Savvy Nickel
by Warren Buffett (edited by Lawrence Cunningham)
Lawrence Cunningham's masterful compilation of Warren Buffett's shareholder letters, organized thematically. The closest thing to a Buffett investing textbook, covering corporate governance, valuation, accounting, and the owner-oriented philosophy that built Berkshire Hathaway.
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Warren Buffett has written annual letters to Berkshire Hathaway shareholders since 1965. Lawrence Cunningham, a corporate law professor at George Washington University, recognized that these letters contained the most comprehensive and honest explanation of Buffett's investment philosophy ever assembled. He organized the letters thematically into a coherent book that reads as a complete investment and business education. Every serious investor should read it.
| Attribute | Details |
|---|---|
| Title | The Essays of Warren Buffett: Lessons for Corporate America |
| Author | Warren Buffett, compiled and edited by Lawrence A. Cunningham |
| Publisher | Carolina Academic Press |
| First Published | 1997 (updated through 5th edition, 2019) |
| Pages | 384 |
| Reading Level | Intermediate |
| Amazon Rating | 4.8/5 stars |
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Warren Buffett was born in Omaha, Nebraska in 1930. He bought his first stock at age 11, filed his first tax return at 13 (deducting his bicycle as a business expense), and took Benjamin Graham's investment course at Columbia Business School. He ran a partnership that compounded at 29.5% annually from 1957 to 1969, then took control of a failing textile company called Berkshire Hathaway and transformed it into the most successful holding company in history.
As of 2026, Berkshire Hathaway has a market capitalization exceeding $900 billion. Buffett donated the majority of his fortune to the Bill and Melinda Gates Foundation and related charities. His estimated net worth exceeds $100 billion despite decades of giving.
The shareholder letters are free at berkshirehathaway.com. This book's value is Cunningham's organization, which transforms a scattered archive into a coherent curriculum.
Cunningham organizes the letters into eight thematic sections:
| Section | Topics |
|---|---|
| Corporate Governance | Board responsibilities, owner-oriented management |
| Finance and Investing | Asset allocation, intrinsic value, portfolio management |
| Alternatives to Common Stock | Bonds, convertibles, preferred stock |
| Common Stock | Stock splits, repurchases, dividends |
| Mergers and Acquisitions | How Buffett evaluates acquisitions |
| Accounting and Valuation | Earnings quality, GAAP limitations, intrinsic value |
| Accounting Shenanigans | How companies manipulate reported results |
| Tax Matters | Tax efficiency in portfolio management |
Buffett's most consistent theme across 60 years of letters: managers should treat shareholders as partners, not as a source of capital to be managed.
The owner-oriented principles:
The GAAP vs. owner earnings distinction:
Buffett popularized "owner earnings" as a superior measure of business value:
Owner Earnings = Net Income
+ Depreciation and Amortization
- Capital Expenditures Required to Maintain Competitive Position
+/- Other Non-Cash AdjustmentsGAAP earnings can be manipulated through accounting choices. Owner earnings represent the cash a business actually generates for owners after maintaining its competitive position.
Buffett is more explicit in the letters than almost anywhere else about what he looks for in a business:
The ideal business (Buffett's description):
"The ideal business is one that earns very high returns on capital and can keep deploying additional capital at those high rates. That becomes a compounding machine."
The four sources of competitive advantage (moat):
| Moat Type | Example | Durability |
|---|---|---|
| Network effects | Visa/Mastercard, American Express | Very high |
| Switching costs | Enterprise software, banks | High |
| Cost advantage | GEICO (insurance), BYD (manufacturing) | Medium-High |
| Intangible assets | Coca-Cola brand, patent-protected drugs | Variable |
Buffett explicitly warns against businesses without moats, regardless of how good their current financials look:
"A business that must deal with fast-moving technology is not the type for us... The key is to invest in businesses that have strong competitive positions and where the pace of change is slow."
Buffett's approach to valuing businesses is directly descended from Graham but more focused on qualitative factors:
The two-step process:
Step 1: Estimate future owner earnings as accurately as possible. This requires understanding the business's competitive position, industry dynamics, and management quality.
Step 2: Discount those earnings at an appropriate rate (Buffett typically uses the long-term Treasury rate as a floor, then adds a judgment-based premium for business risk).
Intrinsic Value = Sum of all future owner earnings, discounted to present valueBuffett acknowledges this is imprecise: "Fuzzy but approximately right is far better than precisely wrong."
The margin of safety application:
Even after calculating intrinsic value, Buffett insists on buying at a significant discount. His most famous quote on this:
"Price is what you pay. Value is what you get."
When the gap between price and value is wide enough, the investment is safe regardless of estimation error. When the gap is narrow, even a slightly wrong estimate produces a bad outcome.
Buffett's most famous elaboration on Graham's Mr. Market metaphor:
"In the short run, the market is a voting machine but in the long run it is a weighing machine."
The voting machine reflects popularity, sentiment, and momentum. The weighing machine reflects genuine business value as expressed through earnings, cash flow, and assets. Over months and years, the voting machine dominates. Over decades, the weighing machine always wins.
The practical implication: Portfolio results measured over any period shorter than five years are dominated by sentiment change. Intrinsic value creation is only reliably measured over longer periods. This is why Buffett's holding period is "forever" for great businesses.
Buffett devotes significant space to capital allocation because he believes most CEOs are poor at it:
The capital allocation hierarchy (Buffett's preference):
| Use of Capital | Return Potential | Buffett's Preference |
|---|---|---|
| Reinvestment in existing business at high returns | Highest | Strongly preferred |
| Acquisitions at reasonable prices | High | Preferred |
| Debt repayment | Risk reduction | Contextual |
| Share repurchases (when below intrinsic value) | High if priced right | Strongly preferred |
| Share repurchases (when above intrinsic value) | Value destructive | Strongly opposed |
| Dividends | Returns cash to shareholders | Last resort |
The most common mistake CEOs make: reinvesting capital in mediocre-return businesses when share repurchases at discounts to intrinsic value would create far more shareholder value.
Buffett's accounting sections are among the most practically valuable in any investing book. Key insights:
Goodwill amortization: GAAP required goodwill amortization for decades. Buffett argued this was economically meaningless for businesses that maintained their acquired value — and economically wrong for businesses that actually improved them. His advocacy helped change GAAP treatment of goodwill.
Stock options as expenses: Long before FASB required option expensing, Buffett argued that options were clearly compensation and clearly should be expensed. Companies that granted options and did not expense them were misleading shareholders.
The "earnings management" problem: Buffett identifies the specific techniques companies use to smooth or inflate reported earnings:
| Technique | How It Works | Warning Sign |
|---|---|---|
| Reserve manipulation | Build reserves in good years; release in bad years | Suspiciously smooth earnings |
| Revenue recognition timing | Pull future revenue into current period | Receivables growing faster than revenue |
| Acquisition accounting | Allocate value to write-off-able assets | Frequent acquisitions with "one-time" charges |
| Pension assumptions | Inflate expected return assumption | Check footnotes for pension discount rate |
| Cookie jar reserves | Excessive reserves released to meet targets | Earnings that consistently hit analyst estimates exactly |
Buffett's record on acquisitions is exceptional because he breaks every rule corporate America follows:
Why most acquisitions destroy shareholder value:
Buffett's acquisition criteria (stated directly in the letters):
Beyond investing, the letters constitute the best available free MBA on business management. Topics covered in depth:
| Question | Acceptable Answer |
|---|---|
| Does the business have a durable competitive moat? | Clear moat source identified |
| Are returns on equity high without excessive leverage? | ROE above 15% consistently |
| Does management treat shareholders as partners? | Transparent, honest communication |
| Is capital allocated wisely? | Buybacks at discounts, acquisitions at reasonable prices |
| Can I predict earnings 10 years out with confidence? | Business change is slow and manageable |
| Is the price below my estimate of intrinsic value? | Significant margin of safety present |
Buffett reads annual reports cover to cover, including footnotes. His specific focus areas:
| Book | Buffett Content | Depth | Accessibility |
|---|---|---|---|
| The Essays of Warren Buffett | Primary source | Very High | Medium |
| The Intelligent Investor | Foundational framework Buffett built on | High | Medium |
| The Snowball (biography) | Life story and decision context | High | High |
| Buffettology | Interpretation of his methods | Medium | High |
Q: Are the actual Berkshire shareholder letters worth reading instead?
A: Yes, and they are free at berkshirehathaway.com. This book's value is Cunningham's thematic organization, which makes the letters more coherent as a learning resource. Read both: use this book as the curriculum, then explore specific years of letters for context.
Q: Which edition should I buy?
A: The 5th edition (2019) is the most current and includes letters through 2018. Subsequent letters continue to be published annually on Berkshire's website.
Q: Can I apply Buffett's approach as an individual investor?
A: His framework for evaluating business quality, management, and valuation is fully applicable. His specific investment universe (needing $75M+ in earnings for Berkshire to care) is not — look at smaller companies where his methods work equally well with less competition.
Rating: 4.8/5
The Essays of Warren Buffett is the closest thing to a Buffett investing textbook that exists. His own writing, organized by Cunningham's editorial intelligence, covers every dimension of investment thinking from valuation to corporate governance to accounting integrity. It belongs on the shelf next to The Intelligent Investor as essential reading for anyone serious about investing.
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Kindle: Buy on Amazon
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