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The Essays of Warren Buffett: Lessons for Investors and Managers, 4th Edition


A gold mine of investing advice from the most successful investor in history

When Warren Buffett speaks, people around the world listen. And with good reason: Buffett, or "The Sage of Omaha" as he is popularly known, is arguably, the most successful investor in history. How successful? In addition to being one of the wealthiest people in the world, with a personal fortune currently estimated at US$60 billion, he was named the "Top Money Manager of the Twentieth Century" by the prestigious Carson Group, and he was listed among Time magazine's 100 Most Influential People in the world.

Through three successive editions, The Essays of Warren Buffett has maintained its stature as the definitive guide to Buffett's investment philosophy, and this Fourth Edition of that international bestseller is no exception. Fully revised and updated to include Buffett's views on recent events, both within the financial arena and beyond, this edition, like its predecessors, features commentaries by internationally recognized Warren Buffett expert, Lawrence Cunningham. As reviewers—including Warren Buffett himself—have noted, Professor Cunningham's commentaries are a priceless source of insight and sound advice for all serious investors.

"The book on Buffett. A superb job."


"A classic on value investing and the definitive source on Buffett."
Financial Times

One of "the smartest books we know."

Lawrence A. Cunningham is a Professor at George Washington University, Washington, DC, and a leading authority on value investing. He originally prepared this collection as the centrepiece of a symposium featuring Buffett's letters, held when he was Director of The Samuel and Ronnie Heyman Center on Corporate Governance at Cardozo Law School, New York City. His numerous books include What Is Value Investing?, Outsmarting the Smart Money, and How to Think Like Benjamin Graham and Invest Like Warren Buffett.

Foreword to the Third Edition xi

Preface xiii

Prologue: Owner-Related Business Principles 1

Introduction 13

Corporate Governance 15

Finance and Investing 20

Investment Alternatives 26

Common Stock 28

Mergers and Acquisitions 31

Valuation and Accounting 33

Accounting Shenanigans 37

Accounting Policy 37

Tax Matters 38

I. Corporate Governance 39

A. Full and Fair Disclosure 40

B. Boards and Managers 43

C. The Anxieties of Business Change 56

D. Social Compacts 63

E. An Owner-Based Approach to Corporate Charity 65

F. A Principled Approach to Executive Pay 72

G. Risk, Reputation and Oversight 82

II. Finance and Investing 87

A. Mr. Market 88

B. Arbitrage 92

C. Debunking Standard Dogma 98

D. “Value” Investing: A Redundancy 110

E. Intelligent Investing 117

F. Cigar Butts and the Institutional Imperative 124

G. Life and Debt 128

III. Investment Alternatives 133

A. Surveying the Field 134

B. Junk Bonds 138

C. Zero-Coupon Bonds 145

D. Preferred Stock 152

E. Derivatives 162

F. Foreign Currencies and Equities 172

G. Home Ownership: Practice and Policy 179

IV. Common Stock 183

A. The Bane of Trading: Transaction Costs 184

B. Attracting the Right Sort of Investor 189

C. Dividend Policy and Share Repurchases 191

D. Stock Splits and Trading Activity 202

E. Shareholder Strategies 204

F. Berkshire’s Recapitalization 205

V. Mergers and Acquisitions 211

A. Bad Motives and High Prices 212

B. Sensible Share Repurchases Versus Greenmail 223

C. Leveraged Buyouts 223

D. Sound Acquisition Policies 226

E. On Selling One’s Business 230

F. The Buyer of Choice 234

VI. Valuation and Accounting 239

A. Aesop and Inefficient Bush Theory 240

B. Intrinsic Value, Book Value, and Market Price 243

C. Look-Through Earnings 249

D. Economic versus Accounting Goodwill 255

E. Owner Earnings and the Cash Flow Fallacy 264

F. Option Valuation 271

VII. Accounting Shenanigans 275

A. A Satire on Accounting Shenanigans 276

B. Standard Setting 284

C. Stock Options 285

D. “Restructuring” Charges 290

E. Pension Estimates 294

F. Realization Events 296

VIII. Accounting Policy 297

A. Mergers 297

B. Segment Data and Consolidation 299

C. Deferred Taxes 300

D. Retiree Benefits 303

IX. Tax Matters 305

A. Distribution of the Corporate Tax Burden 305

B. Taxation and Investment Philosophy 311

Epilogue 315

Concept Glossary 323

Disposition Summary 325

Index 327