Their central theme is that fundamental analysis should guide business investment, a theme discussed in regard to understanding the proper roles of managers and shareholders, finance, mergers, valuation, and accounting.
Buffett’s opinions in “Alternatives to Common Stock” and “Common Stock” lament that the widespread short-term, market-oriented approach favored by institutional investors has become dominant in contrast to the long-term, business-oriented approach that he practices.The key to successful investing, Buffett posits, is to purchase shares in good businesses at times when market prices are at a large discount from business values. A headache for many investors, this is good news for the wise investor able to insulate himself from these contagious emotions and make investment decisions based on the real values of businesses he can understand.This might seem commonsense, but Buffett points out that most institutional investors in the 1970s, under the spell of business school professors who contended that markets were totally efficient in establishing stock prices, considered underlying business values to be of little importance. Following this approach, such investors will find that times of declining stock prices provide the best opportunities.In acquiring such, whether they are complete companies or large share portions, he insists on the importance of a margin of safety: the price paid should not exceed value.In the selections making up this chapter, Buffett applies his principles to various investment categories areas that fulfill the criteria of being both understandable and offering good deals.Not only the essays of Warren Buffett but go ahead and read all of the original letters from cover to cover (they are all on the Berkshire website). If those are inspiring then keep reading because you might have a chance.After that, I would go read the letters he wrote while managing his hedge fund from 1955 to 1969 (he wrote two letters a year). If those letters don’t captivate you then value investing is probably not your thing. Charlie Munger likes to say that a successful investor never stops being a “learning machine.” He has said repeatedly that he does not know a single successful investor who does not read voraciously.Managers of most public corporations in making charitable donations, Buffett points out, never solicit the opinion of their owner-shareholders.At Berkshire, he has devised a unique model that allows shareholders to designate charitable recipients in a way that is included within the company’s tax deduction allowances.Buffett says value investing is like an inoculation. Lawrence Cunningham begins by stating that Warren Buffet’s letters to the shareholders of Berkshire Hathaway Inc., which he has selected and arranged for this volume, provide in clear language an exceptional education on the basic principles of sound business practice.