113 of 115 people found the following review helpful
This is my review of the THIRD EDITION, dated March 18, 2013. If you wish to read my review of the SECOND EDITION, it follows.
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.
* * *
Review of Second Edition:
Over the years, I have read several of the essays that Warren Buffett included in Berkshire Hathaway's annual reports. After reading two biographies of him (Alice Schroeder's The Snowball: Warren Buffett and the Business of Life and Roger Lowenstein's Buffett: The Making of an American Capitalist), I purchased a copy of this volume and began to work my way through the contents selected, arranged, and introduced by Lawrence A. Cunningham. I began with Cunningham's Introduction (all by itself, worth much more than the cost of the book) in which he reviews what he considers to be key points about Buffett and his leadership of Berkshire Hathaway.
For example, "The CEOs of Berkshire's various operating companies enjoy a unique position in corporate America. They are given a simple set of commands: to run their business as if (1) they are its sole owner, (2) it is the only asset they hold, and (3) they can never sell or merge it for a hundred years." With regard to investment thinking, "one must guard against what Buffett calls the `institutional imperative.' It is a pervasive force in which institutional dynamics produce resistance to change, absorption of available corporate funds, and reflexive approval of suboptimal CEO strategies by subordinates. Contrary to what is often taught in business and law schools, this powerful force often interferes with rational business decision-making. The ultimate result of the institutional imperative is a follow-the-pack mentality producing industry imitators, rather than industry leaders - what Buffett calls a lemming-like approach to business."
Cunningham organizes the essays within seven sections between Buffett's Prologue (Pages 27-28) and his Epilogue (Pages 273-282):
I Corporate Governance
II Corporate Finance and Investing
III Alternatives to Common Stock
IV Common Stock
V Mergers and Acquisitions
VI Accounting and Valuation
VII Accounting Policy and Tax Matters
As Buffett explains in his Prologue, members of Berkshire Hathaway's shareholder group receive communications directly "from the fellow you are paying to run the business. Your Chairman has a firm belief that owners are entitled to hear directly from the CEO as to what is going on and how he evaluates the business, currently and prospectively. You should demand that in a private company; you should expect no less in a public company. A once-a-year report of stewardship should not be turned over to a staff specialist or public relations consultant who is unlikely to be in a position to talk frankly on a manager-to-owner basis."
Those who share my own keen interest in Warren Buffett's leadership and management principles will learn a great deal from a careful reading of these essays. They are quite literally "from the horse's mouth." The substantial value-added benefits include the fact that Buffett thinks and writes so clearly, duly acknowledges bad decisions and personal regrets (yes, there were several), explains what he learned from them, and meanwhile reveals a playful (albeit dry) sense of humor. He also includes a number of personal observations about America, especially about its culture and economy, at various times throughout the last 25-30 years. The two aforementioned biographies indicate that throughout his life, Buffett thoroughly enjoyed each and every opportunity to increase others' understanding of sound business principles that include but are by no means limited to investments.
Readers who are not among Berkshire Hathaway's shareholders will especially appreciate the fact that, in each of these essays, Buffett establishes and then sustains a direct and personal rapport. The tone is conversational and, better yet, inclusive. He never talks down to his reader. He never "dumbs down" the material. Inevitably and appropriately, he cites Berkshire Hathaway situations when illustrating certain key points but, really, most of the material in this book will have wide and deep general interest to executives as well as to shareholders who otherwise have no association with either Buffett or his company. I highly recommend this book without hesitation or qualification.
311 of 328 people found the following review helpful
on June 10, 2003
In the first place, Lawrence Cunningham, whose school it turns out is just a couple blocks from me here in Manhattan, has done a very fine public service in collecting these essays. If you've ever tried to wade through Buffet's annual letters yourself, you know that there are long bits of detailed financial discussions interspersed with the gems of wisdom, aphorisms, and humor that the amateur Buffet-ette is more apt to be seeking. So his collection and coalition, which is well-chosen, well-ordered, and well-edited is a treat for any Buffet fan looking for an accessible volume of the man's work.
Buffet has the strangest of powers in that he comes across as a homespun billionaire. Now that's different from just being homespun, the way Sam Walton was, or just being a billionaire, like Bill Gates. Buffet flaunts his wealth and his professional love of money, all the while expressing essential, eternal truths in simple, earthy phrases. When I saw Buffet speak at business school he tapped on the microphone to test it and said "testing, testing, one-million, two-million, three-million." It is that natural genius for combining wealth, truth and comedy that is most vividly on display in "The Essays of Warren Buffet.".
Of course, these timeless, simple truths are all known - the way we know that "eat less, exercise more" is how to lose weight. And yet, and yet, it takes Buffet to remind us to "think like an owner"; invest only in management that you "like, trust, and admire"; and buy pieces of business (stocks) when it costs less than the intrinsic value.
There are the excellent statements of managerial accountability, business valuation, and capital structure. Helpful warnings on accounting shenanigans, trading costs, and paying heed to Mr. Market. For clarity, brevity, wit, truth, and learning, there is no business writer in the 20th century that compares with Warren Buffet.
Buffet's sayings are irreplaceable (and I am not cherry picking here, but merely highlighting a half-dozen of the hundreds of bon mots in this book):
"On the other hand, working with people who cause your stomach to churn seems much like marrying for money - probably a bad idea under any circumstances, but absolute madness if you are already rich."
"The speed at which a business success is recognized, furthermore, is not that important as long as the company's intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price."
"Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds... any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops"
In regard to acquisitions, which usually fail to earn the cost of capital: "The managers at fault periodically report on the lesson they have learned from the latest disappointment. They then usually seek out future lessons."
"One of the ironies of the stock market is the emphasis on activity. Brokers, using terms such as `marketability' and `liquidity," sing the praises of companies with high share turnover... but investors should understand that what is good for the croupier is not good for the customer. A hyperactive stock market is the pick pocket of enterprise."
On acquiring bad companies for cheap prices: "In my early days as a manager I, too, dated a few toads. They were cheap dates - I've never been much of a sport - but my results matched those of acquirers who courted higher-price toads. I kissed and they croaked."
Buffet is approaching literature here - the nuance involved, and the delicious counter-pointing of toads, dates, sport are pitch-perfect. The payoff - "I kissed and they croaked" is as fine a line of found poetry as exists.
Buffet, having studied at the feet of the master of investment literature for the first half of the 20th century, has ascended to become the master of investment literature, unqualified. This is a book that will please Buffet-maniacs, investors, finance newbies, and anybody with an interest in the articulated evolution of managerial capitalism that has separated the finance and capital allocation specialties from the operational and day-to-day specializations.
In closing, it's appropriate to quote America's great investing wag quoting America's greatest political wag - the subject is, as always with Buffet, simple maths and simple truths:
"Managers thinking about accounting issues should never forget one of Abraham Lincoln's favorite riddles: `How many legs does a dog have if you call his tail a leg?' The answer: `Four, because calling a tail a leg does not make it a leg'."
Enjoy this book.
77 of 81 people found the following review helpful
on April 22, 1999
The book is well-organized, but it is just a reorganized version of Buffett's original words. I assume that readers purchased the book so that everything would be "laid out" for them. But as Charlie Munger, Berkshire's vice-chairman, said about common stock investments at a shareholders' meeting, "If it were that easy, everyone would be rich." One would be better off obtaining copies of the actual letters to shareholders. They are available on Berkshire Hathaway's website, and a compendium of letters to shareholders from 1977 to 1995 is available for purchase directly from the company for a reasonable price. I would recommend starting with the 1977 letter and proceeding in a chronological fashion. This would add context - a backdrop - for Buffett's investment philosophy. For instance, one would notice his evolution, as his emphasis shifted from mostly statistical undervaluation to favorable qualitative factors. Although he still seeks a "margin of safety" in his investment purchases, he is now more in tune with Philip Fisher than with Benjamin Graham. (His evolution was helped by Charlie Munger, who recognized, earlier in his investment career, the importance of subjective factors which are not readily quantifiable.) The book would be useful as a quick reference guide, but for the investment fanatic - and any truly successful investor is - the Berkshire Hathaway Letters to Shareholders are priceless.
117 of 126 people found the following review helpful
I cannot imagine that Mr. Warren Buffet is not on any investor's top 10 list of the greatest investors since there were markets in this Country. I would also suggest that a dispassionate appraisal of his performance argues quite eloquently that he is the best to have ever amassed his fortune, and that of his shareholders on Wall Street.
Thanks to the efforts of Mr. Lawrence A. Cunningham readers have access to essays that previously were available primarily to shareholders, and which are organized in this book thematically for the first time. Annual reports are generally easy to come by, however as I write, 1 Share Of Berkshire Hathaway "A" requires $59,900.00, and the "Baby Berkshires" $1,966.00 per share. Many are quick to respond the price is so high as Mr. Buffet has not split the stock, ever. But what is more important is why he has never done this. This book explains his theory on this matter, and dozens of others.
Mr. Buffet has his critics, they range from the idiotic, "he's lucky", "his success allows him to make attractive deals", and to those who feel he missed the money that was made in tech stocks. As for the luck theory, who else has earned 23.8% compounded annually for over 25 years? Winning the lottery is probably more likely an event. As to the attractive deals his wealth is said to facilitate, I guess the answer is, is the questioner serious? He made what he has, his reputation allowed him to have the Federal Government allow Solomon Brothers to continue participating in the bond market based on one thing, his word! This is a man who has rescinded very successful trades because news arrived within days of his buying that could have given the appearance of his having had information others were not privy to.
This book has more useful information and ideas that have been proven over decades than any 10 hot Business Books of the moment. Mr. Buffet has had off years, but he has never gone bust.
One of my favorite stories is when he was hanging out with friends as a kid, his pals were collecting bottles for the deposit. He was collecting bottle caps, sorting them, and determining who was drinking what brand! He clearly was put amongst us for a reason.
On a time invested basis there is no better or more rewarding reading than these essays. No one can match what he has accomplished, why would someone not wish to hear what he has to say on dozens of topics?
43 of 44 people found the following review helpful
on August 5, 1998
At the 1998 Berkshire annual meeting, Buffett himself credited this book by saying it is better than all the other biographies and the best business investment book to read. Who could ignore such a high recommendation?
Having read several other books claiming to have captured and outlined Buffett's investment wizardry, I am excited to report that finally some one has done so beautifully. Cunningham distills and presents the Berkshire philosophy in a coherent and organized manner that puts it in a whole new light. This book is an excellent investment guidance source for everyone, from the novice to the more seasoned investor. You will find yourself dog-earing pages and underlining like crazy. Absolutely brilliant!
37 of 38 people found the following review helpful
on August 15, 2005
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
51 of 55 people found the following review helpful
on July 21, 2008
Without a doubt, The Essays of Warren Buffett : Lessons for Corporate America was a definitive and clear insight into the mind of a genius - just see my review for this first edition. The Second Edition, however, adds another dimension reflective of today's business and investing environment.
- addition of "Audit Committees" section. As usual, a frank and down-to-earth assessment of just how honest an "audit committee" can be (it can't) - great addition, brings investors back to reality for believing these jokers.
Corporate Finance and Investing
- addition of "Debt" section, and in particular how Berkshire views debt, a section just about every business owner (home-owner too!) and profit/loss manager should read.
Alternatives to Common Stock:
- addition of "Foreign Currencies and Equities" section. Frankly, the decline of the dollar has made this topic of relevance to all investors - but Berkshire still loves America's "dynamism and resiliency." Yet another great, topical addition.
- addition of "derivatives" section. Hedge funds have made this a household term, yet don't be fooled. Not surprisingly, Charlie Munger and Warren call them "time bombs."
Accounting and Valuation:
- addition of "Accounting for Mergers" section. Here, Charlie and Warren put forth their idea for dealing with accounting for acquisitions, whether it be "purchase" or "pooling."
- addition of "Some Insurance History and Accounting" section. True to its name, Warren guides the reader from the birth of Lloyd's, through the asbestos crisis to Berkshire issuing a massive retroactive reinsurance contract. If you invest in Berkshire, you'll want to read this section too.
In all, this updated version provides investors with a timely resource for investing in today's world. Additionally, all managers (and professionals who want to grow) should read this book because here, Cunningham neatly organizes selections from Warren Buffet's annual essays and guides them through a tough-minded, down-to-earth and common sensical manual for reference in today's (sometimes exceedingly) complex business environment.
For these reasons, this reviewer highly recommends "The Essays of Warren Buffett: Lessons for Corporate America" - Second Edition.
34 of 36 people found the following review helpful
on August 8, 2002
This collection of essays by Warren E. Buffett, compiled by Lawrence A. Cunningham, is an excellent introduction to basic investment concepts that have proven successful for the 'Oracle of Omaha' and his loyal following. The reader will want to supplement these papers periodically with more timely updates from the annual letter Buffett writes to the shareholders of Berkshire Hathaway. Buffett's ideas have been widely reported so there are no surprises here. To be sure, Buffett is consistent. He pokes fun at the 'efficient market' school which confuses stock price with stock value. Early on we hear him calling for the expensing of stock options and urging more transparent, segmented financial reporting by large companies. For Buffett mechanically rebalancing portfolios to achieve diversification, back in fashion, may miss the point of holding-on to your best investments for superior returns. Distinguishing between Growth and Value styles of investing is unnecessary and misleading. If you have ever wondered why Berkshire Hathaway does not pay a dividend or why it doesn't split its high stock price, Buffett gives his reasoned explanations. It was Warren Buffett's fundamental school mentor Benjamin Graham who introduced the allegory of Mr. Market and the concept of 'margin of safety' both of which get satisfactory attention here. Most importantly, I think, Buffett reminds us continually that as stock market investors we are buying for the long-term parts of real businesses that produce measurable cash flows as evidence of their intrinsic value. Real businesses that produce real value are run by dedicated, competent leaders who know how to allocate capital. Hanging-on to such deceptively simple principles can get an investor through some very rough market cycles. Reading this collection is a lot like listening to the conversation of an avuncular and very experienced elder who with great patience, common sense, and wit explains what principles have guided his (investment) life. Indeed uncommon sense and integrity are hallmarks of Warren Buffett's writings. Humor too. In what other serious investment study will you get quotations from such luminaries as Woody Allen, Mae West, and Yogi Berra. Buffett loves aphorisms to make his point. I challenge anyone reading this book not to underline or commit to memory some of these gems. For a general introduction to the fundamental school view of investing this collection is required reading.
29 of 30 people found the following review helpful
on May 3, 2001
This book is a great, well organized compilation of Mr. Buffett's famous "Letters to Shareholders" which appear in the annual reports of Berkshire Hathaway.
It has been recently updated to include the letters to shareholders written since the book was first released in 1996, a new introduction has been written, and a new, tougher, blue cover has been added. Mr. Buffett advised shareholders at the 1999 & 2000 Berkshire Hathaway annual meeting if he had to pick a single book describing his methods, this would be the one. It is a great tool to use when trying to compile Mr. Buffett's comments on a particular subject since it is organized by subjects he has discussed in his letters over the years. Trying to find all of his comments on a particular subject throughout the annual reports is a time consuming task when you have to look through many years worth of annual reports. Mr. Cunningham has made this task much simpler with this book.
23 of 24 people found the following review helpful
on June 1, 1999
Larry Cunningham is one of a handful of Warren Buffett aficionados who truly grasps what Buffett is all about. Too much attention has been paid to Warren the stock picker, and very little to Warren the business analyst and corporate manager. To be a successful investor, you first have to be a successful judge of businesses, which Buffett has been exceptional at.
That is the key legacy of Larry Cunningham's Essays. He has artfully stitched together Buffett's musings over the past 20 years and created an extraordinary primer that both individual investors and corporate managers will find extremely useful. I will resort to this book time and again for illumination and refreshment.