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Diamonds in the Rough


Buffett’s Lessons



 Kenneth S. Janke About 12 years ago I received a book in the mail, The Essays of Warren Buffett: Lessons for Corporate America, published by the Cardozo Law Review. I doubt the book ever made the New York Times best-seller list. It should have.

In recent months we’ve read claims that Warren Buffett is the “best investor in history.” That may or may not be so. As a graduate student at Columbia University’s business school, he learned from Benjamin Graham and then worked for him at the firm Graham-Newman. So Graham may rank higher than Buffett on such a list, but there’s no way to know for sure.
   
I recently reread Buffett’s essays and was amazed at how some of the ones written in the 1980s and ’90s still make great sense today. Of course, many of them read a bit like Graham’s books Security Analysis and The Intelligent Investor, but that’s understandable given Buffett’s background. The difference is that Buffett writes in plain English that even someone like me could understand.
   
I can’t do justice to all that was written, nor does space permit me to cover all the various subjects. One observation is that he must love baseball, since he uses relevant quotes by Yogi Berra, Ted Williams and Casey Stengel in discussing investing and corporate management.
   
The memorable quotes include a description of his investment philosophy: “It’s far better to own a significant portion of the Hope diamond than 100 percent of a rhinestone.” In discussing corporate management, he points out that in 1996 Berkshire Hathaway had only 12 employees at its headquarters despite employing more than 33,000 people. Think about those things when you study potential investments.
   
I know of no other chairman who would write in an annual report: “Though the per-share intrinsic value of our stock has grown at an excellent rate during the past five years, its market price has grown still faster. This kind of market overperformance cannot persist indefinitely, neither for Berkshire nor any other stock. Inevitably, there will be periods of underperformance as well.” In short, he was telling shareowners that the stock just might be overpriced.
   
A second edition of the book was published last year. And his annual letters to shareholders are available at the Berkshire Hathaway website (www.berkshirehathaway.com). So much of what passes for investment commentary is focused on the short term and of little use to investors. But these essays make for great reading and are much easier to comprehend than some of the original thoughts penned by Ben Graham.


Kenneth S. Janke, Sr., was the long-time president of BetterInvesting and a member of the magazine’s Editorial Advisory and Securities Review Committee for many years.


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