Okay, Warren Buffett's narrative in his annual reports from 1965-2012 may not be as personal as Churchill's letters to his wife Clementine during the Boer War or as satiric and biting as Ernest Hemingway's early letters to Ezra Pound, but they are revealing of his business philosophy, candid to a fault, and as funny as a late night comedian.
In 1996, as he did in many years, Buffett laid out his basic business strategy to his investors of Berkshire Hathaway, his holding company. "Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards--so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes."
In 1987 Buffett reported to his shareholders that in the 23 years since Berkshire Hathaway was founded, the company's "per-share book value" had grown at a rate of 23.1 percent compounded annually, and despite its growing size, the company managed to keep approximately to that growth rate, an extraordinary accomplishment.
His business acquisition philosophy is simple, buy well managed companies.
Reporting in that year of 1987, he wrote, "the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago."
"Our managers have produced extraordinary results by doing rather ordinary things--but doing them exceptionally well. Our managers protect their franchises, they control costs, they search for new products and markets that build on their existing strengths and they don't get diverted."
Buffett is the personification of the buy and hold investor, or as he put it with dry humor in the 1998 annual report, "our favorite holding period is forever."
Besides, by holding forever, you'll have less stress. "What's the sense in getting rich just to stare at a ticker tape all day?" he asked.
Buffett cautions against companies that are always buying and selling their own stock, something that is closely watched on Wall Street in order to try to detect a stock's direction. "We don't understand the CEO who wants lots of stock activity, for that can be achieved only if many of his owners are constantly exiting. At what other organization--school, club, church, etc.--do leaders cheer when members leave?"
Buffett tells the charming story of one of his first sales gigs and how he fell in love with Coca-Cola in his 1989 annual report, a company he bought a prodigious amount of shares in, 23, 350, 000, in 1988. "I started buying Cokes at the rate of six for 25 cents from Buffett & Sons, the family grocery store, to sell around the neighborhood for 5 cents each. In this excursion into high-margin retailing, I duly observed the extraordinary consumer attractiveness and commercial possibilities of the product."
Always candid, Buffett explains his error in buying some companies just because they were cheap. He calls this the 'cigar butt' approach to investing. "If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the 'bargain purchase' will make that puff all profit."
Part biblical wisdom, part sound business advice, part comedic relief, Warren Buffett's letters to shareholders from 1965 to 2012 is all good reading.
[Hansen Alexander is an attorney and author of "An Introduction to the Laws of the United States in the 21rst Century," an Amazon, e-book exclusive.]