The Essays of Warren Buffett: Lessons for Corporate America

If you are not familiar with Warren Buffett he is the greatest investor of all time. Mentored by Benjamin Graham (The father of value investing" he went on to produce over an annual 20% return in his stock portfolio for 40 years. As Chairman of Berkshire Hathaway he also brought a failing textile business that was trading at $4 a share in 1965 to the highest priced stock ever at over $100,000 a share in 2007.If you are are familiar with Mr. Buffett then let me tell you I am also a huge fan. This book is the one he chose out of a stack of books during a special that featured him on CNBC during the holidays "The billionaire next door".He said this one out of the many written about him capture his thoughts and investment style. Mr. Buffet's comments about this book were "First class. A great job at collating our philosophy". Can you get a better review than that?I was not disappointed, this is the book to by if you want to study and understand Warren Buffett. The author has done an excellent job arranging the essays to the shareholders in a format that will enable us all to learn the key principles in investing and managing followed by Buffett.I always wished that Mr. Buffett would have written a book, this is the closest we may ever have. Buy it and enjoy, it is packed with profound yet simple wisdom. Here are a few examples:Virtually all his $40 billion net worth is in Berkshire stock.(99% of it) So much for diversification, he believes in putting all your eggs in one basket, then watching that basket.Margin of safety is critical in investing, only buy excellent businesses at fair prices.Only invest in businesses you understand. Your circle of competence.He does not believe "value investing" is the right term for him. He prefers "focused" or "intelligent" investing.He believes in buying excellent businesses, and then holding them, forever if possible.When investing he believes in buying true value not hopes and dreams.Get out a high lighter and prepare to learn. It is packed with great quotes and lessons.

As CEOs, we often find it challenging to get good, transparent advice from more experienced and wise individuals. Warren Buffett shares his exceptional execution strategies and his failings, as well as those of others. We executives focus so much on company politics and customer needs that we can easily forget that we ultimately work for our shareholders. There is something to learn in every section of his book.

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.