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):

“The really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions,’’ he wrote in October 1967.

But with “the virtual disappearance of the bargain issue as determined quantitatively,’’ came the disappearance of “our bread and butter,’’ Buffett wrote in that 1967 letter. And so he migrated, as Miller says, “from value to quality. While the principles never change—they are timeless—methods can and often should change according to a given investing environment.’’

Buffett’s letter of May 29, 1969 was written five months before liquidation of the partnership began. His net worth, at age 38, in May 1969 was “a staggering $26 million,’’ Miller writes, and the partnership had assets of $100 million, from an original stake of $101,150.

“Quite frankly, I would continue to operate the Partnership in 1970, or even 1971, if I had some really first class ideas. Not because I want to, but simply because I would so much rather end with a good year than a poor one. However, I just don’t see anything available that gives me reasonable hope of delivering such a good year and I have no desire to grope around, hoping to “get lucky’’ with other’s people’s money. I am not attuned to this market environment and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.’’

Miller admires the integrity and loyalty that contributed to the success of Buffett Partnership Ltd., and now Berkshire Hathaway Inc., ($210.82 billion in revenues in 2015) of which Buffett is chairman of the board, president and CEO.

“The manner in which Buffett went about winding up the Partnership provides three valuable lessons: First and foremost, the integrity and the genuine care for his partners shine through. From finding a suitable equity manager, to buying bonds for those wishing to follow his advice on munis, to the near-explicit recommendation that partners hold on to their stakes in Berkshire and DRC—despite his own desire to own more, he put partners first.

“How much better off would our whole financial services profession be if everyone acted this way,’’ Miller says.

Warren Buffett’s Ground Rules. Words of Wisdom From the Partnership Letters of the World’s Greatest Investor, by Jeremy C. Miller. HarperCollins. 329 pages. $29.99.

Eleanor  O’Sullivan is an award-winning freelance journalist who writes for Financial Advisor magazine.