Practical analysis for investment professionals
06 March 2015

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

Posted In: Weekend Reads

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)


Emerging Markets

The Environment

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

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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.

Photo credit: ©

About the Author(s)
Larry Cao, CFA

Larry Cao, CFA, senior director of industry research, CFA Institute, conducts original research with a focus on the investment industry trends and investment expertise. His current research interests include multi-asset strategies and FinTech (including AI, big data, and blockchain). He has led the development of such popular publications as FinTech 2017: China, Asia and Beyond, FinTech 2018: The Asia Pacific Edition, Multi-Asset Strategies: The Future of Investment Management and AI Pioneers in Investment management. He is also a frequent speaker at industry conferences on these topics. During his time in Boston pursuing graduate studies at Harvard and as a visiting scholar at MIT, he also co-authored a research paper with Nobel laureate Franco Modigliani that was published in the Journal of Economic Literature by American Economic Association. Larry has more than 20 years of experience in the investment industry. Prior to joining CFA Institute, Larry worked at HSBC as senior manager for the Asia Pacific region. He started his career at the People’s Bank of China as a USD fixed-income portfolio manager. He also worked for US asset managers Munder Capital Management, managing US and international equity portfolios, and Morningstar/Ibbotson Associates, managing multi-asset investment programs for a global financial institution clientele. Larry has been interviewed by a wide range of business media, such as Bloomberg, CNN, the Financial Times, South China Morning Post and the Wall Street Journal.

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