Investment analyst Jeremy C. Miller pays homage to Warren E. Buffett by sharing his timeless investing strategies in Warren Buffett’s Ground Rules. Words of Wisdom From the Partnership Letters of the World’s Greatest Investor.
Buffett wrote the letters to investment partners of Buffett Associates Ltd., between its founding in the fall of 1956 until Feb. 18, 1970, when he closed what had become known as Buffett Partnership Ltd.
His letters contain his “contrarian diversification strategy, his almost religious celebration of compounding interest, and his conservative (as opposed to conventional) decision-making process,’’ Miller writes.
Miller, an analyst with J.P. Morgan Asset Management, prefaces and concludes each section of letters with context, synthesis and insights. Buffett’s letters are candid, confessional, folksy and often humorous (“In the lyrical words of Casey Stengel, “Show me a good loser, and I’ll show you a loser,’’ he writes).
Buffett admits his mistakes, complains when ideas aren’t forthcoming and celebrates the partnership’s performance (“He consistently beat the market and never had a down year. For the entire period, he compounded partners’ capital at nearly 24 percent annual rate, after fees,’’ Miller says).
And Buffett is pointed when evaluating the speculative strategies of other investment managers such as Gerald Tsai.
“Some of the so-called “go-go’’ funds have recently been rechristened “no-go’’ funds. For example, Gerald Tsai’s Manhattan Fund, perhaps the world’s best known-aggressive investment vehicle, came in at minus 6.9 percent for 1968,’’ Buffett wrote partners in July 1968.
A proponent of long-term, value investing in companies who made products he understood—maps, windmills, fertilizer equipment and clothing— Buffett’s investing ideas were formulated as a student at Columbia University under the mentorship of his professor, the Dean of Wall Street, Benjamin Graham (“The Intelligent Investor’’)
At 26, Buffett had digested Graham’s Bedrock Principles, chiefly, “The market can and will at times be completely deranged and irrational in the short term, but over the long term it will price securities in line with their underlying intrinsic values.’’
“We don’t buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do,’’ Buffett wrote in July 1966.
He toggled between the quantitative (buy at the right price and the company (stock) will take care of itself) versus qualitative (buy the right company and the price will take care of itself):