Title: The Essays of Warren Buffett: Lessons for Corporate America
 
Author: Essays by Warren E. Buffett; selected, arranged, and introduced by Lawrence A. Cunningham

Backstory:
Warren Buffett needs little introduction—a notable philanthropist, he’s the world’s second richest man and arguably its greatest investor. Since the 1970s, he’s been enlightening and entertaining shareholders of Berkshire Hathaway with his annual letter to investors, but he’s never authored a book. Boston College professor Lawrence Cunningham has compiled and organized nearly two decades’ worth of Buffett’s essays here—the only new words from Buffett appear on the back of the book: “First class. A great job at collating our philosophy.” That’s a characteristically concise way of describing what is a straightforward and comprehensive lesson book from the master himself. And regular readers of Buffett’s won’t be disappointed: The sometimes dense subject matter is delivered with a spoonful of the dry wit that the Oracle of Omaha is so well known for.

Total reading time: 230 minutes

First published: 1997

Key passages:
“Lethargy bordering on sloth remains the cornerstone of our investment style: This year we neither bought nor sold a share of five of our six major holdings.”

“At Berkshire you will find no ‘big bath’ accounting maneuvers or restructuring. And we won’t ‘smooth’ quarterly or annual results: If earnings figures are lumpy when they reach headquarters, they will be lumpy when they reach you. Finally, when the numbers are a very rough ‘guesstimate,’ as they necessarily must be in insurance reserving, we will try to be both consistent and conservative in our approach.”

“References to ebitda make us shudder—does management think the tooth fairy pays for capital expenditures?”

“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

“[When] a C.E.O. is encouraged by his advisers to make deals, he responds much as would a teenage boy who is encouraged by his father to have a normal sex life. It’s not a push he needs.”

Synopsis:
Only Warren Buffett could make a book chapter titled “Accounting Policy and Tax Matters” an interesting read. The C.E.O. of Berkshire Hathaway has an easy, folksy way of communicating his thoughts on corporate governance, generally accepted accounting practices, or dividend policies. His prose is peppered with quotes from everyone from Woody Allen to Mae West, and his candor is sometimes startling—he openly admits past mistakes and he even tells investors the instances when Berkshire’s stock wasn’t worth its price, a confession few C.E.O.’s would dare to make.

Buffett’s authority derives from his exceptional record as both a corporate manager and an ordinary investor. A chapter on corporate governance outlines what he looks for in a C.E.O. and what his own shareholders should expect from him. Buffett chooses managers he trusts and likes—he calls the leaders of one of his companies “precisely the sort of fellows you would want your daughter to marry.” He believes in compensating managers well for performance, but he’s not a fan of rewarding them with stock options. And accounting for the options improperly is deplorable, according to Buffett, who calls the practice the “most egregious case of let’s-not-face-up-to-reality behavior by executives.” In short, options are expenses and should be reflected in profits.

Chapters on common stock and corporate finance help explain why Berkshire Hathaway has never paid a dividend, repurchased shares (companies should repurchase only when the stock sells below its intrinsic value), or split its stock (it would attract an inferior set of buyers). Other sections are helpful to the ordinary investor—Buffett highlights the pros and cons of investment vehicles such as junk bonds and preferred stock. He even fesses up that Berkshire has, under certain circumstances, parked its cash in derivative contracts or precious metals. Throughout the series of essays, the basic philosophies of value investing are repeated over and over: Select companies that you can understand and that are well run with little debt; above all, consider investments to be for the long term.