeet Shah · Rating 5 out of 5]

This book is a must read for anyone who is looking to enter value based investing as well as understand how to find good businesses and how the businesses run long term.

The essays basically helps us understand the thought process behind Warren Buffett and what made him reach this Peak in the Investing world and the world of business acquisitions.