Investing Legends

The 1990 letter opens with Warren Buffett’s granddaughter Emily waving a magic wand over Beemer the Clown’s box of wonders and declaring, “Gee, I’m really good at this” — which, Buffett says, sums up his own contribution to Berkshire’s operating results. Net worth rose just 7.3% in a year when his four permanent holdings went nowhere, and the letter’s centrepiece is the purchase that made it famous: a 10% stake in Wells Fargo, bought for $290 million amid a panic in bank stocks at less than five times after-tax earnings. Buffett explains why he normally avoids banks — at twenty times leverage, small mistakes destroy large amounts of equity, and bankers had played follow-the-leader with lemming-like zeal — and why Carl Reichardt and Paul Hazen were the exception. He welcomes the stock’s 50% collapse because it let him buy more, and draws the lesson that has outlived the trade: investors who will be buyers all their lives should welcome falling prices exactly as they welcome falling food prices, since it is optimism, not pessimism, that is the enemy of the rational buyer. The letter also introduces “look-through earnings,” reveals that Berkshire’s non-insurance businesses earned 51% on equity with no leverage, delivers the full cost-of-float framework for judging an insurer, and launches the super-cat reinsurance business with a warning that results will be close to either zero or 300%. There is a blistering post-mortem on the junk-bond decade — the dagger on the steering wheel, Graham’s three words “margin of safety,” the Tampa television station whose interest exceeded its revenues, and mountains of bonds sold by those who didn’t care to those who didn’t think. Buffett concedes his USAir investment was an unforced error, mourns Gillette’s Colman Mockler, names his wife Susan to the board, and admits that in the insurance business there is no statute of limitations on stupidity. The episode closes with two appendices: Ben Graham’s 1936 satire in which U.S. Steel modernizes by writing its plant down to minus a billion dollars, paying its entire workforce in option warrants and carrying inventory at one dollar; and Buffett’s own letter to a family-business owner on what it really means to sell the work of a lifetime. Essential listening on value investing, banking, insurance float, accounting chicanery and Berkshire Hathaway history.

The 1988 letter is Warren Buffett’s most quotable demolition of academic finance — and the year Berkshire bought Coca-Cola. Buffett opens by warning that past rates of gain say little about the future, since judging Berkshire on its record is like judging a forty-two-year-old center fielder on his lifetime batting average. He celebrates the Sainted Seven, which earned 67% on equity with no leverage, and welcomes Borsheim’s into the family — bought from Ike Friedman with no audit, no inventory count, and a one-page contract, because the Friedmans and the Blumkins share Mrs. B’s creed: sell cheap and tell the truth. The heart of the letter is a masterclass on arbitrage, from the 24-year-old Buffett buying Rockwood shares and selling cocoa beans with subway tokens as his only expense, to the Arcata redwood saga where he valued a government timber claim at “somewhere between zero and a whole lot” and was eventually proven spectacularly right. That record becomes his case against efficient market theory: 63 years of 20%-plus arbitrage returns, against a market that returned just under 10% — the difference between $1,000 growing to $405,000 and growing to $97 million. Along the way he explains why it is far easier for an inadequate CEO to keep his job than an inadequate typist, why bosses paint the bullseye around wherever the arrow lands, why he wants Berkshire’s newly NYSE-listed shares to trade quietly at intrinsic value rather than as high as possible, and why accounting fraud pays: it has been far safer to steal large sums with a pen than small sums with a gun. He also pays tribute to his teacher David Dodd, and coins the line that defines his approach to Coca-Cola and Freddie Mac — our favorite holding period is forever. Essential listening on value investing, market efficiency, arbitrage, accounting and Berkshire Hathaway history.

The 1987 letter is where Warren Buffett introduces the world to Mr. Market. Written months after the October crash, it lays out Ben Graham’s allegory of the manic-depressive partner who shows up every day naming a price — and the warning that he is there to serve you, not to guide you. Buffett adds the poker line that has followed it ever since: if you’ve been in the game thirty minutes and don’t know who the patsy is, you’re the patsy. He then turns his fire on “portfolio insurance,” the strategy that had $60 to $90 billion of equities poised on a hair trigger in mid-October, asking whether a rational farm owner would instruct his agent to sell off pieces of the farm each time a neighbour’s land went cheap. Elsewhere in the letter he celebrates the Sainted Seven — the Buffalo News, Fechheimer, Kirby, Nebraska Furniture Mart, Scott Fetzer Manufacturing, See’s and World Book — which together earned a 57% return on equity, and explains why the best businesses are usually the ones doing much the same thing they did ten years ago. There is 94-year-old Mrs. B, for whom he scraps the mandatory retirement-at-100 policy; an anonymous letter from a competitor begging him to raise prices; Chuck Huggins turning a candy-discontinuation revolt into a customer-service masterclass; a demand that auditors admit they cannot verify an insurer’s loss reserves; the $700 million Salomon preferred; and a warning that America’s trade deficit has the government depending, like Blanche DuBois, on the kindness of strangers. Essential listening on value investing, market psychology, capital allocation and Berkshire Hathaway history.

Stanley Druckenmiller delivered a keynote in 2021. In this talk, the founder of Duquesne Family Office breaks down the macro consequences of COVID. He covers unprecedented fiscal stimulus, Federal Reserve quantitative easing, inflation risks, asset bubbles, and the future of the U.S. dollar as the world’s reserve currency. The Q&A, moderated by Rubin Miller, covers Bitcoin and crypto, SPACs, short selling, active vs. passive investing, long-term thinking in markets, and the lessons Druckenmiller learned from mentors like George Soros. Whether you follow hedge funds, macroeconomics, or investing strategy, this is a masterclass in how one of the greatest macro investors thinks.Recorded in 2021.

In his 1986 letter to Berkshire Hathaway shareholders, Warren Buffett reports a 26.1% gain in net worth and then does something unusual: he grades himself below his own managers. They ran their businesses superbly, he writes, while he failed to deploy the capital they generated — finding no stocks worth buying and spending the year paying down debt and stockpiling cash. It is the letter where the famous line first appears: be fearful when others are greedy, and greedy only when others are fearful. Buffett describes the euphoria in a market where the rewards to owners have become “gloriously uncoupled” from the performance of the businesses themselves, introduces the moat-around-the-castle idea through GEICO’s rock-bottom cost structure, and explains his ‘til-death-do-us-part commitment to Capital Cities, GEICO and the Washington Post. He tells how a shareholder’s letter brought him the Fechheimer Brothers Company, a business he bought without ever visiting it; marvels at 93-year-old Mrs. B still outselling everyone at Nebraska Furniture Mart; dissects who really pays corporate taxes after the Tax Reform Act of 1986; and confesses to a third straight year of loss-reserve error, noting that if Pinocchio’s rules applied to him, his nose would now draw crowds. The letter closes with the appendix that gave investing one of its most important concepts — “owner earnings” — and a withering attack on the Wall Street cash flow figures that add back depreciation while ignoring the capital spending a business actually needs to survive. Essential listening on value investing, accounting, capital allocation and Berkshire Hathaway history.

Joel Greenblatt sits down with Howard Marks at Columbia for a conversation about special situations, margin of safety, and why the goal is to find the easier game rather than the harder one. He explains how spin-offs, recaps and liquidations gave him a place to hunt where the crowd wasn’t looking, why he eventually drifted from cheap businesses toward good ones, and how he sizes positions around what he can’t lose rather than what he might make. Along the way he tells the story of the stock trading at half its cash value that led to the Value Investors Club, the Comdex position that taught him about operating leverage the hard way, and why he returned all his outside capital after ten years of fifty percent returns.

In his 1985 letter to Berkshire Hathaway shareholders, Warren Buffett reports a 48.2% gain in net worth and immediately warns that it will never happen again — noting that the visit of Halley’s Comet and that percentage have something in common: neither will be seen again in his lifetime. It is a landmark year and a landmark letter. Buffett closes the textile business that gave Berkshire its name, and the post-mortem is one of the most quoted passages he ever wrote: that a good managerial record owes far more to what business boat you get into than to how effectively you row. He recounts the auction where looms bought for $5,000 sold for $26 as scrap, dissects why Burlington Industries’ $3 billion of rational capital spending left its shareholders poorer in real terms, and explains why the economic goodwill of a single See’s store exceeded the proceeds of an entire mill’s assets. He then delivers a blistering critique of fixed-price stock options, using a savings account and a trustee to show how managers get rewarded simply for withholding owners’ earnings. The letter also covers the Capital Cities/ABC investment, the Scott & Fetzer acquisition, the Fireman’s Fund quota-share deal, the hardening insurance market, and the Washington Post story — bought in 1973 at a quarter of business value and worth $221 million by the end of 1985. Essential listening on value investing, capital allocation, incentives and Berkshire Hathaway history.

Warren Buffett and Charlie Munger take the afternoon shareholder questions at the 1996 Berkshire Hathaway annual meeting, covering concentration versus diversification, why they stay inside their circle of competence, and how they judge whether a manager is any good. Buffett argues that diversification is protection against ignorance and that three wonderful businesses are safer than fifty well-known ones, while Munger dismisses modern portfolio theory as a form of dementia. They also work through Disney and the value of owning a character no agent can renegotiate, the insurance float they would not trade for seven billion dollars in cash, why Wall Street firms are more like a brain surgeon than the Mayo Clinic, and why they use the government bond rate rather than a risk premium when discounting cash flows.