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The Essays of Warren Buffett : Lessons for Corporate America
The definitive work concerning Warren Buffett and intelligent investment philosophy, this is a collection of Buffett's letters to the shareholders of Berkshire Hathaway written over the past few decades that together furnish an enormously valuable informal education. The letters distill in plain words all the basic principles of sound business practices. They are arranged and introduced by a leading apostle of the "value" school and noted author, Lawrence Cunningham. Here in one place are the priceless pearls of business and investment wisdom, woven into a delightful narrative on the major topics concerning both managers and investors. These timeless lessons are ever-more important in the current environment.
256 pages, Paperback
First published January 1, 1998
1,820 people are currently reading
29.5k people want to read
About the author
Warren Buffett
103?books1,713?followersWarren Edward Buffett is an American businessman, investor, and philanthropist who currently serves as the co-founder, chairman and CEO of Berkshire Hathaway. As a result of his investment success, Buffett is one of the best-known investors in the world. As of April 2024, he had a net worth of $139 billion, making him the ninth-richest person in the world.
Buffett was born in Omaha, Nebraska. The son of US congressman and businessman Howard Buffett, he developed an interest in business and investing during his youth. He entered the Wharton School of the University of Pennsylvania in 1947 before graduating from the University of Nebraska at 19. He went on to graduate from Columbia Business School, where he molded his investment philosophy around the concept of value investing pioneered by Benjamin Graham. He attended New York Institute of Finance to focus on his economics background and soon pursued a business career. He later began various business ventures and investment partnerships, including one with Graham. He created Buffett Partnership Ltd. in 1956 and his investment firm eventually acquired a textile manufacturing firm, Berkshire Hathaway, assuming its name to create a diversified holding company. Buffett emerged as the company's chairman and majority shareholder in 1970. In 1978, fellow investor and long-time business associate Charles T. Munger joined Buffett as vice-chairman.
Since 1970, Buffett has presided as the chairman and largest shareholder of Berkshire Hathaway, one of America's foremost holding companies and world's leading corporate conglomerates. He has been referred to as the "Oracle" or "Sage" of Omaha by global media as a result of having accumulated a massive fortune derived from his business and investment success. He is noted for his adherence to the principles of value investing, and his frugality despite his wealth.
Buffett has pledged to give away 99 percent of his fortune to philanthropic causes, primarily via the Bill & Melinda Gates Foundation. He founded the Giving Pledge in 2010 with Bill Gates, whereby billionaires pledge to give away at least half of their fortunes.
Buffett was born in Omaha, Nebraska. The son of US congressman and businessman Howard Buffett, he developed an interest in business and investing during his youth. He entered the Wharton School of the University of Pennsylvania in 1947 before graduating from the University of Nebraska at 19. He went on to graduate from Columbia Business School, where he molded his investment philosophy around the concept of value investing pioneered by Benjamin Graham. He attended New York Institute of Finance to focus on his economics background and soon pursued a business career. He later began various business ventures and investment partnerships, including one with Graham. He created Buffett Partnership Ltd. in 1956 and his investment firm eventually acquired a textile manufacturing firm, Berkshire Hathaway, assuming its name to create a diversified holding company. Buffett emerged as the company's chairman and majority shareholder in 1970. In 1978, fellow investor and long-time business associate Charles T. Munger joined Buffett as vice-chairman.
Since 1970, Buffett has presided as the chairman and largest shareholder of Berkshire Hathaway, one of America's foremost holding companies and world's leading corporate conglomerates. He has been referred to as the "Oracle" or "Sage" of Omaha by global media as a result of having accumulated a massive fortune derived from his business and investment success. He is noted for his adherence to the principles of value investing, and his frugality despite his wealth.
Buffett has pledged to give away 99 percent of his fortune to philanthropic causes, primarily via the Bill & Melinda Gates Foundation. He founded the Giving Pledge in 2010 with Bill Gates, whereby billionaires pledge to give away at least half of their fortunes.
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January 1, 2018
I started with this book with a sort of apprehension. I don't have much domain knowledge in Finance and thought how I will be able to understand the jargon. One read later I can say that I already understand some of the things a little bit better. Although I skimmed some part of the essays because they didn't make much sense to me right as of now, I feel I will definitely be coming back to this book to read in its entirety.
The essays talked about various things. Here I put some of the most salient things. You might consider them spoilers but there are no spoilers in non-fiction. Yet SPOILER WARNING!!!!!
1. A Company is the sum of its management:
- Directors therefore must be chosen for their business savvy, their interest, and their owner-orientation - Owner like attitude of the directors
- The outside board members should establish standards for the CEO's performance and should also periodically meet, without his being present, to evaluate
- Too often, directors are selected simply because they are prominent or add diversity to the board. That practice is a mistake.
- An owner on the board should be the most effective in insuring first-class management.
- Better managers make better company ¨COne of the point buffet emphasized was to attract and keep outstanding managers to run our various operations. They unfailingly think like owners (the highest compliment we can pay a manager) and find all aspects of their business absorbing.
- "If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But, if each of us hires people who are bigger than we are, we shall become a company of giants."
2. Returns should not be everything:
- You won't close down businesses of sub-normal profitability merely to add a fraction of a point to our corporate rate of return. However, I also feel it inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect. Adam Smith would disagree with my first proposition, and Karl Marx would disagree with my second; the middle ground is the only position that leaves me comfortable.
- 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. Indeed, we are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate.
3. An astute approach to market up and downs:
- If we have good long-term expectations, short-term price changes are meaningless for us except to the extent they offer us an opportunity to increase our ownership at an attractive price.
- Berkshire and its long-term shareholders benefit from a sinking stock market much as a regular purchaser of food benefits from declining food prices.
- The key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.
- You should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market you don't belong in the game.
- In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace.
- The market may ignore business success for a while, but eventually will confirm it. "In the short run, the market is a voting machine but in the long run it is a weighing machine." In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.
- Sometimes, of course, the market may judge a business to be more valuable than the underlying facts would indicate it is. In such a case, we will sell our holdings. Sometimes, also, 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.
- "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.
- An investor needs to do very few things right as long as he or she avoids big mistakes.
- Whatever the outcome, we will heed a prime rule of investing: You don't have to make it back the way that you lost it.
- Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
4. Buy a stake in the company as if you own a business:
- first, try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price.
- If at first you do succeed, quit trying.
- Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price.
- The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.
- First, we try to stick to businesses we believe we understand.
- 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 buying.
- You simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.
- Our reaction to a fermenting industry (a new initiative which we don¡¯t understand fully) is much like our attitude toward space exploration: We applaud the endeavor but prefer to skip the ride.
- You can, of course, pay too much for even the best of businesses.
- You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
- Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.
- If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.
- It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- Lethargy bordering on sloth remains the cornerstone of our investment style
- In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard.
5. THE GOAL of investment:
- Directly owning a diversified group of businesses that generate cash and consistently earn above-average returns on capital. That is for every dollar spent how much am I getting back?
- The key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.
- 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. Indeed, we are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate.
- Don¡¯t watch the ticker: In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard.
6. Even Great Operations in unprofitable industries yield peanuts:
- "A horse that can count to ten is a remarkable horse-not a remarkable mathematician." Likewise, a textile company that allocates capital brilliantly within its industry is a remarkable textile company-but not a remarkable business.
- Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
- When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
7. Focus on Value Investing:
- The value of any stock, bond or business today is determined by the cash inflows and outflows-discounted at an appropriate interest rate-that can be expected to occur during the remaining life of the asset.
- The investment shown by the discounted-flows-of-cash calculation to be the cheapest is the one that the investor should purchase-irrespective of whether the business grows or doesn't, displays volatility or smoothness in its earnings, or carries a high price or low in relation to its current earnings and book value.
- In our view, though, investment students need only two well-taught courses-How to Value a Business, and How to Think About Market Prices.
- Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.
- It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- In analysis of operating results-that is, in evaluating the underlying economics of a business unit-amortization charges should be ignored. What a business can be expected to earn on unleveraged net tangible assets, excluding any charges against earnings for amortization of Goodwill, is the best guide to the economic attractiveness of the operation. It is also the best guide to the current value of the operation's economic Goodwill.
8. Dividends , Reinvestment and stuff:
- Shareholders would be far better off if earnings were retained only to expand the high-return business,
The essays talked about various things. Here I put some of the most salient things. You might consider them spoilers but there are no spoilers in non-fiction. Yet SPOILER WARNING!!!!!
1. A Company is the sum of its management:
- Directors therefore must be chosen for their business savvy, their interest, and their owner-orientation - Owner like attitude of the directors
- The outside board members should establish standards for the CEO's performance and should also periodically meet, without his being present, to evaluate
- Too often, directors are selected simply because they are prominent or add diversity to the board. That practice is a mistake.
- An owner on the board should be the most effective in insuring first-class management.
- Better managers make better company ¨COne of the point buffet emphasized was to attract and keep outstanding managers to run our various operations. They unfailingly think like owners (the highest compliment we can pay a manager) and find all aspects of their business absorbing.
- "If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But, if each of us hires people who are bigger than we are, we shall become a company of giants."
2. Returns should not be everything:
- You won't close down businesses of sub-normal profitability merely to add a fraction of a point to our corporate rate of return. However, I also feel it inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect. Adam Smith would disagree with my first proposition, and Karl Marx would disagree with my second; the middle ground is the only position that leaves me comfortable.
- 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. Indeed, we are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate.
3. An astute approach to market up and downs:
- If we have good long-term expectations, short-term price changes are meaningless for us except to the extent they offer us an opportunity to increase our ownership at an attractive price.
- Berkshire and its long-term shareholders benefit from a sinking stock market much as a regular purchaser of food benefits from declining food prices.
- The key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.
- You should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market you don't belong in the game.
- In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace.
- The market may ignore business success for a while, but eventually will confirm it. "In the short run, the market is a voting machine but in the long run it is a weighing machine." In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.
- Sometimes, of course, the market may judge a business to be more valuable than the underlying facts would indicate it is. In such a case, we will sell our holdings. Sometimes, also, 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.
- "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.
- An investor needs to do very few things right as long as he or she avoids big mistakes.
- Whatever the outcome, we will heed a prime rule of investing: You don't have to make it back the way that you lost it.
- Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
4. Buy a stake in the company as if you own a business:
- first, try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price.
- If at first you do succeed, quit trying.
- Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price.
- The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.
- First, we try to stick to businesses we believe we understand.
- 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 buying.
- You simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.
- Our reaction to a fermenting industry (a new initiative which we don¡¯t understand fully) is much like our attitude toward space exploration: We applaud the endeavor but prefer to skip the ride.
- You can, of course, pay too much for even the best of businesses.
- You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
- Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.
- If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.
- It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- Lethargy bordering on sloth remains the cornerstone of our investment style
- In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard.
5. THE GOAL of investment:
- Directly owning a diversified group of businesses that generate cash and consistently earn above-average returns on capital. That is for every dollar spent how much am I getting back?
- The key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.
- 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. Indeed, we are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate.
- Don¡¯t watch the ticker: In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard.
6. Even Great Operations in unprofitable industries yield peanuts:
- "A horse that can count to ten is a remarkable horse-not a remarkable mathematician." Likewise, a textile company that allocates capital brilliantly within its industry is a remarkable textile company-but not a remarkable business.
- Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
- When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
7. Focus on Value Investing:
- The value of any stock, bond or business today is determined by the cash inflows and outflows-discounted at an appropriate interest rate-that can be expected to occur during the remaining life of the asset.
- The investment shown by the discounted-flows-of-cash calculation to be the cheapest is the one that the investor should purchase-irrespective of whether the business grows or doesn't, displays volatility or smoothness in its earnings, or carries a high price or low in relation to its current earnings and book value.
- In our view, though, investment students need only two well-taught courses-How to Value a Business, and How to Think About Market Prices.
- Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.
- It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- In analysis of operating results-that is, in evaluating the underlying economics of a business unit-amortization charges should be ignored. What a business can be expected to earn on unleveraged net tangible assets, excluding any charges against earnings for amortization of Goodwill, is the best guide to the economic attractiveness of the operation. It is also the best guide to the current value of the operation's economic Goodwill.
8. Dividends , Reinvestment and stuff:
- Shareholders would be far better off if earnings were retained only to expand the high-return business,
December 10, 2008
Cunningham organizes the essays within seven sections between Buffett's Prologue (Pages 27-28) and his Epilogue (Pages 273-282):
I Corporate Governance
II Corporate Finance and Investing
III Alternatives to Common Stock
IV Common Stock
V Mergers and Acquisitions
VI Accounting and Valuation
VII Accounting Policy and Tax Matters
As Buffett explains in his Prologue, members of Berkshire Hathaway's shareholder group receive communications directly "from the fellow you are paying to run the business. Your Chairman has a firm belief that owners are entitled to hear directly from the CEO as to what is going on and how he evaluates the business, currently and prospectively. You should demand that in a private company; you should expect no less in a public company. A once-a-year report of stewardship should not be turned over to a staff specialist or public relations consultant who is unlikely to be in a position to talk frankly on a manager-to-owner basis."
Those who share my own keen interest in Warren Buffett's leadership and management principles will learn a great deal from a careful reading of these essays. They are quite literally "from the horse's mouth." The substantial value-added benefits include the fact that Buffett thinks and writes so clearly, duly acknowledges bad decisions and personal regrets (yes, there were several), explains what he learned from them, and meanwhile reveals a playful (albeit dry) sense of humor. He also includes a number of personal observations about America, especially about its culture and economy, at various times throughout the last 25-30 years. The two aforementioned biographies indicate that throughout his life, Buffett thoroughly enjoyed each and every opportunity to increase others' understanding of sound business principles that include but are by no means limited to investments.
I Corporate Governance
II Corporate Finance and Investing
III Alternatives to Common Stock
IV Common Stock
V Mergers and Acquisitions
VI Accounting and Valuation
VII Accounting Policy and Tax Matters
As Buffett explains in his Prologue, members of Berkshire Hathaway's shareholder group receive communications directly "from the fellow you are paying to run the business. Your Chairman has a firm belief that owners are entitled to hear directly from the CEO as to what is going on and how he evaluates the business, currently and prospectively. You should demand that in a private company; you should expect no less in a public company. A once-a-year report of stewardship should not be turned over to a staff specialist or public relations consultant who is unlikely to be in a position to talk frankly on a manager-to-owner basis."
Those who share my own keen interest in Warren Buffett's leadership and management principles will learn a great deal from a careful reading of these essays. They are quite literally "from the horse's mouth." The substantial value-added benefits include the fact that Buffett thinks and writes so clearly, duly acknowledges bad decisions and personal regrets (yes, there were several), explains what he learned from them, and meanwhile reveals a playful (albeit dry) sense of humor. He also includes a number of personal observations about America, especially about its culture and economy, at various times throughout the last 25-30 years. The two aforementioned biographies indicate that throughout his life, Buffett thoroughly enjoyed each and every opportunity to increase others' understanding of sound business principles that include but are by no means limited to investments.
May 18, 2013
Another masterpiece. There are some books of 200 pages that take me more time to read than books of 400 pages. I read and then re-read every line to ensure that I don't miss one single insight. The book more than lived up to its promise. I recommend any investor, analyst and particularly accounting professionals to read it.
September 28, 2023
3.5
learned a lot! a bit dry though
learned a lot! a bit dry though
July 22, 2019
It¡¯s no wonder why he¡¯s called the Oracle. Not only does Buffet have a strong understanding of finance and economics, he also has a very deep understanding of human nature/behavior & psychology, manufacturing & trade, management, leadership, corporate culture, corporate governance, influence, government / politics & law (particularly when it comes to regulations and anti-trust), philosophy, education, history, and many others. This makes him a three dimensional investor who has a vested interest / partnership in the companies to which he invests in, and quite opposite of the one dimensional day traders, who are essentially playing the lottery for the short term.
The one thing he doesn¡¯t have a great understanding of is the high-tech & innovation sector, which he¡¯s quite okay with. This makes him more of a conservative investor who doesn¡¯t effect necessary improvement or change in society, but he¡¯s a very a successful capital allocator nonetheless.
Phenomenal insights.
The one thing he doesn¡¯t have a great understanding of is the high-tech & innovation sector, which he¡¯s quite okay with. This makes him more of a conservative investor who doesn¡¯t effect necessary improvement or change in society, but he¡¯s a very a successful capital allocator nonetheless.
Phenomenal insights.
January 28, 2016
Really not sure how I missed reading this book for so long. But they say better late than ever.
July 18, 2015
It is difficult to judge this as a book, because it really is just a collection of Warren Buffet's letters to the shareholders. There is a very nice introduction that sums up Buffet's views, and is great for people who have not been exposed to, or are not very familiar with value investing.
The books lacks flow, with the order that the letters are listed in sometime jumping back and forth by a decade and two without preparing the reader to make the appropriate context switch. Since these are letters to shareholders, there is also an underlying assumption that the reader has some knowledge/experience on the matter at hand, making it slightly more difficult to read. To some extent, it is analogous to picking up a newspaper from three decades ago. While it is an unbiased look into the past, showing that history does repeat itself, the book does a poor job at preparing the reader from entering the proper mindset.
This shouldn't be the first book any value investor picks up, but it should still be read early into one's "investment career" since there are invaluable lessons directly from one of the world's greatest investors.
The books lacks flow, with the order that the letters are listed in sometime jumping back and forth by a decade and two without preparing the reader to make the appropriate context switch. Since these are letters to shareholders, there is also an underlying assumption that the reader has some knowledge/experience on the matter at hand, making it slightly more difficult to read. To some extent, it is analogous to picking up a newspaper from three decades ago. While it is an unbiased look into the past, showing that history does repeat itself, the book does a poor job at preparing the reader from entering the proper mindset.
This shouldn't be the first book any value investor picks up, but it should still be read early into one's "investment career" since there are invaluable lessons directly from one of the world's greatest investors.
December 4, 2020
Update 2020-12-04:
Lesson 1 fear and greed:
¡°Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investing community. The timing of these epidemics will be unpredictable. And the market aberrations produced by then will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.¡±
? "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."
Lesson 1 fear and greed:
¡°Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investing community. The timing of these epidemics will be unpredictable. And the market aberrations produced by then will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.¡±
? "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."
July 26, 2018
Even as a complete novice in this field I managed to gain so much from this book. And to think what a person, studying finances or working with investments, could learn from essays - is just mind-blowing!
June 12, 2021
WB is the most famous name in investing circles, and there's enough literature on the man already, this book is a rehash of what you've already read about the legend.
August 13, 2024
I read this for my class, and while it was insightful, it felt repetitive and boring. Maybe that's a sign I hate my major lol
May 7, 2015
As a child Buffet was obsessed with entrepreneurship. Only by desiring riches with a state of mind that becomes an obsession will bring riches. Obsession makes it more likely for you to stick to your plans with persistence but probably only few investors will devote their lives to their investment like Buffet did. From this book you will take away many lessons on investment from Warren Buffet which guided him in becoming the most glorified and respected investor of all times. This book also describes how Buffet took control of Berkshire Hathaway. Reading these essays will not make you rich but it will give you some insight into the management and investing world. You may also find interesting the annual letters to shareholders which are published on Berkshire Hathaway site starting from 1965.
April 5, 2019
This is a collection of essays penned by Warren Buffett over the decades of his running of Berkshire Hathaway. They are collected and organized by theme.
To me there is a relatively small group of people that this book is very good for. One group would certainly be a Berkshire Hathaway shareholder or prospective shareholder. Buffett certainly does a great job making you want to own their stock. But much of the book is very specific to CEOs or CFOs of public companies. Certainly not all of it, and I did glean some insight particularly along the M&A front, but a lot of the accounting particulars are good as advice if you're in a position to make those decisions at your public company. I found just small sections to be useful to me, though it is a thoughtful book to look back on for specific circumstances as they may arise in your business life.
To me there is a relatively small group of people that this book is very good for. One group would certainly be a Berkshire Hathaway shareholder or prospective shareholder. Buffett certainly does a great job making you want to own their stock. But much of the book is very specific to CEOs or CFOs of public companies. Certainly not all of it, and I did glean some insight particularly along the M&A front, but a lot of the accounting particulars are good as advice if you're in a position to make those decisions at your public company. I found just small sections to be useful to me, though it is a thoughtful book to look back on for specific circumstances as they may arise in your business life.
January 5, 2016
Buffett establish that investors should go for good business rather than focusing on the market, buy at good prices and keeping them for long term, which actually is what Warren has done during his management in Berkshire. Buffett sent letters to the members of Berkshire shareholders in order to explain them what he is doing and why they are in for. He uses the letters to explain complex concepts to be easily understood and with some peculiar humor and a lot of wisdom.
It is, in my opinion, the first business book really enjoyable to read.
An excellent option to learn from one the most successful business man worldwide.
It is, in my opinion, the first business book really enjoyable to read.
An excellent option to learn from one the most successful business man worldwide.
October 1, 2015
I thought this "book" was more direct advice on investing and personal finance. Through reading this book, I found out that it's about:
- High volume investing
- Operating a (public) business
But what I loved about the book is that it's not direct. Warren won't tell you how to be rich. He just lays out his philosophy and thinking about money, businesses and people.
I think it's not a very useful information for people looking to make small trades in the market, but a gold mine for those going in the finance world (think hedge fund managers).
- High volume investing
- Operating a (public) business
But what I loved about the book is that it's not direct. Warren won't tell you how to be rich. He just lays out his philosophy and thinking about money, businesses and people.
I think it's not a very useful information for people looking to make small trades in the market, but a gold mine for those going in the finance world (think hedge fund managers).
May 26, 2018
This book bolstered my passion for investing and cemented my desire to make it my vocation, rather than the many other prestigious paths to "money-shuffling" Buffett is notoriously critical of. I was surprised by some of the lessons I learned from Buffett. Two that immediately come to mind are 1) the malleability of Wall Street's most sacred metrics (net income, EPS to name a few), and 2) how important ethics in business are for both businesses' long-term economic health and individuals' personal health.
May 9, 2020
Having read a handful of investing books, derived Buffet and Munger's philosophy, it was a natural step to start reading from their own words. If you are a true believer, why reading just mass-market texts and not the Bible?
Much thanks to Cunningham who made this possible.
Some chapters in the book (like acquisition and accounting) can sound "foreign" to investors who are not directly involved in the business sector (including me), but it is just the technicalities - the big ideas remain accessible.
Much thanks to Cunningham who made this possible.
Some chapters in the book (like acquisition and accounting) can sound "foreign" to investors who are not directly involved in the business sector (including me), but it is just the technicalities - the big ideas remain accessible.
January 9, 2016
It's got some interesting points, and it taught me some stuff about businesses. But it's terribly repetitive. The main points could probably have been expressed in a ten-page essay instead of a 230-page book. I sympathize with the business students who have to use it as a textbook.
March 23, 2016
The Oracle at his brilliant best. A must for anyone interested in investing
July 5, 2020
This collection gets 6 stars from me. Lots of questions and thoughts that have appeared in my mind since years when looking at the behavior of stock markets and corporations are discussed in detail.
What are the motivations and reasoning behind the ways companies operate today and why is it important? This book takes a deeper perspective on topics of management. Additionally it includes the historical perspective to explain why we are where we are today and opens up the insanity of how a lot of large corporations are run.
The book also opens up the reasonings, behavior and relationships of managing directors, C-level and stockholders. Think about stock buybacks, goodwill, sky-high valuations, mergers and acquisitions etc.
It provides practical principles about sound investment thinking and opens up a path into the mind of a common-sense investor. I would consider this as a must-read for any business student.
I myself took lots of notes and highlights which I will use to write a summary for the lostbookofsales.com.
There is surely a lot of food for thought here that will serve you well in the business world.
What are the motivations and reasoning behind the ways companies operate today and why is it important? This book takes a deeper perspective on topics of management. Additionally it includes the historical perspective to explain why we are where we are today and opens up the insanity of how a lot of large corporations are run.
The book also opens up the reasonings, behavior and relationships of managing directors, C-level and stockholders. Think about stock buybacks, goodwill, sky-high valuations, mergers and acquisitions etc.
It provides practical principles about sound investment thinking and opens up a path into the mind of a common-sense investor. I would consider this as a must-read for any business student.
I myself took lots of notes and highlights which I will use to write a summary for the lostbookofsales.com.
There is surely a lot of food for thought here that will serve you well in the business world.
August 18, 2018
I can see how great this book can be, so I wanted to give it 5 stars. However, the verbiage and many concepts are currently beyond me so I can¡¯t give it the review it truly deserves. It was very dry but a great resource for someone with a little more knowledge in the finance areas. I will eventually updated this with a more accurate review when I learn more and can fully comprehend the book.
June 28, 2017
Reflects philosophy and strategy of W. Buffett and C. Munger. Useful.
July 29, 2020
Glad I read it. Glad I finished it.
September 3, 2020
180-The Essays of Warren Buffett-Warren Buffett-Essays-1998
Barack
2018/07/29
2020/06/11
- People often overestimate a change in time can bring , and underestimate the change in 10 years can bring.
"The Essays of Warren Buffett" (The Essays of Warren Buffett), first published in the United States in 1998. It contains a letter written by investment guru Warren Buffett to the shareholders of Berkshire Hathaway, covering topics such as management, investment and evaluation.
Buffett was born in Omaha, Nebraska, in 1930. He received a bachelor's degree in economics from the University of Nebraska-Lincoln and a master's degree in economics from Columbia University. Representative works: "Buffett's Letter to Shareholders", etc.
Part of the catalog
1. Corporate Governance
2. Finance and Investment
3. Investment in alternatives
4. Common stock investment
5. Mergers and acquisitions
6. Valuation and accounting
7. Accounting tricks
8. Accounting policies
9. Tax issues
Buffett was born in Obaha, Nebraska, in 1930. In 1941, he bought the first stock of his life. The stock funds came from himself and his sister. Soon after, the stock fell by 30%. For this reason, Buffett's sister often complained to Buffett for this. Eventually the stock rebounded and Buffett sold the stock with a 5% return.
This incident illustrates two things: first, when stocks fluctuate, investor sentiment is extremely vulnerable to loss aversion; second, in the long run, high-value stocks will eventually appreciate.
During his studies at Columbia Business School, Buffett was deeply influenced by investment theorist Benjamin Graham, which largely led to his persistence in value investment strategies for decades.
In 1957, when he was 27 years old, Buffett established the Buffett Investment Club. In 1962, when he was 32 years old, one million US dollars of the capital of Buffett's partner investment company belonged to Buffett. In 1968, when the U.S. stock market triumphed, Buffett liquidated almost all the stocks of the Buffett Partners he owned.
From 1970 to 1974, the U.S. stock market suffered a severe bear market, and the U.S. economy entered a period of "stagflation".
After leaving the partner company, Buffett joined Berkshire Investments. This investment experience earned Buffett the title of "stock god". Since 2000, Buffett has raised funds for the Glorious Foundation through online auctions. The reserve price starts at $50,000 to get a chance to have dinner with Buffett.
During the 42 years from 1965 to 2006, the average annual growth rate of Berkshire¡¯s net assets reached 21.46%, a cumulative increase of 361156%; during the same period, the average annual growth rate of S&P 500 index companies was 10.4%, and the cumulative growth rate was 6,479. %.
Through simple calculations, we can know that if we want to increase assets to 10 times in 10 years, we need an average annual growth rate of 25.89%; if we want to increase assets to 20 times in 20 years, the figure is 16.15%; And Berkshire's average annual growth rate of net assets reached 21.46% in 42 years. In the long battle against S&P, Berkshire's performance has been impressive.
Benjamin Graham's investment strategy is based on company value, not market hotspots; at the same time, he puts great emphasis on the margin of safety. Philip Fisher in the risk tolerance of the degree of tolerance to±È¸ñÀ׶òÄ·higher, he tends to focus on investment in high-quality companies, his portfolio is often not more than 10 stocks, of which 30% of the stock may Accounted for 70%.
In fact, I do not equate stock trading with investing in stocks. The former hopes to obtain income in the unit of time of days, weeks, and months. In this case, investors¡¯ decisions are easily affected by emotions rather than logic, and it is easier to buy stocks through financing transactions or increased leverage. . Borrowing money to invest in stocks is a way of over-betting, which almost determines that investors cannot ignore market fluctuations and make long-term investments. Once a small probability black swan event occurs, investors will have to be forced to sell stocks. The act of being forced to sell stocks for various reasons is often extremely risky.
The latter requires investors to overcome loss aversion, ignore short-term market fluctuations, and measure returns on a time scale of years and ten years. The value of any investment is a discount of the company's future cash flow. However, this method requires investors to have a deeper understanding of the intrinsic value of the target company, which is often difficult for non-professional investors.
In the nine investment cases given, I got the impression that as long as the target company¡¯s products are still being used by the general population, the intrinsic value of the company should not be underestimated because of the bad news. In fact, Buffy special is precisely in those good companies often the most difficult period, large purchase of its shares.
The modern portfolio theory that I learned in the second major of finance, and the value investment theory advocated by Buffett and other Graham followers, seem to be two directions on a fork in the road. However, for non-professional investors, the former tends to be more operational; for professional investors, the latter¡¯s returns are more attractive.
The development of artificial intelligence and the enhancement of computer computing power have made quantitative investment gradually become an investment method that attracts attention. It hopes to seize the moment of market failure through high-frequency trading, and has a very high turnover rate. Accumulate small gains to get an objective overall return. It should be regarded as a third-party investment strategy different from the above two.
" Under normal circumstances, the characteristics of a company determine the characteristics of its shareholders. As the so-called "things are gathered together, people are divided into groups." If the company pursues short-term results or short-term stock price performance, then the shareholders it attracts will also pay attention. Short-term performance. If companies treat shareholders arbitrarily, they will only get random results. The widely respected investor and writer Phil Fisher once compared the company¡¯s strategy of attracting shareholders to a restaurant¡¯s strategy of attracting customers. A restaurant can be positioned. For a specific class of diners-those who like fast food, those who like elegant, those who like oriental food, etc. Through the positioning of the style, a group of like-minded fans are finally obtained. If the restaurant ¡¯s service, menu, and price level strategies are appropriate, then this group Customers will become regular repeat customers. But if the restaurant often changes styles, then these happy and stable customers will disappear. If the restaurant's positioning is vacillating between French cuisine and takeaway chicken, it will definitely confuse repeat customers, and eventually Leave. "
There is no such thing as the best model in this world. Each company has its own style and characteristics. Therefore, they should find the path that suits them best in practice. In fact , no matter which path they choose, they will eventually form a stable support group. This group may be large or small. But there will always be such a support group .
" In 1983, I summarized 13 corporate principles related to owners, and believed that they would help new shareholders understand our management thinking. Since they are called "principles", all 13 of these principles are still valid today. . "
" 1. Although the organizational form is a corporate system, we act as partners. Munger and I regard our shareholders as our partners, and we ourselves are the managing partners (because whether it is good or not Bad, in terms of the proportion, we are all controlling partners.) We do not regard the company itself as the ultimate owner of assets, but we think that the company is just a channel through which we hold assets. Munger and I do not. you do not want to own the stock, only as a piece of paper marked with the price, and the price fluctuations of these papers every day, you might have been for some events on the economic or political anxiety, and intend to sell them at any time. We want you to see yourself as someone who truly owns part of the company¡¯s assets for a long time, just like a farm or apartment owned by you and your family.
For us, we do not want Berkshire¡¯s shareholders to be a group of strangers who are constantly changing. On the contrary, they are our investment partners. They entrust assets to us for management, hoping to get good returns in future life. . There is evidence that most of Berkshire¡¯s shareholders have accepted this concept of long-term cooperation. Even if I exclude the shares I hold, among the large listed companies in the United States, Berkshire¡¯s annual stock turnover rate is quite low. In fact, our company¡¯s shareholders¡¯ treatment of Berkshire is consistent with Berkshire¡¯s treatment of the companies it invests in.
For example, as a shareholder of Coca-Cola and Gillette, Berkshire is a non-managing partner of these two outstanding companies. We measure success by the company's long-term growth, not by monthly stock price changes. In fact, we do not care at all that the stocks of these companies have not been traded or even quoted in the market for several years. If we have good long-term expectations for a stock, short-term price fluctuations are meaningless to us unless someone offers us a very attractive price. "
" 2. Most of the board members of the company regard Berkshire as their own industry, and the main part of their wealth is the value of holding company shares. In other words, we eat our own meals. Munger More than 90% of family assets are placed in Berkshire stocks, while mine is 98% to 99%. In addition, many of my relatives, such as sisters and cousins, also have a large portion of assets held Our company¡¯s stock. Munger and I are very comfortable with putting all our eggs in the same basket, because Berkshire owns a series of diversified outstanding companies. In fact, whether it is owned The controlling rights of these companies are still minority interests. We all believe that Berkshire is a company with very good equity quality and diversity. This is unique to Berkshire.
Munger and I cannot promise you the result. But we can guarantee that as long as you are our partner, at any time, your financial assets and our own assets will fully maintain consistent growth. We have no interest in high salaries, option awards, or other things that make money from you. We just want to make money with our partners in the same proportion. Even when I make a mistake, I hope to get a little comfort from you, because I have suffered the same proportion of losses with you. "
" 3. Our long-term economic goal (the restricted part will be mentioned later) is to maximize the average annual rate of return of Berkshire¡¯s intrinsic value per share. We do not measure economic significance or performance by company size. It is measured by the growth per share. We are sure that the growth rate per share in the future will decline-this is due to the excessive size of assets. But if our growth rate cannot exceed the average growth rate of large American companies, we Will be very disappointed. "
I tend to think that the reason most people in the world cannot succeed is not that they are not smart enough. It may often be that they are not patient enough. Even if we do things the right way, it may take some time to get the right results.
" 4. In order to achieve our goals, our first choice is to directly hold a series of diversified companies, from which we can obtain stable cash flow and continuous capital returns above the market average. Our second choice is through our insurance company , Mainly looking for stocks that are easy to trade in the market, so as to hold shares of some similar companies. The price and availability of stocks, as well as the demand for insurance funds, determine the capital allocation in any given year. In recent years, we have acquired. Some companies. Although there is no action in some years, we hope to acquire more companies in the next ten years and hope to make some large-scale acquisitions. If these acquisitions can reach our past levels, then Berkshire It will get a very good return. It is a challenge for us to generate good ideas as quickly as cash flow.
In this sense, a depressed stock market is a good thing for us. First, it allows us to use lower prices to buy the whole company; second, the market downturn makes our insurers can more easily in a tool on attractive price, buy some shares outstanding enterprises, including We already hold some of the stock companies; third, some outstanding companies, such as Coca-Cola, will continue to buy back their own stock, so they and we can buy stocks at a cheaper price. In short, Berkshire and its long-term holders will benefit from the falling stock market, just as a consumer who needs to buy daily food benefits from falling food prices. So when the market crashes, as usual, don¡¯t worry, don¡¯t be frustrated. This is good news for Berkshire. "
" 5. Due to the limitations of our corporate ownership methods and traditional accounting methods, the profit shown in the consolidated accounting statements cannot truly reflect our actual economic results. Munger and I are both owners and managers, and will actually ignore These data are provided by the consolidated accounting statements. However, we will report to you the income generated by the important enterprises we control and the figures we consider important. These figures, together with other information we provide, will help you to do To make a judgment. Simply put, we try to disclose the really important data and information in the annual report. Munger and I put a lot of energy into understanding the operation of the company and the business environment in which they are located.
For example, is the development of our enterprise smooth sailing or sailing against the current? Munger and I need to know exactly the market conditions and adjust our expectations accordingly. We will also tell you our conclusions. For a long time, most of the companies we invest in have achieved results that exceeded expectations. Sometimes we will also be disappointed, but whether it is happy or bad, we all explain frankly. When we make reports in a non-traditional way, we explain the concepts and explain why they are so important. In other words, we will tell you how we think. From this, you can not only judge the value of Berkshire, but also our management methods and capital allocation. "
December 17, 2024
Brilliant book. Lots of great fundamentals, challenging the status quo, and hilarious analogies. Recommended read, one I plan to re-read at some point
February 16, 2025
Wonderful and insightful read, full of Buffett¡¯s wit and wisdoms. The latest edition includes the most recent letters.
July 24, 2018
Cunningham has done a wonderful job at organizing some of Buffet's most insightful essays over ten topics. With lessons ranging from effective corporate governance to assessing a company's earnings quality, anyone interested in business or investing absolutely must read this book. The book is only 300 pages, but I wouldn't plan it to be a quick read. It's worth setting aside a decent amount of time to really chew on the ideas and philosophies that The Oracle of Omaha generously presents. You'll be glad you did!
April 19, 2017
Insightful and entertaining
As expected, Buffett's writing is insightful, Interesting and inspiring. He has firm views and the record to back it up. The book beautifully arranges topics from various letters into chapters which in my view is a great way to experience Buffett's writing.
As expected, Buffett's writing is insightful, Interesting and inspiring. He has firm views and the record to back it up. The book beautifully arranges topics from various letters into chapters which in my view is a great way to experience Buffett's writing.
March 3, 2021
Interesting book with many good insights on managing large corporations, investing, and corporate accounting. The only downside is that it's extremely repetitive. All major ideas could have been summarized in 5-10 pages. So, save your time and find and read a good summary online.
April 26, 2025
Anything Warren Buffett is obviously going to be a classic. Many things Buffett has pounced numerous times during his shareholder meetings so I won¡¯t repeat here, but I¡¯d add here few things that he didn¡¯t elaborate in length during his shareholder meetings, but did elaborate in his shareholder letters:
Durable Business
Buffett has been constantly asked why he doesn¡¯t invest in Tech (he did, invest in Apple but he believes Apple is a consumer goods company rather than tech. He did, incidentally at one point invest in IBM but later decided that it was a bad idea). Buffett explained further here:
He further explained (italic Buffett¡¯s):
One thing I have to note here is that ¡°tech¡± stock is nothing new. Any observant student of history will quickly note that about a hundred years ago, people were chasing tech stocks too: RCA (radio), AT&T (telecom), GE (appliances) and GM (cars) to name a very few roaring 20s stocks. Many of the companies listed earlier are still alive today (and somewhat well) except one thing: many have filed bankruptcy (or at one point the brink of bankruptcy). All have lost their market dominance either through more competition or regulatory scrutiny. Yet, all through these times, Americans (or the rest of the world for that matter) are still drinking Coca-Cola, chewing Wrigley chewing gums.
The key here is durable. The Durability of technological advancement is very hard to predict. Can GM ever foresee their production getting overtaken by their Japanese competitors (which I shall add, during the roaring 20s Toyota was a textile startup)? Can RCA ever foresee - again - their competitive advantage getting taken by their Japanese competitors and soon radio will gradually fade to the sideline? Even in the case of AT&T, I shall add, they simply replaced the prior market leader Western Union, whose Telegraph at one point was dominating the entire communications industry (when telegraph was first becoming widespread, people back then also believed the information was spreading too quickly - just like today).
Technological moat is very hard to predict - in fact, it¡¯s probably wiser to predict their downfall than their continued endurance. However, consumer preference on simple businesses, like Coke¡¯s syrups or Wrigley¡¯s chewing gums - are much easier to predict. Initially I was going to write more on consumer preference, then I realized that I want other people to invest in magnificent 7 or whatever other momentum stocks they want to invest in. So I will stop here.
Institutional Imperative
Very smart people not just often, but always, will do very stupid things in a group setting. Oliver Burkeman in his book The Antidote: Happiness for People Who Can't Stand Positive Thinking have recounted that when an organization fixated on goal setting, they often do very irrational things because the goals said so, even though the reality has long said otherwise. Buffett in this book also wrote a similar phenomenon:
Business leaders, as well as employees, will always resort to fads of the moment. In fact, when one company - or organization, or any groups of people - got hooked on a fad, the other companies in the same industry - or area - will also join the fad. Even if the fad has no fundamentals whatsoever. Similarly, Buffett recounted this joke:
One of the biggest important lessons for value investors is to be boring and have their eyes on the prize. Value investors¡¯ main job is really just to invest when things are stupidly priced low and sell when things are stupidly priced high. Institutional imperative would greatly aid value investors in their endeavor, as long as the said investor is rational (and stubborn) enough to know that groupthink is more often than not idiotic and have to revert to the mean.
Focus on the Process
Value investing focuses on the process of crafting the craft. So much that, it¡¯s the norm, not the exception that a value investor might not invest in anything for years. There are multiple reasons for that. For one, it¡¯s for safety. Many times doing nothing is far safer than doing something risky over the long run. Buffett does not invest in leverage because he doesn¡¯t even want to take the 1% chance of risk. He wrote:
The irony of the value investing game is that a good value investor shouldn¡¯t want to spend a lot of money. For that due to the game of dividend reinvestment, a value investor will not use most of his proceeds for the rest of his lifetime. It¡¯s akin to buying a cake and being told that you not only can¡¯t eat the cake, nor the icing - all you can is to look at the cake and perhaps lick the spoon that comes with the cake once in a while. The more a value investor is not in it for the money, the more said value investor will make a lot of money.
Owner Earnings
This is probably one of the most important aspects of Buffett investing (other than the ¡°moat¡± idea he constantly pounces on other investors). Yet, the idea of owner earnings is so simple, it can be summed up in just few sentences, wrote Buffett:
One important thing Buffett noted is (c). It¡¯s too simple to think depreciation cost is the replacement cost - no, it isn¡¯t. Those are 2 completely different ideas. Depreciation is merely an accounting term (and to some extent, a taxation term). Buffett noted later on:
Buffett spent a rather lengthy paragraph on (c). Obviously rightfully so. Any security analyst ought to fully analyze what (c) would be for any businesses - that¡¯s how they¡¯re going to make money. And obviously depending on the person, the likely number varies. But the number can¡¯t be omitted and research on it can¡¯t be overlooked.
Buffett spent a lot of time on the shortcomings of GAAP (but he has many times repeated that he doesn't know any better way to make GAAP rules). Owner earnings, however, will be consistent regardless of GAAP rules. An analyst¡¯s first and foremost job is to convert GAAP earnings into a singular formatted owner earnings sheet so he could compare one company to another with the same set of rules (that he set for himself).
Durable Business
Buffett has been constantly asked why he doesn¡¯t invest in Tech (he did, invest in Apple but he believes Apple is a consumer goods company rather than tech. He did, incidentally at one point invest in IBM but later decided that it was a bad idea). Buffett explained further here:
... we favor business and industries unlikely to experience major change. The reason for that is simple: Making either type of purchase, we are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we speak.
He further explained (italic Buffett¡¯s):
... we don¡¯t own stocks of tech companies, even though we share the general view that our society will be transformed by their products and services. Our problem - which we can¡¯t solve by studying up - is that we have no insights into which participants in the tech field possess a truly durable competitive advantage.
One thing I have to note here is that ¡°tech¡± stock is nothing new. Any observant student of history will quickly note that about a hundred years ago, people were chasing tech stocks too: RCA (radio), AT&T (telecom), GE (appliances) and GM (cars) to name a very few roaring 20s stocks. Many of the companies listed earlier are still alive today (and somewhat well) except one thing: many have filed bankruptcy (or at one point the brink of bankruptcy). All have lost their market dominance either through more competition or regulatory scrutiny. Yet, all through these times, Americans (or the rest of the world for that matter) are still drinking Coca-Cola, chewing Wrigley chewing gums.
The key here is durable. The Durability of technological advancement is very hard to predict. Can GM ever foresee their production getting overtaken by their Japanese competitors (which I shall add, during the roaring 20s Toyota was a textile startup)? Can RCA ever foresee - again - their competitive advantage getting taken by their Japanese competitors and soon radio will gradually fade to the sideline? Even in the case of AT&T, I shall add, they simply replaced the prior market leader Western Union, whose Telegraph at one point was dominating the entire communications industry (when telegraph was first becoming widespread, people back then also believed the information was spreading too quickly - just like today).
Technological moat is very hard to predict - in fact, it¡¯s probably wiser to predict their downfall than their continued endurance. However, consumer preference on simple businesses, like Coke¡¯s syrups or Wrigley¡¯s chewing gums - are much easier to predict. Initially I was going to write more on consumer preference, then I realized that I want other people to invest in magnificent 7 or whatever other momentum stocks they want to invest in. So I will stop here.
Institutional Imperative
Very smart people not just often, but always, will do very stupid things in a group setting. Oliver Burkeman in his book The Antidote: Happiness for People Who Can't Stand Positive Thinking have recounted that when an organization fixated on goal setting, they often do very irrational things because the goals said so, even though the reality has long said otherwise. Buffett in this book also wrote a similar phenomenon:
(1) As if governed by Newton's First Law of Motion, an institution will resist any change in its current direction;
(2) Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds;
(3) Any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and
(4) The behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated.
Institutional dynamics, not venality or stupidity, set businesses on these courses, which are too often misguided.
Business leaders, as well as employees, will always resort to fads of the moment. In fact, when one company - or organization, or any groups of people - got hooked on a fad, the other companies in the same industry - or area - will also join the fad. Even if the fad has no fundamentals whatsoever. Similarly, Buffett recounted this joke:
Ben Graham told a story forty years ago that illustrates why investment professionals behave as they do. An oil prospector, moving to his heavenly reward, was met by St. Peter with bad news. ¡°You¡¯re qualified for residence,¡± said St. Peter, ¡°but, as you can see, the compound reserved for oil men is packed. There¡¯s no way to squeeze you in.¡± After thinking a moment, the prospector asked if he might say just four words to the present occupants. That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, ¡°Oil discovered in hell.¡± Immediately, the gate to the compound opened and all of the oil men marched out to head for the nether regions. Impressed, St. Peter invited the prospector to move in and make himself comfortable. The prospector paused. ¡°No,¡± he said, ¡°I think I¡¯ll go along with the rest of the boys. There might be some truth to that rumor after all.
One of the biggest important lessons for value investors is to be boring and have their eyes on the prize. Value investors¡¯ main job is really just to invest when things are stupidly priced low and sell when things are stupidly priced high. Institutional imperative would greatly aid value investors in their endeavor, as long as the said investor is rational (and stubborn) enough to know that groupthink is more often than not idiotic and have to revert to the mean.
Focus on the Process
Value investing focuses on the process of crafting the craft. So much that, it¡¯s the norm, not the exception that a value investor might not invest in anything for years. There are multiple reasons for that. For one, it¡¯s for safety. Many times doing nothing is far safer than doing something risky over the long run. Buffett does not invest in leverage because he doesn¡¯t even want to take the 1% chance of risk. He wrote:
... 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.
The irony of the value investing game is that a good value investor shouldn¡¯t want to spend a lot of money. For that due to the game of dividend reinvestment, a value investor will not use most of his proceeds for the rest of his lifetime. It¡¯s akin to buying a cake and being told that you not only can¡¯t eat the cake, nor the icing - all you can is to look at the cake and perhaps lick the spoon that comes with the cake once in a while. The more a value investor is not in it for the money, the more said value investor will make a lot of money.
Owner Earnings
This is probably one of the most important aspects of Buffett investing (other than the ¡°moat¡± idea he constantly pounces on other investors). Yet, the idea of owner earnings is so simple, it can be summed up in just few sentences, wrote Buffett:
... ¡°owner earnings.¡± These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other on-cash charges¡ less (c) the average annual amount of capitalized expenditures for plant and equipment, etc that the business requires to fully maintain its long-term competitive position and its unit volume.
One important thing Buffett noted is (c). It¡¯s too simple to think depreciation cost is the replacement cost - no, it isn¡¯t. Those are 2 completely different ideas. Depreciation is merely an accounting term (and to some extent, a taxation term). Buffett noted later on:
... what are we paying the accountants for if it is not to deliver us the ¡°truth¡± about our business. But the accountants' job is to record, not evaluate, The evaluation job falls to investors and managers¡ accounting is but an aid to business thinking, never a substitute for it.
Buffett spent a rather lengthy paragraph on (c). Obviously rightfully so. Any security analyst ought to fully analyze what (c) would be for any businesses - that¡¯s how they¡¯re going to make money. And obviously depending on the person, the likely number varies. But the number can¡¯t be omitted and research on it can¡¯t be overlooked.
Buffett spent a lot of time on the shortcomings of GAAP (but he has many times repeated that he doesn't know any better way to make GAAP rules). Owner earnings, however, will be consistent regardless of GAAP rules. An analyst¡¯s first and foremost job is to convert GAAP earnings into a singular formatted owner earnings sheet so he could compare one company to another with the same set of rules (that he set for himself).
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