Saturday, January 10, 2009

Book Report: The Essays of Warren Buffett

Loved it.  Editor Lawrence Cunningham has gone through all of Berkshire's old annual reports and compiled a very readable "Buffett's Greatest Hits" with lessons organized by topic. If you want to hear directly from the Oracle, this is your best bet (unless you have time and inclination to read all the annual reports yourself). 

I can't help but be in awe of what Buffett has accomplished in business. He has been an unwavering voice of reason, bucking trends that make no sense, occasionally warning us of impending doom, and generally kicking ass and taking names. 

Some quotes I noted while reading (some paraphrased, mostly on valuation and investing)

The goal of each investor should be to create a portfolio (in effect, a "company") that will deliver him the highest possible look-through earnings a decade or so from now. 

The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc.) and not the achievement of consistent gains in earnings per share.

In analysis of operating results... what a business can be expected to earn on unleveraged net tangible assets, excluding any charges against earnings for amort. of Goodwill, is the best guide to the economic attractiveness of the operation. 

Owner Earnings: reported earnings plus depreciations, depletion, amort, and other non-cash charges less average annual capex for plan and equipment required to maintain its long term competitive position and unit volume. 

Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life. 

The percentage change in book value in any given year is likely to be reasonably close to that year's change in intrinsic value. 

Book value is meaningless as an indicator of intrinsic value.