“Investing is best when it’s most businesslike, and business is best when it’s most investment like.” – Warren Buffett
Like many investors, I read Warren Buffett’s annual letter each year. I look forward to it, and read it as soon as it comes out. I thought the letter this year was good, and it was interesting for what it said and the areas where is was silent (Wells Fargo, etc). Perhaps I viewed this years letter a little differently because I had just finished Jeremy Miller’s excellent book, “Warren Buffett’s Ground Rules.”
Miller’s book takes a look at Warren buffett’s partnership letters that were written in the 1950’s and 1960’s. Here were a few reminders from the book:
- Principles Remain Constant – One reason I always love reading about Buffett is because it’s a good reminder that the fundamental principles of investing, like other things, are constant. Buffett’s partnership letters from over 50 years ago teach as much business judgement and investment theory as his letter from two weeks ago.
- Learning and Evolving – While principles remain constant, the world in which we live is constantly evolving. As a result, our tactics must change as well. The partnership letters clearly demonstrate Buffett’s thinking as it evolves and grows in response additional pressures like changing market conditions and asset growth.
- Cash Matters – Perhaps the most interesting idea thread through the partnership letters is the importance of cash flow. The partnership was a conduit for people to invest in assets that would generate additional cash. Buffett is largely indifferent on where those assets are (securities or businesses), but is trying to have cash increase in value at the highest possible rate (even if it’s volatile). If Berkshire Hathaway is a raging river of cash flow, the partnership years were the headwaters.
If you occasionally like to take a stroll through a museum admiring the fine art (and you like business), the chapter on Dempster Mill is fantastic. Dempster was Buffett’s masterpiece during these early years. It’s awesome in his approach, scope, execution, and profits.
While outside the scope of this book, there was one nagging question from the partnership letters. Buffett seems genuine as he writes about his desire to explore other professional activities in addition to investing. However, he takes over at Berkshire Hathaway shortly after shutting down the partnership. Did he just realize he loved it too much? Did he suddenly find a lot of new investment opportunities? Did he just want to change forms from the partnership to the corporation?
That’s a story I’d love to read someday.