Warren Buffett’s annual letter to shareholders of Berkshire Hathaway is one of the most highly anticipated and widely read documents for those interested in business, investments, politics, and economics. Most shareholder letters are either boring documents that shed little light on the operations of a company or merely glossy cheerleading exercises that gloss over much that informed investors would want to know. In both content and appearance, Buffett’s letters are anything but typical. You will not find glossy paper, self congratulatory photos, and other marketing material when reading a Berkshire Hathaway annual report.
Given the fact that Berkshire Hathaway has posted a listing of the past thirty shareholder letters, what would be the value in purchasing a compilation of these letters in the form of a book? When I first learned about Lawrence A. Cunningham’s book, The Essays of Warren Buffett: Lessons for Corporate America, I had doubts about the value of reading it particularly since I had already read most of Buffett’s letters to shareholders. I purchased the first edition in early 2000 shortly after becoming a Berkshire Hathaway shareholder and recently purchased Cunningham’s 2nd edition.
Categorization and Context
One of the interesting aspects of reading Buffett’s letters in chronological order is that one can combine knowledge of the timeframe in which the letter was written and read the document with that context in mind. Not only that, but with benefit of hindsight, it is possible to appreciate Buffett’s statements regarding Berkshire and the business environment in general. However, while the chronological review is useful for understanding the evolution of Berkshire Hathaway and Buffett’s thinking, it leaves something to be desired in terms of consolidating Buffett’s thoughts on specific subjects. This is where Cunningham’s arrangement comes in.
Cunningham includes an introductory section that provides a great deal of information regarding Buffett’s background and would be useful for those who are new to Berkshire Hathaway. He then arranges Buffett’s letters into seven major themes and then includes excerpts from Buffett’s letters over the years as they relate to each theme. Essentially, this takes shareholder letters intended to be read at a given point in time for a particular audience and transforms it into a well organized book. The following major themes are addressed:
- Corporate Governance
- Corporate Finance and Investing
- Alternatives to Common Stock
- Common Stock
- Mergers and Acquisitions
- Accounting and Valuation
- Accounting Policy and Tax Matters
Timeless Information in Context
In the second edition, Cunningham supplements the prior book with Buffett’s thoughts on a wide array of subjects including the momentous events of the past decade. Of particular interest are the sections on stock option, executive pay, and the role of a board of directors. However, all of the sections contain information likely to make readers better investors. Cunningham uses extensive footnotes to draw attention to the specific letters that were used to come up with the compilation so this additional context is not lost.
One of the Classics on Investing
This book deserves to be considered a “must read” for anyone interested in investments or business in general. If investors read nothing but Benjamin Graham’s Security Analysis, The Intelligent Investor, and Cunningham’s arrangement of Buffett’s letters, they will definitely avoid many of the major pitfalls that can result in poor returns. Avoiding poor returns and permanent loss of capital is the first requirement for investing success. These books have also served as the intellectual underpinnings of many successful value investors over the years who seek to beat the market over long periods of time. Even those who have read all of Buffett’s letters over the years would be well served to read Cunningham’s compilation of essays.