About the book “Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor”: Jeremy C. Miller


  1. About the Author Jeremy C. Miller and the book “Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor”.
  2. Main ideas.
  4. Conclusion.

About the Author Jeremy C. Miller and the book “Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor”

Jeremy C. Miller – investment analyst at the New York-based Mutual Fund Company, who has worked in the financial industry for 15 years. Over the years of work in the field of finance, he held various positions in several of the largest investment banks in the world, specializing in the sale of shares and engaged in research activities.

Jeremy Miller began her career with a bachelor’s degree in East Asian studies at Oberlin College. He then served as an institutional stock seller at Nomura Securities, Banc of America Securities and Credit Suisse First Boston. After that, Jeremy spent two years at Vertical Research Partners as a specialist in industry and materials. On the career ladder, the author of the book rose to the position of Executive Director, Industry and Materials Analyst for the Mid Cap Value Team in the American Equity Group. In 2016, Jeremy Miller wrote the book “Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor”.

Warren Buffett does not write books, so the author Jeremy Miller has combined letters to the shareholders of the company from 1956 to 1970, which, according to the recognition of Buffett himself, with the highest yield that he ever received. Buffett Associates Ltd. invariably ahead of the market, providing profitability with regard to reinvestment at 24% per annum after tax. This book will be equally useful for beginners, amateurs and professionals. Letters to partners collected in this publication try to reproduce the way of thinking and investment philosophy of a great entrepreneur.

The book outlines the methods of investing in “undervalued stocks”, “event stocks” and “controlling stocks”, three fundamental “management methods”, which over time have become important approaches. Jeremy Miller’s “Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor” is a shortened version of Buffett’s biography from Alice Schroeder, which also contains all these letters to shareholders.

Main ideas

The book does not have a direct guide to action, but information for reflection is certainly contained. The first thing I want to note is to be in the circle of my competence. To do this, Buffett has three mail trays in the office – incoming, outgoing and too complicated. Do not get involved in something that you do not understand. There are always good opportunities in the area in which you have been guided for a long time.

Miller describes in the book a focus on finding the right companies at the right prices and refusing to find the right moment to buy or sell. Buffett is a student of Benjamin Graham, so he preferred value investing over short-term speculation. Therefore, if he saw good stocks at an affordable price, he bought without waiting for a pullback or price correction.

Buffett clearly understood that market ups and downs are inevitable, you should not pay attention to them, let them come and go. Understanding that for every 10 years there is one crisis year. Therefore, the main task is to lose less during the crisis years than the Dow Jones index, and in the years of growth to earn a little more than the index grows. However, not everyone has the willpower to comply with the discipline necessary for value investing.

Warren Buffett made his first investment when he was 11 years old, but in a hurry, he earned only $ 5, and a week later the share price rose 5 times, which would have earned $ 500. At that moment, young Warren formulated the first investment rule – to be patient and not to panic when the market price changes, as well as to be sure of success when investing the money you trust.

Buffett’s partners were warned that if a 20-30% drop in the stock portfolio (in the BPL partnership) is unbearable emotionally or financially, then they should stop investing in instruments like ordinary stocks. As Harry Truman said, “if you can’t stand the heat, leave the kitchen.” Of course, it is advisable to ponder this problem before you enter the kitchen.

Attention is paid to a sound approach, by which Buffett understood loyalty to the path chosen once. Disabling emotions that constantly accompany those investors who are trying to predict stock market behavior or follow trends. Clarification of public opinion is in no way a substitute for independent deliberation. In other words, we need to focus on what should happen, and not when it should happen.

Diversification. Buffett promotes a different approach to diversification. “If you can identify six excellent companies, then this is all the diversification you need. You will earn a ton of money. And I guarantee that the purchase of the seventh company instead of investing additional funds in the first will result in a terrible mistake. ” This is explained by the fact that having a harem of 70 wives, it is impossible to know each of them perfectly. Similarly with companies, you need to clearly know what you are investing in.

Compound interest Interest gives an exponential increase in capital. The final result depends on two key factors: (1) the average annual rate of return and (2) the investment time. Einstein, they say, called compound interest the eighth wonder of the world and emphasized that “those who understand this, earn on them, and those who do not understand, pay for them.” Therefore, Buffett lives all his life in the same house, realizing that the $ 10 spent today in 20 years with a yield of 20% per annum will turn into $ 383.

Evaluate and achieve results. The results of each year should be evaluated relative to market performance and not pay attention to whether it is in plus or minus in a particular year. It is important to understand whether the year was better or worse compared to the market as a whole. Buffett is convinced of the need to define criteria before starting a trade; if done in hindsight, it’s easy to imagine one or the other so that everything looks good.

In accordance with his Puritan worldview, every investment manager, whether it is a broker, investment adviser, trust department or investment company, should be ready to explicitly announce what he is going to achieve and how he intends to measure the extent to which this task has been completed.
The rejection of active actions or the choice of an investment manager in favor of indexing is very attractive – with a relatively small investment of time and effort, its results will be excellent. For most people, this is the best option for saving money.

Undervalued stocks. Buffett believed that if the market value of a company (stock) falls below its internal value for a sufficiently long time, then market forces will seek to eliminate underestimation, since the market is effective in the long run. Therefore, in the long run, markets evaluate everything correctly and ultimately take into account the company’s economic success in share prices. In our opinion, this brings results that exceed the average level over time.

Buffett described a simplified valuation technique for a company. To do this, you need to sequentially go through the list of balance sheet items and evaluate their liquidity and summarize, from short-term to long-term assets, thereby obtaining an approximate price for the company. Cash is so liquid that it does not require a discount (change in coefficient). Accounts receivable (cash owed from the company’s customers but not yet received) is estimated at 85 cents per dollar; inventories that are recorded in accounting at cost are discounted to 65 cents. Deferred expenses and “other” expenses are estimated at 25 cents per dollar. After summing the adjusted indicators, Buffett takes the real value of short-term (liquid) assets equal to $ 3.6 million, despite the fact that he is valued at $ 5.5 million in accounting. Then he estimates long-term assets (industrial buildings and equipment) that are less liquid, using estimated residual value.

Event stocks – the investment strategy is based on a corporate event (mergers, acquisitions), after which price movement in a certain direction is assumed. For example, at the merger of 2 companies, shares of one cost $ 10, and the second $ 30. After the merger, the shares of the two companies will be replaced by common ones and the price of which is expected to be $ 30. Then it is profitable to buy shares of the first company in anticipation of growth, but there are a number of difficulties.
Buffett formulated four questions that need to be answered when evaluating event stocks:

1) What is the likelihood that the transaction will be completed?

2) how long will it take to close a transaction?

3) how likely is it that another company will make a better offer?

4) what happens if a deal breaks down?

Only after evaluating the development of events and analysis is it worth buying stocks. Suppose that the price triples from 10 to 30, but the probability of a trade failure is 90%. It turns out that on average we earn 20% during the closing of the transaction. If it lasts a couple of months, it’s fine, but if the process lasts more than a year, then it is advisable to find another investment opportunity.

Controlling shares. Controlling investments is a form of investing in voting shares of a joint-stock company in which an investor buys at least half of all the company’s securities. After the repurchase of half of the shares, the investor gains the right to control almost all decisions of the company.

Buffett describes how sometimes when you evaluate stocks, you may notice that the carrying value contains funds that are not used but are liquid. They are not taken into account in the value of shares, so you can buy this company for the purpose of selling or reorganizing these funds, which will soon give their profit. In other cases with controlling shares, you can put in the head of the executive director, who will correct the situation and increase the income of the enterprise.

Taxation. In different countries, taxes on capital growth from dividends and so on vary. Therefore, all investment decisions should be made based on the most likely cumulative post-tax return with minimal risk. This means that not always a large increase in stocks promises a large profit after tax deductions, therefore, with close profitability, you can use other tools with a lower tax rate.


Quote 1 Warren Buffett's Ground Rules Jeremy Miller

1) Our business is great purchases, not outstanding sales.

2) I do not predict stock market behavior or market fluctuations. If you think that I can do this, or think that it is fundamentally important for the investment program, then you better not join a partnership.

Quote 2 Warren Buffett's Ground Rules Jeremy Miller

3) You must evaluate facts and circumstances, form hypotheses on the basis of logic and reason, and then act when the facts are arranged in the right way, regardless of whether the crowd agrees or disagrees with your conclusions. Successful investing is a movement against the nature of social influence. It contradicts the instincts that are genetically embedded in our essence. It is this aspect that makes it so difficult.

4) Since the general market trend is upward, if you can lose a little less in falling markets and win a little more in growing ones, then your performance will be outstanding.

Quote 3 Warren Buffett's Ground Rules Jeremy Miller

5) Investment ideas, like women are often more exciting than punctual.

6) My own investment philosophy is based on the fact that forecasts speak more about the predictors’ weaknesses than about the future.

7) I believe that people would achieve more if they had only 10 opportunities to buy stocks in a lifetime. Do you know what would happen? They probably would have done everything so that every purchase was good. They would have spared no effort in research before buying. You do not need to have four dozen growth opportunities to get rich.

Quote 4 Warren Buffett's Ground Rules Jeremy Miller

8) When a new idea appears, buy it only if it is more attractive than increasing the size of existing positions.

9) When the water (market) rises, the duck rises with it; when the water drops, the duck lowers. Whatever the Animal Welfare Society considers, in my opinion, a duck can only be praised (or blamed) for its own actions. Rising or falling water levels in a pond is hardly what you can brag about. The water level is very important for the results of the BPL … But in addition to this, from time to time we wave our wings.

Quote 5 Warren Buffett's Ground Rules Jeremy Miller

10) To a large extent, it depends on the direction of the stock market movement when we are right, and on the accuracy of our analysis of the company, whether we are right at all. In other words, we need to focus on what should happen, and not when it should happen.


Despite the fact that the book, in my opinion, is poorly edited, there are pieces of repetition of the text and errors in the tables. Also, the way letters are presented is streamlined, according to the author Jeremy Miller, and not in chronological order, which shows how the author of the book explains Buffett’s success, and not how Buffett really thinks. From it I can distinguish the following conclusions:

1) think of stocks as shares of ownership in companies;

2) the price fluctuates rather randomly in the short term, but in the long term corresponds to the intrinsic value of companies;

3) compound interest, let profits grow and accumulate;

4) a conflict of interest between small investors and managers of large funds;

5) index instruments are the best long-term investment option for most people.

In conclusion, I recommend reading the book Benjamin Graham’s The Intelligent Investor , which was a teacher of Warren Buffett .


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