1997

I am going to write about legendary value investor and Benjamin Grahams favorite disciple Warren E Buffetts letter to shareholder. In my opinion and many experts opinion, this is the most important source of leaning for student of business and investing. Warren Buffett started writing letters to shareholders in 1977. I have picked first letter to shareholders. Warren Buffett believes that ROE is the best measure of managerial economic performance Many times Warren Buffett quoted that acquiring Berkshire Hathaway was one of his mistakes. Warren Buffett is very candid about his investment mistakes. He categorized his mistakes in two ways: error of commission and error of omission. Error of commission is always more visible than error of omission. However, he never bothered about his mistakes. He and his pal Charlie Munger never looked back. They believe that there is so much to look forward that there is no sense looking back and regret. He says that life without mistakes is life of inactivity. He believes that mistakes are inevitable. In his early days of investing career, Warren Buffett had purchased Sinclair Texaco gas station at price of $2000. He lost all money in that wrong investment. Opportunity cost of that investment mistake is roughly 8 Billion USD. I am mentioning here three other investment mistakes of the master Conoco Phillips o Mistake: Buying at the wrong price U.S. Air o Mistake: Confusing revenue growth with a successful business Dexter Shoes o Mistake: Investing in a company without a sustainable competitive advantage

Even though Hathaway Berkshires Textile business is lousy business with poor economic characteristics, the maestro had not liquidated this lousy textile business for reasons stated below: Warren Buffett sees very little difference in acquiring whole business and buying piece of business from stock market. According to master - owning whole business have two advantages: firstly if we want to change to management, we can change and secondly, we can decide capital allocation decision. Apart from these two, absolutely there is no difference. Although Warren Buffett likes to acquire whole business, so that he can allocate the free cash flow generated by business efficiently. This choice is very evident as few, in my opinion, none has capital allocation expertise what he has. But many times, he preferred to acquire piece of business when market is offering mouthwatering opportunities. The maestro has explained this view with example of one of his favorite purchase - Capital Cities. Lastly, master has written very few words about banking business. He has used Return on Asset as criteria to explain achievement of Illinois National Bank.