Berkshire Hathaway Chairman Warren Buffett is often referred to as the “Sage of Omaha” and is respected for his business insight. But in many ways his reputation for sagacity is simply a by-product of a very basic, company-related project. What Buffett set out to do was to cultivate a certain type of shareholder for Berkshire – one that that understands and appreciates his long-run approach to investing. In the 1988 shareholders’ letter, Buffett makes this explicit when he says that “all of our policies and our communications are designed to attract the business-oriented long-term owner and to filter out possible buyers whose focus is short-term and market-oriented.”
Buffett’s annual letters to Berkshire shareholders serve first and foremost to explain what he is doing, so that the shareholders understand what they are in for. The letters assume that the shareholders are long-term owners, and so much of the letters’ content presumes familiarity with prior letters. In other words, each additional letter is a part of a continuing conversation (or, perhaps, monologue) and each letter can be best appreciated within that larger context.
All of Buffett’s shareholder letters for the years 1977 through 2012 are available on the Berkshire website, and anyone interested in developing a better understanding of Buffett’s approach and investing philosophy — and in seeing how Buffett has addressed his key themes over time — can freely access the letters.
However, most readers would find the prospect of reading 36 years’ worth of shareholder letters to be a forbidding prospect. For starters, the letters are arranged chronologically, not thematically, so even a very determined reader might find it challenging to work through the archive and emerge with a systematic understanding of how Buffett has developed his key themes over time. It can also be daunting to try to find among the various letters the place where Buffett has, for example, mentioned mutual fund directors, or described derivatives as “weapons of financial mass destruction.”
Fortunately for anyone interested in better understand Buffett’s philosophy or in trying to find what he has said on a particular topic, there is a brilliant alternative to simply working through all of the letters. George Washington University Law Professor Lawrence Cunningham has collected and edited Buffett’s letters and other writings into a highly readable and topically indexed volume entitled “The Essays of Warren Buffett: Lessons in Corporate America,” the third edition of which was released earlier this year. Cunningham has done a masterful job distilling Buffett’s writings and organizing them by topic
The latest edition is updated to include excerpts from Buffett’s most recent letters. The book not only facilitates quick location of Buffett’s statements on specific topics, but it also affords an opportunity to see how Buffett has developed his themes over time, which unquestionably provides great insight into Buffett’s investment views.
Because Buffett wants to the Berkshire shareholders to understand the company’s business, one of the principal focuses of Buffett’s annual letters is the topic of how to understand and use financial information. What makes Buffett’s letters so interesting and rewarding to read is how clearly he can explain even relatively complex financial concepts. Buffett also frequently writes with humor – for example, in explaining the need to allow a particular project to unfold , he notes that “No matter how great the talent or effort, some things just take time; you can’t produce a baby in one month by getting nine women pregnant.”
Sometimes in the course of his annual letters, it seems as if Buffett has a penchant for going off on tangents. However, reading Buffett’s essays arranged thematically reveals the way that some of these seemingly tangential asides fit into larger themes. For example, Buffett’s fulminations about stock options fit within the larger context of executive compensation, which in turn is a topic that relates the more basic concern of what makes a firm a well-managed company. Understanding what Buffett thinks makes a company well-managed in turn helps explain Berkshire’s investments – which is the ultimate purpose of his letters.
The letters obviously have far greater value than simply helping Berkshire investors to understand the company. Indeed, Buffett’s dissertations on investing are full of remarkably good and practical advice. (Indeed, even though I am a long-standing Buffett devotee, and, I should add, a Berkshire shareholder as well, I found it worthwhile to re-read the excerpts about investing collected in this book.) For example, Buffett notes that there are three primary causes for investors to experience poor investment results: high costs, portfolio decisions made based on tips and fads rather than basic principles; and a start-and stop approach to the market marked by untimely exits and entries. Buffett concludes by noting that “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
While Cunningham’s book provides a thorough overview of Buffett’s writings, there are omissions. As I also noted in my review of the prior edition of this book, I think the volume would be even more complete were it to include selections from Buffett’s writing over the years about insurance. The insurance business has been the segment on which Buffett has concentrated the most, and his reasons for his focus on this industry convey a lot about his approach to investing and his understanding of how business cycles work. In particular, Buffett’s many comments about “float” and the insurance “cycle” convey a lot about what his overall approach to investing and business.
Another gripe I have is, as I also noted in connection with the prior edition, though this volume omits Buffett’s writings generally about insurance, somehow the book manages to include every single instance where Buffett has said that his company does not carry D&O insurance. I have always thought that these statements are dangerous for mere ordinary mortals. It is fine for Buffett and his billionaire board members to disdain D&O insurance (particularly given that the corporate indemnity that Berkshire provides is more financially sound than any insurance commitment would be), but persons of more ordinary means can ill afford to run the risk of uninsured board service.
But these quibbles are minor. The book itself is quite an accomplishment; it is that rare business book that is both worthwhile and enjoyable to read.
Special thanks to Professor Cunningham for calling my attention to the book.
If you’ve ever wanted to understand and appreciate Warren Buffett’s investment philosophy—and what makes him the brilliant investor that he is—you may want to listen to the Oracle himself, and pick up what he considers his favorite “Buffett book.”1
The Essays of Warren Buffett: Lessons for Corporate America is a collection of excerpts from Buffett’s annual letters to the shareholders of Berkshire Hathaway. For many years, these letters have distilled—and continue to distill—the invaluable insights shaping the great investor’s personal approach, and have, collectively, constituted what is considered to be the definitive source for Buffett’s unique brand of investing.
However, a consistent problem has been trying to parse these lengthy letters to uncover Buffett’s shrewd guidance: virtually every one of them is encumbered with corporate-specific information of little to no importance to the general reader.
That is, until Lawrence A. Cunningham, co-author and compiler of the book, recognized the original format’s limitations, and decided to distill the letters’ most essential principles into a collection easily accessible by nearly everyone.
Cunningham, a Professor of Law at George Mason University, initially compiled “the Essays” as part of a textbook for a class he previously taught. His efforts culminated in this book, which still remains, in its third edition, a core part of every serious investor’s reading list.
The book, which is structured thematically, underscores the owner-related business principles that lie at the heart of Buffett’s teachings. These encompass a wide array of topics, including corporate governance, accounting, and investing, among others. Each chapter of the book explores these essays in-depth; and while Cunningham’s own insights are practically non-existent (for rather obvious reasons), his overall contribution to our understanding of Buffett’s investment success should not be underestimated.
From a broad standpoint, it’s fair to say that Cunningham has succeeded in delivering a work of unique value that would otherwise be infeasible to accomplish on one’s own (if you don’t believe me, try filtering through over 30 years of reports, each over 100 pages long). But readers of Buffet’s seemingly endless charm, sagacity, and wit, can look to more than just this book’s convenience for reasons to rejoice.
In particular, Cunningham has furnished a fine framework for how to analyze these essays—what can seem like mostly scattered topics with no central focus are actually sewn together quite carefully by comprehensive and coherent themes. Cunningham has also prefaced Buffett’s discussions with a thorough introduction of his own; which, if not juxtaposed next to the writings of the world’s greatest investor, may, in fact, be deemed as one of the most succinct summaries ever written about one man’s investment philosophy.
Some of my favorite topics included Buffett’s take on the economy and his lucid explanation of the U.S. international trade deficit. I also enjoyed his unconventional approach toward modern accounting methods, and the often brutal honesty that dovetailed his discourse. Granted, this may have more to do with Buffett than Cunningham; but, it’s refreshing to discover that the latter hand-picked such selections, which are as varied as they are instructive.
As for the criticisms of this book, few exist, possibly due to the scant original content supplied by the author; however, that does not make the work immune from some shortcomings. One of them is its implicit assumption that the content can survive independent of time. Attentive readers will frequently encounter issues relevant long ago, which are no longer the case. Another weakness has to do with the essays’ lack of chronological order. What would have been most effective in illustrating Buffett’s most compelling arguments would have been to see how those arguments progressed naturally over time, reflecting his evolution as an investor, rather than witnessing them arbitrarily leaping back and forth between disparate, and often discontinuous, points in time.
Nevertheless, these are hardly reasons for avoiding this collection. On the simple fact alone of saving much time, energy, and effort, readers should snatch up this volume with alacrity. It’s different than the scores of other Buffett-related books that attempt to summarize his wisdom, but dreadfully overreach; there’s little summary here. Cunningham is the underrated messenger for someone whose message definitely needs to be heard.
It goes without saying, then, that this book deserves my full recommendation. Personally, it has solidified my respect and awe for an investor who’s frequently quoted, but not as equally understood. Thankfully, Cunningham’s presentation is as clear and honest as the great Oracle himself, and any reader, regardless of their investment involvement, will find tremendous inspiration throughout the lessons that saturate this work.
Final Rating: 4.5 Stars
Disclosure: Neither the author nor MoneyGeek receives any compensation for promoting this book
Del Jones, Book Titles Like to Play the Warren Buffett Name Game (USA Today, 2008).
Najim Mostamand is an investment freelance writer, helping individuals and institutions craft creative content for their investment platforms. Before starting his own writing business, Najim graduated from the University of California, Irvine, studied Creative Writing at Oxford University and served as a Financial Advisor at Morgan Stanley, while also completing levels I and II of the CFA Program. Now, he is engaging audiences with a new style of writing, one he calls “a fusion of Wall Street’s no-nonsense, analytical rhetoric and Main Street’s creatively-personal self-expression.”