The Essays Of Warren Buffet
Warren Buffet

Summary

A collection of the best essays Warren Buffet has written his annual Berkshire report. He discusses his principles and how he's made decisions that have made him one of the most successful investors of all time.

Rating: 4/5

Notes

Select managers who are able, honest and hard-working

CEOs are given 3 commands: they are the sole owner, it its the only asset they hold and they can never sell or merge for 100 years

Stick to investment knitting: long term index fund or proper diligence

Concentrate your investments if you’re done your homework

• Put all your eggs in one basket and focus on that basket

‘Margin of safety’ - value investing doesn’t equally focused investing

Understand your circle of competence

Most acquisitions are value decreased but you need to evaluate the opportunity costs against buying smaller business w/ stock

A financial statement must answer how much a company is worth, is it likely to meet future obligations and how good are its managers in operating a business

Never announce earnings targets as a CEO and never trust a company that does so

Beware of companies displaying weak accounting and targeting EBITDA

Unintelligible footnotes indicate untrustworthy mgmt

For public boards, have less than 10 members and mostly independent

Board directors need to be business savvy, interested and shareholder oriented

The least independent directors are those receiving large fees from board services

‘Hire people bigger than you are so you become a team of giants’

Work w/ people you like to spend time with

'The intellect should be the servant of the heart, but not its slave.’

Good managerial record is more a function of what business boat you get into, rather than how effectively you row. If you have a chronically leaking boat, you need to jump ship rather than repair the leak

Fixed price options give owners of companies free capital

Purchase shares in good businesses when market prices are at a large discount from underlying business value

If you’ve been in the game for 30 minutes and you don’t know who the patsy is, you’re the patsy

In the short run the market is a voting machine, but in the long run it’s a weighing machine. As long as the company’s value is increasing intrinsically, the stock price is irrelevant

‘You shape your houses and then they shape you’ - Churchill

The market is frequently efficient but not always efficient. There’s a massive difference. Efficient market theory (EMT) is wrong

When evaluating a business to invest in:

• Evaluate the long term economic characteristics of the business
• Certainty with which management can be evaluated
• Mgmt giving to shareholders rather than themselves
• Purchase price of business
• Levels of taxation experienced in the future

Concentrate your holdings on business you know best

Assess the economics of each business, the quality of people running it and buy into a fear of the best operations at a good price

Look at per share operating earnings and compare to share price

Stick to businesses you understand and ones that have a margin of safety (where stock price needs to be substantially different than the value price)

Inactivity is intelligent behaviour

Search for operations that have enormous competitive strength 10-20 yrs from now. Don’t invest in ones with major changes

Evaluate companies within your circle of competence and know your boundaries

You must be willing to own the stock for 10 years and put together a portfolio where earnings march upward over the years

Don’t buy stocks at extremely low valuations - the cigar butt approach to investing

Do not take on unnecessary debt

Invest in productive assets rather than gold or bonds

Don’t trust zero coupon bonds

US dollar will weaken over time

House purchases should include 10% down and monthly payments comfortably handled by the home owner’s income

For investors as a whole, returns decreases as motion increases

If companies repurchase shares, you should be happy when the stock falls because you will own more of the company

When thinking about M&A, it pays to be interested, active and open-minded but not to be in a hurry

Go to where the puck is going to be, not where it is - Wayne Gretzky

Never pay that much attention to projections, focus on the core business

Intrinsic value: the discounted value of cash that can be taken out of a business during it’s remaining life but it’s always an estimate

An investor will realize a far greater sum from a single investment that compounds than from multiple investments due to fees and taxes

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