The Essays of Warren Buffett: Lessons for Corporate America Paperback – November 1, 2015

The Essays of Warren Buffett is a collection of writings from Buffett to shareholders of Berkshire Hathaway over the last decades. There is a new edition out which might contain updated material, but this edition covers writings from the 80s till the first internet bubble. Lawrence Cunningham chooses a variety of topics and associated writings to give the reader an impression of how Warren Buffett has seen the market, investing and the variety of agency issues associated with making decisions in financial markets. The book is filled with intuitive insight and will always be relevant and all the more useful in periods when pricing and economics become disassociated.The Essays of Warren Buffett touches on many topics. The topics included are governance investing, alternatives, common stock, acquisitions, valuation, accounting, tax and some history. Buffett starts by discussing alignment of interest and describes how him and Charlie Mungers financial fate are squarely determined by the absolute performance of Berkshire stock and how they are first and foremost shareholders. They then discuss governance structures that they approve of and characterize a bunch of structures which are weak. Though the writing is out of date with the monstrosity of packages awarded to executives today for no measurable improvement to the businesses they run, the spirit of their concerns remains more valid than ever. Boards of directors should be forced to read this to be reminded of their role. The major topic is of course investing. The authors describe a host of opportunities that they consider from long term investing identification, how to deal with the vagaries of the market and how to think about building portfolios. At the end of the day the messages are clear, one should be disciplined, use the markets emotional waves for better entry prices. Buying great businesses at fair prices is better than buying fair businesses at great prices and so on. There are many gems in the writing. There is a collection of writings on alternatives to common stock investing, including junk bonds and pref shares and convertibles. This is somewhat dated as finance has gone off the deep end embracing financial engineering without economic purpose. Nonetheless a framework for thinking about alterative payoff profiles remains insightful, though less relevant than the principles of investment chapter. The authors then discuss common stocks and the associated risks and rewards. It would be have been fascinating to have old valuation based investors transported into 2020 where stock splits elevated stocks by massive amounts on the biggest of companies (the consequence of how efficient markets are no doubt... I would love to hear Fama rationalize that phenomenon as efficient). The chapter on acquisitions remains relevant and discuss agency problems that remain issues today. They also discuss buybacks reminding the reader what a rational buyback policy should be based on rather than some of the behaviors undertaken today by management incentivized to raise the stock price above their management option strikes. The chapters on valuation and accounting are fantastic. They remind the reader what common sense but simultaneously deep perspectives are on thinking about valuation and thinking about how to think about accounting and real earnings power of businesses. These remain relevant for every market and give a framework for considering intangibles, the foundation of many modern tech giants.At the time of this review, markets have gone into full bubble mode in many pockets. One only has to read a book like this to be reminded that, this isn't the first time and to participate rather than tread with caution will lead to regret. The writings give a timeless grounding to the thoughtful investor and this will remain full of gems for decades to come.

For all of you investors who want to invest like Warren Buffett - that is, successfully - this is what you really want to read. There are a large and growing number of books out there that will claim to make you think/act/be like Buffett; here you can actually read his thoughts. As WB has often said, go to the source material (not the analyst reports, etc.) to make your judgments, and that is true in studying Buffett as well.On top of that, Buffett is a much better writer than most of his biographers. The editor of this compilation has done a good job of organizing Buffett's writings into themes with a light hand. You get a good idea of how Warren thinks.Buffett has an amazing way of penetrating the thick coating of B.S. that covers most of what passes for investment theory nowadays. He ruthlessly applies Ockham's Razor to cut things down to their essential truths; two of the most basic are that owning stock in a company is truly owning part of a business and that the future is full of uncertainty. Obvious, right? But, when you really absorb these concepts the answers to the questions of when and why you should buy a stock become much clearer. I won't attempt to boil down any more of his thoughts - you can find plenty of that elsewhere. Suffice it to say that, although I am a Chartered Financial Analyst and have advised others regarding investments for over 20 years, when reading this book I had many "V-8 moments" - where you want to slap yourself on the forehead and say "of course!"While I first heard of WB many years ago (before he was cool), this book was my first significant exposure to his writings. He writes well, with wit and wisdom, and makes fairly complex subjects amazingly accessible to the uninitiated. I wish I had read this book much earlier, but I'm not sure if I would have been mature enough to put much of it into action anyway.One thing to keep in mind when you hear about all the easy ways to make money from following charts, or are tempted to buy the latest idea emanating from your brother-in-law - or a talking head on CNBC: what Buffett does REALLY works. To put it crudely, it isn't an accident that he is, per Forbes, the 2nd richest man in the world - out of over 6 billion people. (I haven't seen any chartists make the list yet.) If you are really a serious investor, why would you NOT want to read what he has to say?However, I can tell you why you probably won't actually put into practice most of what he says - it's no fun! It's no fun (for most) reading 10-Ks and 10-Qs. It's no fun keeping your own council and avoiding the crowd. Also, why wait, perhaps for years, for the "fat pitch" of a great company at a great price when you can get your kicks day-trading? After all, if most people were willing to wait until the odds were truly in their favor before they risked their money, lotteries would disappear and Las Vegas would be a dusty little village. Even those who acknowledge Warren's achievements and study his words will find putting his seemingly obvious concepts into action surprisingly difficult.But that is how you actually earn the money.Finally, here's a story, retold by Buffett, that illustrates the herd mentality you must overcome to succeed. I quote:Ben Graham told a story 40 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."-Warren Buffett, Berkshire Hathaway Letter to Shareholders, 1985