The Essays of Warren Buffett (8th Edition)
Warren Buffett; Edited by Lawrence A. Cunningham
Published Independently (2023)
NOTE: For reasons perhaps known only to Amazon, reviews of all three prior editions of Buffett’s essays/letters are also included with reviews of a “new (Fourth) edition”! Therefore, I have no choice but to add it to my reviews of earlier editions. Here we go again.
This edition has been designated as the EIGHTH, although the previous one was called the FIFTH (?), to correct for the fact that the two early editions were published without corresponding ordinal designations.
Since 1995, Lawrence Cunningham has updated each edition. The remarks that immediately follow comprise my review of the latest edition that has just been published.
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These essays can be viewed in several different ways but I think they achieve several different but [begin italics] interdependent [end itaics} objectives:
o They are yearly “state of our company” updates provided by Warren Buffett at annual meetings of Berkshire Hathaway shareholders
o They affirm (or reaffirm business principles and human values to which Buffett remains steadfastly committed.
o They celebrate the company’s achievements since his last update.
o They review errors of judgment and miscalculations he duly acknowledges that he deems noteworthy.
o When appropriate, they provide reassurances (e.g. his health and commitment.
o Together, they provide business knowledge and wisdom of incalculable value to those now preparing for a career in business or are now engaged in one. The style and substance are incomparable. So is Cunningham in terms of his consummate skills as an editor.
The essays are clustered in a traditional system of classification:
I. GOVERNANCE AND MANAGEMENT (10 essays)
II. INVESTING (8)
III. COMMON STOCK (7)
IV. ALTERNATIVES (8)
V. ACQUISITIONS (6)
VI. VALUATION (6)
VII. ACCOUNTING (7)
VIII. TAXATION (3)
IX. AMERICAN HISTORY (3)
X. CODA (4)
Of special interest to me is Buffett’s response — in the last essay — to a concern that many Berkshire shareholders have had in recent years: “What will happen if he begins to fade and, if so, how will the board handle it?” His reassurance is that the board will — as always — “do what’s right for the shareholders.”
Buffett has asserted that”If I were to pick one book to read, this would be the one.” That is high praise indeed, given the fact that — for decades — he has devoted at least 30% of his time and often more to reading.
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There are several people I wish to thank for increasing substantially my understanding and appreciation of fundamental business principles. I am not – and never have been – an investor in stocks and bonds but have learned so much of value from the material Benjamin Graham provides in The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition). Warren Buffet is next, one of Graham’s students and later an associate. I have read all four editions of his essays (i.e. his letters to Berkshire-Hathaway shareholders), edited by Lawrence Cunningham whose introductions are exceptionally informative as well as eloquent. I am grateful to Carol Loomis for her entertaining as well as insightful book, Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2013. Tho there sources I now add Jeremy Miller’s Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor.
According to Cunningham in his Preface to the FOURTH Edition, “The year 2015 marks the fiftieth anniversary of Berkshire Hathaway under Warren Buffet’s leadership, a milestone worth commemorating…As in previous editions of The Essays, this one retain the architecture and philosophy of the original edition but adds selections from Warren’s most recent shareholder letters, including his fiftieth anniversary retrospective [please see pages 287-299]. All the letters are woven together into a fabric that reads as a complete and coherent narrative of a sound business and investment philosophy.”
Ben Graham held that price is what you pay and value is what you get. These two issues are rarely identical, but most people who invest rarely notice any difference. With regard his influence, Cunningham observes, “One of Graham’s most profound contributions is a character who lives on Wall Street, Mr. Market. He is your hypothetical business partner who is daily willing to buy your interest in a business or sell you his at prevailing market prices…Another leading prudential legacy from Graham is his margin-of-safety principle. This principle holds that one should not make an investment in a security unless there is sufficient basis for believing that the price being paid is substantially lower than the value being delivered…The circle of competence is the third leg of Graham/Buffett stool of intelligent investing, along with Mr. Market and the margin of safety. This commonsense rule instructs investors to consider investments only concerning the businesses they are capable of understanding with a modicum of effort.”
Somehow Lawrence achieves both convergence and coherence with several dozen of Buffett’s essays, written within a 35-year timeframe (1979-2014). The material does indeed read as “a complete and coherent narrative of a sound business and investment philosophy.” The eleven sections range from Corporate Governance to Berkshire at Fifty and Beyond. Over the years, I have accumulated more than one hundred Warren Buffett quotations and have selected these as indicative of the thrust and flavor of his perspectives.
o The best thing I did was to choose the right heroes.
o What we learn from history is that people don’t learn from history
o Someone is sitting in the shade today because someone planted a tree a long time ago.
o Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
o Chains of habit are too light to be felt until they are too heavy to be broken.
o It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
o Only when the tide goes out do you discover who’s been swimming naked.
o It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
o Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.
o Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.
With regard to other sources, I also highly recommend these: Alice Schroeder’s The Snowball: Warren Buffett and the Business of Life, Roger Lowenstein’s Buffett: The Making of an American Capitalist, and Tren Griffin’s Charlie Munger: The Complete Investor.
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This is the Third Edition of an ongoing process by which Warren Buffett presents a “chairman’s letter” (i.e. progress report with his unique reflections) to Berkshire Hathaway shareholders at their annual meeting. Lawrence A. Cunningham edited each of the three editions, with the latest including Buffett’s annual letters to Berkshire shareholders since 2008, the date of the prior edition. Other new material includes:
o The financial crisis and its continuing implications for investors, managers and society;
o The housing bubble at the bottom of that crisis
o The debt and derivatives excesses that fueled the crisis and how to deal with them
o Controlling risk and protecting reputation in corporate governance
o Berkshire’s acquisition and operation of Burlington Northern Santa Fe
o The role of oversight in heavily regulated industries
o Investment possibilities today
o Weaknesses of popular option valuation models
Some other material has been rearranged to deepen the themes and lessons that the collection has always produced:
o Buffett’s “owner-related business principles” are in the prologue as a separate subject
o Valuation and accounting topics are spread over four instead of two sections and reordered to sharpen their payoff.
According to Cunningham, “Those who are familiar with The Essays will notice that we have made the cover snappier than has been our custom. (Thanks for the cover design to Tim Colton, of Carolina Academic Press, which will continue to partner with me in the distribution of the book.) The main reason: the book’s traditional covers could be seen well in physical form but pictures of them, shown on the internet, could not. Since most sales are done over the Internet these days, the cover needed a face-lift.
“The adage remains, however, that one should not judge a book by its cover. This book should continue to be judged on its content and organization, in which a distinctive investment and business philosophy is coherently articulated. Thanks to the many fans of the book, first published in 1997. I hope you enjoy the updated edition. And I hope to see many of you in Omaha for the Berkshire shareholders’ meeting in May.”
With regard to the Third Edition’s subtitle, “Lessons for Corporate America,” my own opinion is that almost all of the lessons can be of substantial value to leaders in any organization, whatever its size and nature may be. Among Buffett’s most important and yet least appreciated talents is his ability to establish a direct and personal rapport with each person he meets or who reads any of his letters as well as any of his articles such as those included in Carol Loomis’ superb book, Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2012.
I watched three segments of Buffett and Loomis’ appearances on The Charlie Rose Show and their informal but gracious manner made me feel as if I had been a personal friend of theirs for many years. (I wish I had purchased Berkshire stock 50 years ago!) Credit Cunningham with brilliant editing as well as his own contributions to what continues to be a “moveable feast” of information, insights, wisdom, and wit. Once again, his Introduction (all by itself) is worth much more than the cost of the book as he again discusses with rigor and eloquence what he considers to be key points about Buffett and his leadership of Berkshire Hathaway in recent years.