Weekend Reads for Global Investors: Warren Buffett Reveals the Secret of His Success

There were three mega news events last week in three separate circles: Warren Buffett’s letter among investors everywhere; an environmental documentary in China; and a dress that reverberated across social media throughout the world. Interestingly enough, all three fall under the scope of our Weekend Reads series.

Now, the letter. The Berkshire Hathaway annual shareholder meeting and the accompanying letter have become an investment festival among devout followers. What makes it particularly special is that this year marks the 50th anniversary of Warren Buffett at the company’s helm. Both Buffett and Charlie Munger shared in this letter what they thought made Berkshire Hathaway so wildly successful.

No summary can do justice to their insights and witty writing, so I would urge you to take some time and read the original, if you have not done so already. Below are some highlights that we found particularly revealing.

Buffett gave a vivid account of Berkshire Hathaway’s past. He modestly wrote, “My cigar-butt strategy worked very well while I was managing small sums.” He credited Munger with “building a business that could combine huge size with satisfactory profits”: “The blue print he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”

Munger thought that Berkshire Hathaway achieved so much under Buffett because of “1) The constructive peculiarities of Buffett, 2) the constructive peculiarities of the Berkshire system,” as well as “the weirdly intense, contagious devotion of some shareholders and other admirers, including some in the press,” “and their interactions.” Munger continued: “In particular, Buffett’s decision to limit his activities to a few kinds and to maximize his attention to them, and to keep doing so for 50 years, was a lollapalooza.”

It’s Buffett’s experience of “turning a tiny stash into a a large and useful company” in his early years that’s particularly relevant for other investors, Munger wrote. His advice? Avoid bureaucracy.

We’ll leave you with Buffett’s description of the cigar-butt strategy, which he thinks contributed to his early accomplishments: “Buying [Berkshire Hathaway’s] stock at that price was like picking up a discarded cigar butt that had one puff remaining in it. Though the stub might be ugly and soggy, the puff would be free. Once that momentary pleasure was enjoyed, however, no more could be expected.”

The Letter 

• The 50th anniversary letter in its entirety, released last Saturday: “Berkshire Hathaway, Inc., Shareholder Letter 2014” (Berkshire Hathaway)
• In case you want to go directly to Charlie Munger’s comments in the letter on why Berkshire Hathaway did so well, it is summarized for you here: “Charlie Munger: These Four Factors Explain Why Berkshire Hathaway Has Done So Well” (Bloomberg)
• I cannot resist including a few more Buffett quotes for your reading pleasure:
  • “You can’t get rich trading a hundred-dollar bill for eight tens.”
  • “If horses had controlled investment decisions, there would have been no auto industry.”
  • “Don’t ask the barber whether you need a haircut.”
  • “Cash, though, is to a business as oxygen is to an individual.”
• For comparison, you can check out Macrae Sykes’s reflections on Berkshire Hathaway’s annual meeting last year: “The Band Plays On” (Gabelli & Company)

Investing 

• As negative yields become more widespread in European bond markets, Mohamed A. El-Erian opines on the topic: “10 Things to Know about Negative Bond Yields” (Bloomberg View)
• So does Nouriel Roubini: “The Negative Way to Growth?” (Project Syndicate)
• Every investor is running some form of a multi-asset strategy, knowingly or unknowingly. Read our primer on the subject and stay tuned for advanced tips from some of the industry’s leading practitioners. “Multi-Asset Strategies: A Primer” (Enterprising Investor)
• “Be Like Warren Buffett? No . . . Be Like You” (The Big Picture)
• Indexers beware: “A Big Issue for the Small-Cap Russell 2000” (Barron’s)

Emerging Markets

• “India’s Modi Aims to Put Economy into Higher Gear with First Full Budget” (Time)
• An example of emerging markets’ allure to investors: “China Tops US at the Box Office for First Time” (CNNMoney)
• Don’t expect it to be a walk in the park, though. “Goldman Partner Who Called Japan’s Demise Sees Similarities with China” (Bloomberg)
• We have been preaching that emerging markets are far from homogeneous. If you have not been convinced, listen to what Sheila Patel, CEO of Goldman Sachs Asset Management International, has to say on the subject. “Get Picky on Emerging Markets: Goldman Sachs.” (CNBC)
• We wrote about the transparency and legal framework, etc., in emerging markets as risk factors. This author apparently believes the risk far outweighs the corresponding return potential. “Why I Don’t Invest in Emerging Market Stocks?” (The Globe and Mail)

The Environment

• At least 100 million people in China watched an environmental documentary over the past week. Read about the story here: “Viral China Pollution Film Is Brave, Personal and Powerful” (The Guardian)
• Watch the video on YouTube. Note both the soundtrack and subtitles are in Chinese. (Chai Jing)
• Striking the right balance between growth and clean air is not as easy as it sounds. “Stephanie March Talks from Delhi, Says City’s Pollution Is Shaving Months off Life” (Australian Broadcasting Company (ABC) News)

And Now for Some Reading Truly for the Weekend . . . 

• “You’re Right: Your Customer’s a Narcissist.” And what are you going to do about it? (Forbes)
• “How Leaders Should React When Someone Disappoints” (Forbes)
• Science has spoken: “Is ‘The Dress’ White and Gold or Blue and Black?” (ScienceDaily)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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