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The Essays of Warren Buffett: Lessons for Corporate America
Warren Buffett
By
Published: Jan 01, 2008
Category:
Money
A great many people are reading The Snowball: Warren Buffett and the Business of Life. It’s almost 1,000 pages long, and if there’s anything about Warren Buffett that isn’t there, I’d be surprised. I haven’t read it — all those pages! — but at the earliest possible opportunity I’m going to consult the index, in the hope of learning how Buffett maintained a marriage and a mistress simultaneously. Forget investment advice — this is news a guy can use. [Ooops. Just checked. It seems it helps to be the richest man in the world.]
On the other hand….
If you’re a busy, harried or just plain freaked-out investor looking for an edge or a citizen interested in how corporations work (and don’t), a more efficient route to Buffett knowledge is a 276 page book, The Essays of Warren Buffett: Lessons for Corporate America, Second Edition. It’s said to be Buffett’s favorite. Well, why not — he wrote it.
Yes, these are the annual letters that Buffett has written to Berkshire Hathaway shareholders every year since 1977. They’re famed for their wit, candor and wisdom; they read like extended chats with the Oracle of Omaha. You can find them on the Web — go here. On the Web, they’re organized by year; the book is organized by topic. You can’t underline a PDF file; the book is made for marking. And mark I did.
Buffett, as you surely know, is Old School and then some. The best student Ben Graham and David Dodd ever had, he carries on the tradition of caring more about a company’s fundamentals than its bells and whistles. Before investing, he and his partner Charlie Munger look hard at the current management team, because they do not intend to replace it. And they regard almost all their investments as long-term holds — in a good year, they sell almost nothing.
There is much in these pages that is technical and beyond me — though if you stay with discussions of derivatives and stock options and the like, you will not only come away with a rudimentary understanding of these instruments, you will understand why Buffett loathes them.
A less-than-professional investor will find the book’s real value in Buffett’s process — he’s just terrific at explaining why he thinks as he does. And very persuasive he is. Consider:
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 performance 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.
And he tells great stories. Here’s just one, about Ike Friedman, head of a jewelry store chain called Borsheim’s:
"Every two years I’m part of an informal group that gathers to have fun and explore a few subjects. Last September, meeting at Bishop’s Lodge in Santa Fe, we asked Ike, his wife Roz, and his son Alan to come by and educate us on jewels and the jewelry business.
"Ike decided to dazzle the group, so he brought from Omaha about $20 million of particularly fancy merchandise. I was somewhat apprehensive — Bishop’s Lodge is no Fort Knox — and I mentioned my concern to Ike at our opening party the evening before his presentation. Ike took me aside. ‘See that safe?’ he said. ‘This afternoon we changed the combination and now even the hotel management doesn’t know what it is.’ I breathed easier. Ike went on: ‘See those two big fellows with guns on their hips? They’ll be guarding the safe all night.’ I now was ready to rejoin the party. But Ike leaned closer: ‘And besides, Warren," he confided, "the jewels aren’t in the safe.’"
And he’s pithy:
"Nothing sedates rationality like large doses of effortless money."
"A pin lies in wait for every bubble."
"Lethargy bordering on sloth remains the cornerstone of our investment style"
And, above all, he’s useful:
"Predicting rain doesn’t count; building arks does."
If you’re into boat-building for the long term, this book might belong in your toolbox.
To buy “The Essays of Warren Buffett: Lessons for Corporate America” from Amazon.com, click here.
To buy “The Snowball: Warren Buffett and the Business of Life” from Amazon.com, click here.
