Warren Buffett is full of it from his toes to the tip-top of his head and you should pay close attention to every word he says. In fact if you’re an investor and haven’t done so already, at the conclusion of this segment you should click over to Berkshire Hathaway’s website and read every letter to shareholders Buffett has ever written. When you’re done you should read them again. As a body of work Buffett’s annual reports exceed an entire bookstore worth of investing advice.
Reconciling the apparent contradiction between Buffett’s image as America’s billionaire uncle and cutthroat capitalist reality is easy. Buffett is the fourth richest man in the world and a bona fide polymath. When it comes to finance he lives by a code of personal exceptionalism because he is in every way exceptional. In the financial community Buffett is simply Buffett. He is the Wizard of Oz except when you pull back the curtain there before you is a man who really is a Wizard.
Only Buffett could get away with freely admitting it’s impossible to calculate a business’ “intrinsic value” after accumulating $58 billion investing and trading (yes, trading) for more than 60 years. The normal rules don’t apply to Buffett because he’s not normal.
Buffett’s notes to shareholders are his real legacy. Prior to doing anything more aggressive with your money than putting it in a low cost index fund, investors should pour through Berkshire Hathaway annual reports until they are able to reconcile the logical disconnect between what Buffett suggests and how he actually behaves.
On page 14 of this year’s letter Buffett writes, “When Wall Streeters tout EBITDA as a valuation guide, button your wallet. Our public reports of earnings will, of course, continue to conform to GAAP. To embrace reality, however, remember to add back most of the amortization charges we report.”
When you can explain what’s wrong with that stream of logic you’re ready to start investing your own money.