Reflects philosophy and strategy of W. Buffett and C. Munger. Useful.

Warren Buffett and Charlie Munger are geniuses. Inspired by Ben Graham.

A well organized book of excerpts from Buffet's annual letters to Berkshire's shareholders and various other writings, very inspiring and as always told in Buffet's easy-to-read and humourous way.

It should be a mandatory read for anyone involved with (or aspiring to be in) corporate governance, be it as a high level executive, a CEO, a board member, an auditor or accountant, a (tax) politician or business regulator.

It is a book specifically directed at corporate America (as the title reveals) but there are principles that can be derived from every chapter that should be universally applicable.

After finishing the book my admiration for Buffet & Munger has grown even further. The book gives a terrific insight in Buffet and Munger's investment philosophy as well as their ideas on how to run a corporation, but it's just as much a criticism of the short term and in many cases dishonest behaviour of many corporations and their executives, unhealthy incentive structures, US accounting and taxation standards and much more. It puts forward the case for decency and honesty in business and long term investing and Berkshire's track record shows that this can be very profitable.

Highly recommended. The best book in this category I have read.

Slightly difficult to read through but with a little extra determination, I was able to finish this timeless collection of essays that helped me gain essential insights with real-life and straight forward examples. Great insight into Buffet's view on business valuation, capital structuring and importance and role of management in corporations. It's a book i'll most likely return to again from time to time!

Having read a handful of investing books, derived Buffet and Munger's philosophy, it was a natural step to start reading from their own words. If you are a true believer, why reading just mass-market texts and not the Bible?

Much thanks to Cunningham who made this possible.

Some chapters in the book (like acquisition and accounting) can sound "foreign" to investors who are not directly involved in the business sector (including me), but it is just the technicalities - the big ideas remain accessible.

A great read if your are looking for a frank and honest (and often funny) analysis of corporate America over the past 50 years. Buffett is excellent at conveying complex ideas in a simple and easy to understand way. With such a breadth of knowledge and experience on offer for anyone to read; this book is excellent value for your time and money!

180-The Essays of Warren Buffett-Warren Buffett-Essays-1998
Barack
2018/07/29
2020/06/11


- People often overestimate a change in time can bring , and underestimate the change in 10 years can bring.

"The Essays of Warren Buffett" (The Essays of Warren Buffett), first published in the United States in 1998. It contains a letter written by investment guru Warren Buffett to the shareholders of Berkshire Hathaway, covering topics such as management, investment and evaluation.

Buffett was born in Omaha, Nebraska, in 1930. He received a bachelor's degree in economics from the University of Nebraska-Lincoln and a master's degree in economics from Columbia University. Representative works: "Buffett's Letter to Shareholders", etc.

Part of the catalog
1. Corporate Governance
2. Finance and Investment
3. Investment in alternatives
4. Common stock investment
5. Mergers and acquisitions
6. Valuation and accounting
7. Accounting tricks
8. Accounting policies
9. Tax issues

Buffett was born in Obaha, Nebraska, in 1930. In 1941, he bought the first stock of his life. The stock funds came from himself and his sister. Soon after, the stock fell by 30%. For this reason, Buffett's sister often complained to Buffett for this. Eventually the stock rebounded and Buffett sold the stock with a 5% return.

This incident illustrates two things: first, when stocks fluctuate, investor sentiment is extremely vulnerable to loss aversion; second, in the long run, high-value stocks will eventually appreciate.

During his studies at Columbia Business School, Buffett was deeply influenced by investment theorist Benjamin Graham, which largely led to his persistence in value investment strategies for decades.

In 1957, when he was 27 years old, Buffett established the Buffett Investment Club. In 1962, when he was 32 years old, one million US dollars of the capital of Buffett's partner investment company belonged to Buffett. In 1968, when the U.S. stock market triumphed, Buffett liquidated almost all the stocks of the Buffett Partners he owned.
From 1970 to 1974, the U.S. stock market suffered a severe bear market, and the U.S. economy entered a period of "stagflation".

After leaving the partner company, Buffett joined Berkshire Investments. This investment experience earned Buffett the title of "stock god". Since 2000, Buffett has raised funds for the Glorious Foundation through online auctions. The reserve price starts at $50,000 to get a chance to have dinner with Buffett.

During the 42 years from 1965 to 2006, the average annual growth rate of Berkshire’s net assets reached 21.46%, a cumulative increase of 361156%; during the same period, the average annual growth rate of S&P 500 index companies was 10.4%, and the cumulative growth rate was 6,479. %.

Through simple calculations, we can know that if we want to increase assets to 10 times in 10 years, we need an average annual growth rate of 25.89%; if we want to increase assets to 20 times in 20 years, the figure is 16.15%; And Berkshire's average annual growth rate of net assets reached 21.46% in 42 years. In the long battle against S&P, Berkshire's performance has been impressive.

Benjamin Graham's investment strategy is based on company value, not market hotspots; at the same time, he puts great emphasis on the margin of safety. Philip Fisher in the risk tolerance of the degree of tolerance to比格雷厄姆higher, he tends to focus on investment in high-quality companies, his portfolio is often not more than 10 stocks, of which 30% of the stock may Accounted for 70%.

In fact, I do not equate stock trading with investing in stocks. The former hopes to obtain income in the unit of time of days, weeks, and months. In this case, investors’ decisions are easily affected by emotions rather than logic, and it is easier to buy stocks through financing transactions or increased leverage. . Borrowing money to invest in stocks is a way of over-betting, which almost determines that investors cannot ignore market fluctuations and make long-term investments. Once a small probability black swan event occurs, investors will have to be forced to sell stocks. The act of being forced to sell stocks for various reasons is often extremely risky.

The latter requires investors to overcome loss aversion, ignore short-term market fluctuations, and measure returns on a time scale of years and ten years. The value of any investment is a discount of the company's future cash flow. However, this method requires investors to have a deeper understanding of the intrinsic value of the target company, which is often difficult for non-professional investors.

In the nine investment cases given, I got the impression that as long as the target company’s products are still being used by the general population, the intrinsic value of the company should not be underestimated because of the bad news. In fact, Buffy special is precisely in those good companies often the most difficult period, large purchase of its shares.

The modern portfolio theory that I learned in the second major of finance, and the value investment theory advocated by Buffett and other Graham followers, seem to be two directions on a fork in the road. However, for non-professional investors, the former tends to be more operational; for professional investors, the latter’s returns are more attractive.

The development of artificial intelligence and the enhancement of computer computing power have made quantitative investment gradually become an investment method that attracts attention. It hopes to seize the moment of market failure through high-frequency trading, and has a very high turnover rate. Accumulate small gains to get an objective overall return. It should be regarded as a third-party investment strategy different from the above two.

" Under normal circumstances, the characteristics of a company determine the characteristics of its shareholders. As the so-called "things are gathered together, people are divided into groups." If the company pursues short-term results or short-term stock price performance, then the shareholders it attracts will also pay attention. Short-term performance. If companies treat shareholders arbitrarily, they will only get random results. The widely respected investor and writer Phil Fisher once compared the company’s strategy of attracting shareholders to a restaurant’s strategy of attracting customers. A restaurant can be positioned. For a specific class of diners-those who like fast food, those who like elegant, those who like oriental food, etc. Through the positioning of the style, a group of like-minded fans are finally obtained. If the restaurant ’s service, menu, and price level strategies are appropriate, then this group Customers will become regular repeat customers. But if the restaurant often changes styles, then these happy and stable customers will disappear. If the restaurant's positioning is vacillating between French cuisine and takeaway chicken, it will definitely confuse repeat customers, and eventually Leave. "

There is no such thing as the best model in this world. Each company has its own style and characteristics. Therefore, they should find the path that suits them best in practice. In fact , no matter which path they choose, they will eventually form a stable support group. This group may be large or small. But there will always be such a support group .

" In 1983, I summarized 13 corporate principles related to owners, and believed that they would help new shareholders understand our management thinking. Since they are called "principles", all 13 of these principles are still valid today. . "

" 1. Although the organizational form is a corporate system, we act as partners. Munger and I regard our shareholders as our partners, and we ourselves are the managing partners (because whether it is good or not Bad, in terms of the proportion, we are all controlling partners.) We do not regard the company itself as the ultimate owner of assets, but we think that the company is just a channel through which we hold assets. Munger and I do not. you do not want to own the stock, only as a piece of paper marked with the price, and the price fluctuations of these papers every day, you might have been for some events on the economic or political anxiety, and intend to sell them at any time. We want you to see yourself as someone who truly owns part of the company’s assets for a long time, just like a farm or apartment owned by you and your family.

For us, we do not want Berkshire’s shareholders to be a group of strangers who are constantly changing. On the contrary, they are our investment partners. They entrust assets to us for management, hoping to get good returns in future life. . There is evidence that most of Berkshire’s shareholders have accepted this concept of long-term cooperation. Even if I exclude the shares I hold, among the large listed companies in the United States, Berkshire’s annual stock turnover rate is quite low. In fact, our company’s shareholders’ treatment of Berkshire is consistent with Berkshire’s treatment of the companies it invests in.

For example, as a shareholder of Coca-Cola and Gillette, Berkshire is a non-managing partner of these two outstanding companies. We measure success by the company's long-term growth, not by monthly stock price changes. In fact, we do not care at all that the stocks of these companies have not been traded or even quoted in the market for several years. If we have good long-term expectations for a stock, short-term price fluctuations are meaningless to us unless someone offers us a very attractive price. "

" 2. Most of the board members of the company regard Berkshire as their own industry, and the main part of their wealth is the value of holding company shares. In other words, we eat our own meals. Munger More than 90% of family assets are placed in Berkshire stocks, while mine is 98% to 99%. In addition, many of my relatives, such as sisters and cousins, also have a large portion of assets held Our company’s stock. Munger and I are very comfortable with putting all our eggs in the same basket, because Berkshire owns a series of diversified outstanding companies. In fact, whether it is owned The controlling rights of these companies are still minority interests. We all believe that Berkshire is a company with very good equity quality and diversity. This is unique to Berkshire.

Munger and I cannot promise you the result. But we can guarantee that as long as you are our partner, at any time, your financial assets and our own assets will fully maintain consistent growth. We have no interest in high salaries, option awards, or other things that make money from you. We just want to make money with our partners in the same proportion. Even when I make a mistake, I hope to get a little comfort from you, because I have suffered the same proportion of losses with you. "

" 3. Our long-term economic goal (the restricted part will be mentioned later) is to maximize the average annual rate of return of Berkshire’s intrinsic value per share. We do not measure economic significance or performance by company size. It is measured by the growth per share. We are sure that the growth rate per share in the future will decline-this is due to the excessive size of assets. But if our growth rate cannot exceed the average growth rate of large American companies, we Will be very disappointed. "

I tend to think that the reason most people in the world cannot succeed is not that they are not smart enough. It may often be that they are not patient enough. Even if we do things the right way, it may take some time to get the right results.

" 4. In order to achieve our goals, our first choice is to directly hold a series of diversified companies, from which we can obtain stable cash flow and continuous capital returns above the market average. Our second choice is through our insurance company , Mainly looking for stocks that are easy to trade in the market, so as to hold shares of some similar companies. The price and availability of stocks, as well as the demand for insurance funds, determine the capital allocation in any given year. In recent years, we have acquired. Some companies. Although there is no action in some years, we hope to acquire more companies in the next ten years and hope to make some large-scale acquisitions. If these acquisitions can reach our past levels, then Berkshire It will get a very good return. It is a challenge for us to generate good ideas as quickly as cash flow.

In this sense, a depressed stock market is a good thing for us. First, it allows us to use lower prices to buy the whole company; second, the market downturn makes our insurers can more easily in a tool on attractive price, buy some shares outstanding enterprises, including We already hold some of the stock companies; third, some outstanding companies, such as Coca-Cola, will continue to buy back their own stock, so they and we can buy stocks at a cheaper price. In short, Berkshire and its long-term holders will benefit from the falling stock market, just as a consumer who needs to buy daily food benefits from falling food prices. So when the market crashes, as usual, don’t worry, don’t be frustrated. This is good news for Berkshire. "

" 5. Due to the limitations of our corporate ownership methods and traditional accounting methods, the profit shown in the consolidated accounting statements cannot truly reflect our actual economic results. Munger and I are both owners and managers, and will actually ignore These data are provided by the consolidated accounting statements. However, we will report to you the income generated by the important enterprises we control and the figures we consider important. These figures, together with other information we provide, will help you to do To make a judgment. Simply put, we try to disclose the really important data and information in the annual report. Munger and I put a lot of energy into understanding the operation of the company and the business environment in which they are located.

For example, is the development of our enterprise smooth sailing or sailing against the current? Munger and I need to know exactly the market conditions and adjust our expectations accordingly. We will also tell you our conclusions. For a long time, most of the companies we invest in have achieved results that exceeded expectations. Sometimes we will also be disappointed, but whether it is happy or bad, we all explain frankly. When we make reports in a non-traditional way, we explain the concepts and explain why they are so important. In other words, we will tell you how we think. From this, you can not only judge the value of Berkshire, but also our management methods and capital allocation. "

Even as a complete novice in this field I managed to gain so much from this book. And to think what a person, studying finances or working with investments, could learn from essays - is just mind-blowing!

One of the best book on finance I've ever read!
Buffett's great writing style which is simple and easy to understand makes it pleasurable to read. His wisdom, reasoning and sense of humour will make you look at different aspects of finance from a different perspective. It's nicely broken down to areas of finance such as management, M&A, investments and even options. Buffett expresses his views and opinions through the lenses of his personal experience.
Educational, fun and interesting to read. I'd recommend it to anyone interested going beyond what's taught by academics and to anyone who is passionate about finance.

One of those rare books on business and leadership that both entertains and enlightens. Deftly edited, the book consists of excerpts from the Berkshire Hathaway annual shareholder letters, organized by theme to reveal the larger philosophies of Warren Buffett and Charlie Munger that have led to Berkshire's unparalleled success. It might be the only business text you'll ever need.

"It is better to be approximately right than precisely wrong."

The book is a collection of essays from multiple shareholder meetings. This sometimes makes the book repetitive or lacks a straightforward narrative. Nevertheless, each essay is full of practical knowledge applicable not only to investing but also to everyday activities.

I particularly liked how Warren takes seemingly complicated things and presents them in a simple and crisp way. For example, when talking about investment bankers, he uses the metaphor, "Never ask your barber whether you need a haircut.". Also how he sketches the simile between a shopowner being happy when supplies are cheap but how most "investors" see a drop in price as something necessarily bad. When looking at the long term, all these oversimplifications make a lot of sense.

"A horse that can count to ten is a remarkable horse—not a remarkable mathematician."

Update 2020-12-04:
Lesson 1 fear and greed:

“Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investing community. The timing of these epidemics will be unpredictable. And the market aberrations produced by then will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”


• "Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly- profitable subsidiaries because a small move in the Federal Re- serve's discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses?"
t• "To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to sug- gesting that the Bulls trade Michael Jordan because he has become so important to the team."
t• "Let me add a few thoughts about your own investments. Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals."
t• "If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term per- formance of the business may be terrible. I call this the "cigar butt" approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the "bargain purchase" will make that puff all profit."
t• "Unless you are a liquidator, that kind of approach to buying businesses is foolish. First, the original "bargain" price probably will not turn out to be such a steal after all. In a difficult business, no sooner is one problem solved than another surfaces-never is there just one cockroach in the kitchen. Second, any initial advan- tage you secure will be quickly eroded by the low return that the business earns."
t• "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner. But now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements."
t
t• "A further related lesson: Easy does it. After 25 years of buy- ing and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them."
t"If your actions are sensible, you are certain to get good results; in most such cases, leverage just moves things along faster. Charlie and I have never been in a big hurry: We enjoy the process far more than the proceeds-though we have learned to live with those also."
t"In the final chapter of The Intelligent Investor Ben Graham forcefully rejected the dagger thesis: "Confronted with a challenge to distill the secret of sound investment into three words, we ven- ture the motto, Margin of Safety." Forty-two years after reading that, I still think those are the right three words. The failure of investors to heed this simple message caused them staggering losses as the 1990s began."
t• "We only want to link up with people whom we like, admire, and trust."
t• "One of the ironies of the stock market is the emphasis on ac- tivity. Brokers, using terms such as "marketability" and "liquid- ity", sing the praises of companies with high share turnover (those who cannot fill your pocket will confidently fill your ear). But in- vestors 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."
t• "Charlie and I feel totally comfortable with this eggs-in-one- basket situation because Berkshire itself owns a wide variety of truly extraordinary businesses. Indeed, we believe that Berkshire is close to being unique in the quality and diversity of the busi- nesses in which it owns either a controlling interest or a minority interest of significance."
t• "Whenever Charlie and I buy common stocks for Berkshire's insurance companies (leaving aside arbitrage purchases, discussed [in the next essay]) we approach the transaction as if we were buy- ing into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay. We do not have in mind any time or price for sale. In- deed, we are willing to hold a stock indefinitely so long as we ex- pect the business to increase in intrinsic value at a satisfactory rate. When investing, we view ourselves as business analysts-not as market analysts, not as macroeconomic analysts, and not even as security analysts."
t• "In fact, the true investor welcomes volatility. Ben Graham ex- plained why in Chapter 8 of The Intelligent Investor. There he in- troduced "Mr. Market," an obliging fellow who shows up every day to either buy from you or sell to you, whichever you wish. The more manic-depressive this chap is, the greater the opportunities available to the investor. That's true because a wildly fluctuating market means that irrationally low prices will periodically be at- tached to solid businesses. It is impossible to see how the availabil- ity of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly."
t• "Is it really so difficult to conclude that Coca-Cola and Gillette possess far less business risk over the long term than, say, any com- puter company or retailer? Worldwide, Coke sells about 44% of all soft drinks, and Gillette has more than a 60% share (in value) of the blade market. Leaving aside chewing gum, in which Wrigley is dominant, I know of no other significant businesses in which the leading company has long enjoyed such global power."
t• "Moreover, both Coke and Gillette have actually increased their worldwide shares of market in recent years. The might of their brand names, the attributes of their products, and the strength of their distribution systems give them an enormous com- petitive advantage, setting up a protective moat around their eco- nomic castles. The average company, in contrast, does battle daily without any such means of protection. As Peter Lynch says, stocks of companies selling commodity-like products should come with a warning label: "Competition may prove hazardous to human wealth."
t• "On the other hand, if you are a know-something investor, able to understand business economics and to find five to ten sensibly- priced companies that possess important long-term competitive ad- vantages, conventional diversification makes no sense for you. It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices-the businesses he understands best and that present the least risk, along with the greatest profit potential. In the words of the prophet Mae West: "Too much of a good thing can be wonderful."
t• "Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient."
t• "John Maynard Keynes, whose brilliance as a practicing inves- tor matched his brilliance in thought, wrote a letter to a business associate, F.e. Scott, on August 15, 1934 that says it all: "As time goes on, 1 get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence .... One's knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence. "
t• "Our equity-investing strategy remains little changed from what it was ... when we said in the 1977 annual report: "We select our marketable equity securities in much the way we would evaluate a business for acquisition in its entirety. We want the business to be one (a) that we can understand; (b) with favorable long-term pros- pects; (c) operated by honest and competent people; and (d) avail- able at a very attractive price." We have seen cause to make only one change in this creed: Because of both market conditions and our size, we now substitute "an attractive price" for "a very attrac- tive price."
t• "
tIf a business is complex or subject to constant change, we're not smart enough to predict future cash flows. Incidentally, that short- coming doesn't bother us. What counts for most people in invest- ing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistakes.
Second, and equally important, we insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buy- ing. We believe this margin-of-safety principle, so strongly empha- sized by Ben Graham, to be the cornerstone of investment success."