The Essays of Warren Buffett

For more than half a century Warren Buffett has used his annual letter to Berkshire Hathaway shareholders to explain how he thinks about businesses, markets and managers. Read year by year, the letters repeat themselves and mix lasting principles with passing commentary. Lawrence Cunningham arranged the best passages by subject, first in 1997, and Buffett cooperated and has said Cunningham did a great job of collating his philosophy.

Cunningham, a former law professor, now directs the Weinberg Center for Corporate Governance at the University of Delaware and sits on the boards of Markel Group and Constellation Software. His editing is light: the words are Buffett's, cut and grouped so that each chapter reads as a coherent essay.

The range is wide, from why shareholders should think like owners and when buybacks create value to how insurance float funds Berkshire and why he distrusts stock options, EBITDA and most derivatives. Carol Loomis praised the single-subject chapters, and the Financial Times called the book the definitive source on Buffett.

The arrangement makes it less useful as a history of Berkshire, so readers who want the year-by-year story should go to the letters or a biography. Every analyst, portfolio manager and corporate director should own a copy. The 8th edition, published in 2023, is current.

1. Think like an owner. Treat a share of stock as a fractional interest in a business, and judge managers by how they would act if the company were wholly theirs.
2. Intrinsic value is what matters. Book value and reported earnings are starting points. The real measure is the discounted cash a business will produce over its life.
3. Capital allocation is the CEO's main job. Every retained dollar should create at least a dollar of market value. Buybacks make sense only below intrinsic value.
4. Beware accounting that flatters. Adjusted metrics like EBITDA, unexpensed stock options and aggressive acquisition accounting hide real costs from shareholders.
5. Let Mr. Market serve you. Market prices swing with mood. Use them to buy and sell when they diverge from value, and buy with a margin of safety.

The book is organized by subject rather than by date, with each part pulling together passages from letters written decades apart. In recent editions it runs roughly as follows.

1. Prologue and governance. Berkshire's owner-related business principles, followed by Buffett on boards, managers, executive pay and how a company should treat its shareholders.
2. Finance and investing. Mr. Market, margin of safety, the case against efficient market theory, and Buffett's preference for concentrated holdings in businesses he understands.
3. Investment alternatives and common stock. Junk bonds, zero-coupon bonds, preferred stock, arbitrage and derivatives, then the economics of owning shares: dividends, buybacks, stock splits and the dangers of high turnover.
4. Mergers and acquisitions. Why most deals destroy value for buyers, why paying in stock is costly, and how Berkshire chooses and keeps the companies it buys.
5. Valuation and accounting. Intrinsic value versus book value, look-through earnings, owner earnings and goodwill, followed by a chapter on accounting abuses that inflate reported results.
6. Taxation and Berkshire's history. Buffett on how taxes shape corporate decisions, and in recent editions reflections on Berkshire's past and future.

An updated edition of the bestselling collection of timeless wisdom from the world?s greatest investor Readers of Warren Buffett?s letters to Berkshire Hathaway shareholders have gained an enormously valuable informal education in the art of investing. Broad in scope and long on wisdom, Buffett?s letters explain his principles on sound investing, selecting managers, valuing businesses, using financial information profitably, and other vital topics for investors. This newly updated Fourth Edition includes Buffett?s latest wisdom on such topics as the financial crisis, the housing bubble, corporate governance, Berkshire Hathaway?s acquisition of Burlington Northern Santa Fe, the role of oversight in heavily regulated industries, today?s best investing opportunities, and the weaknesses of popular option valuation models. Features investing advice in plain English from one of the world?s most legendary investors Includes Buffett?s insights on the current financial crisis and recession Offers new and potent insight on good corporate governance and other issues vital to executives and managers For investors, corporate executives, managers, and Buffett fans, The Essays of Warren Buffett, Fourth Edition features the kind of wisdom on investing, finance, and leadership that can be found nowhere else.