by Warren E. Buffett and edited by Lawrence A. Cunningham
John Wiley & Sons Ltd., 2009, 328 pp.
Every year, Warren Buffett, CEO of Berkshire Hathaway Inc., writes a letter to shareholders reviewing annual operating and investment performance. In these letters, Buffett thoroughly discusses his investment philosophies and beliefs. Professor Lawrence A. Cunningham, Henry St. George Tucker III Research Professor of Law at George Washington University, has organized these letters into a book of essays. They are organized topically according to corporate governance, corporate finance and investing, common stock, mergers and acquisitions, accounting and valuation, and accounting policy and tax matters.
Although many authors have written about Buffett’s strategies, this book is written by Buffett himself. The essays illustrate his true investment philosophies without distortion. Moreover, the book is a fun read. In addition to being a successful investor, Buffett is a good writer with a strong sense of humor. He provides funny analogies and lively examples to express ideas. For example, the book defines the “Cigar butt approach to investing” as follows: “If you buy a stock at 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 performance of the business may be terrible. (This is like) a cigar butt found on the street that has only one puff left in it[. It] may not offer much of a smoke, but the bargain purchase will make that puff all profit.” (1989 annual letter)
Overall, Cunningham does an excellent job organizing the essays in a manner that allows readers to follow Buffett’s thoughts efficiently. For those interested in learning the inside approach to Buffett’s investment strategies, this book is a must read.
By Antonio Wong, Ph.D., CFA, lecturer of finance, The Hong Kong Polytechnic University