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The Essays of Warren Buffett (Fourth Edition): A book review by Bob Morris

Buffett Essays 4The Essays of Warren Buffett: Lessons for Corporate America, Fourth Edition
Warren Buffett and Lawrence A. Cunningham (Editor)
Carolina Academic Press (2015)

The best of four anthologies of wit and wisdom from “the world’s greatest investor”

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), brilliantly 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 these sources I add Jeremy Miller’s recently published Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor.

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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 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.

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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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