The 1989 letter closes Warren Buffett’s first twenty-five years at Berkshire Hathaway with a 44.4% gain — and then, in the section every investor should read twice, a frank accounting of what he got wrong. “Mistakes of the First Twenty-Five Years” opens with his first error: buying Berkshire itself. Buffett explains the “cigar butt” approach to investing — picking up a discarded stub for the one free puff left in it — and why he abandoned it, since in a difficult business there is never just one cockroach in the kitchen. He delivers the line that reoriented his whole career: it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Time, he writes, is the friend of the wonderful business and the enemy of the mediocre. He describes the “institutional imperative” that makes rationality wilt inside otherwise sensible companies, admits that his costliest mistakes were the great purchases he understood and failed to make, and says of his record, quoting Mae West, “I was Snow White, but I drifted.” The letter also contains his confession on Coca-Cola — he sold Cokes six for a quarter as a boy in 1936, watched the company for fifty-two more years, and only in the summer of 1988 did his brain finally establish contact with his eyes. Elsewhere: Carl Sagan’s dividing bacteria as a parable about why high growth rates self-destruct; the mathematics showing why a single twenty-year double beats twenty taxed ones by twenty-seven to one; a blistering attack on zero-coupon and pay-in-kind bonds and the invented metric EBDIT, with investment bankers held to the standard of a responsible bartender; Ike Friedman at Borsheim’s revealing that the jewels aren’t in the safe; Mrs. B quitting the Furniture Mart at ninety-five and opening a competing store at ninety-six; Berkshire writing $250 million of catastrophe cover after Hurricane Hugo because nobody else would; and a corporate jet named, after some negotiation with Charlie Munger, “The Indefensible.” Essential listening on value investing, capital allocation, business mistakes and Berkshire Hathaway history.
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