Each year investors await with glee Berkshire Hathaway's annual letter, which outlines the state of the company's portfolio, reports on financial performance over the prior year and in context of the company's historical record, and contains nuggets of wisdom from Berkshire's CEO, the so-called "Oracle of Omaha," Warren Buffett.
One such nugget comes on page 21 of Berkshire's recently released 2013 letter, in which Buffett states, "Of all the investments I ever made, buying Ben’s book was the best (except for my purchase of two marriage licenses)."
What was Ben's book?
Who is Ben?
Ben Graham was an investor and Columbia Business School professor under whom Buffett studied, and the father of "value investing," whereby simplistically speaking, investors seek to acquire assets at prices substantially below their intrinsic value, so as to invest with a substantial "margin of safety" in case their investment does not pan out as planned and the price of the asset does not reach its projected value. Stated differently, and even more crudely and simplistically, it is a strategy of buying low and selling high.
Of his book purchase, Buffett noted, "I can’t remember what I paid for that first copy of The Intelligent Investor. Whatever the cost, it would underscore the truth of Ben’s adage: Price is what you pay, value is what you get."
"I learned most of the thoughts in this investment discussion from Ben’s book The Intelligent Investor, which I bought in 1949. My financial life changed with that purchase. Before reading Ben’s book, I had wandered around the investing landscape, devouring everything written on the subject. Much of what I read fascinated me: I tried my hand at charting and at using market indicia to predict stock movements. I sat in brokerage offices watching the tape roll by, and I listened to commentators. All of this was fun, but I couldn’t shake the feeling that I wasn’t getting anywhere.
In contrast, Ben’s ideas were explained logically in elegant, easy-to-understand prose (without Greek letters or complicated formulas). For me, the key points were laid out in what later editions labeled Chapters 8 and 20. (The original 1949 edition numbered its chapters differently.) These points guide my investing decisions today."
Read the whole letter here.