More Praise for The Warren Buffett Way, First Edition

Omaha Sun,
along with a group of weekly papers; from them he learned the business
dynamics of a newspaper. He had four years of hands-on experience run-
ning a newspaper before he bought his first share of the 
Washington Post.
Wells Fargo
Buffett understands the banking business very well. In 1969, Berkshire
bought 98 percent of the Illinois National Bank and Trust Company
and held it until 1979, when the Bank Holding Act required Berkshire
to divest its interest. During that ten-year period, the bank took its
place beside Berkshire’s other controlled holdings and Buffett reported
its sales and earnings each year in Berkshire’s annual reports.
Just as Jack Ringwalt helped Buffett understand the intricacy of the
insurance business (see Chapter 3), Gene Abegg, who was chairman of
Illinois National Bank, taught Buffett about the banking business. He
learned that banks are prof itable businesses as long as loans are issued re-
sponsibly and costs are curtailed. A well-managed bank could not only
grow its earnings but also earn a handsome return on equity.
The key is “well managed.” The long-term value of a bank, as
Buffett learned, is determined by the actions of its managers, because
they control the two critical variables: costs and loans. Bad managers
have a way of running up the costs of operations while making foolish
loans; good managers are always looking for ways to cut costs and rarely
make risky loans. Carl Reichardt, then chairman of Wells Fargo, had
run the bank since 1983, with impressive results. Under his leadership,
growth in earnings and return on equity were both above average and
operating eff iciencies were among the highest in the country. Reichardt
had also built a solid loan portfolio.
C O N S I S T E N C Y
Warren Buffett cares very little for stocks that are “hot” at any given
moment. He is far more interested in buying into companies that he be-
lieves will be successful and prof itable for the long term. And while
predicting future success is certainly not foolproof, a steady track record
is a relatively reliable indicator. When a company has demonstrated

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6 8
T H E W A R R E N B U F F E T T W AY
consistent results with the same type of products year after year, it is not
unreasonable to assume that those results will continue.
As long, that is, as nothing major changes. Buffett avoids purchasing
companies that are fundamentally changing direction because their pre-
vious plans were unsuccessful. It has been his experience that under-
going major business changes increases the likelihood of committing
major business errors.
“Severe change and exceptional returns usually don’t mix,” Buffett
observes.
6
Most individuals, unfortunately, invest as if the opposite were
true. Too often, they scramble to purchase stocks of companies that are
in the midst of a corporate reorganization. For some unexplained reason,
says Buffett, these investors are so infatuated with the notion of what to-
morrow may bring that they ignore today’s business reality. In contrast,
Buffett says, his approach is “very much profiting from lack of change.
That’s the kind of business I like.”
7
Buffett also tends to avoid businesses that are solving diff icult prob-
lems. Experience has taught him that turnarounds seldom turn. It can be
more profitable to expend energy purchasing good businesses at reason-
able prices than difficult businesses at cheaper prices. “Charlie and I have
not learned how to solve difficult business problems,” Buffett admits.
“What we have learned is to avoid them. To the extent that we have
been successful, it is because we concentrated on identifying one-foot
hurdles that we could step over rather than because we acquired any
ability to clear seven-footers.”
8
The Coca-Cola Company
No other company today can match Coca-Cola’s consistent operating
history. This is a business that was started in the 1880s selling a bever-
age product. Today, 120 years later, Coca-Cola is selling the same bev-
erage. Even though the company has periodically invested in unrelated
businesses, its core beverage business has remained largely unchanged.
The only signif icant difference today is the company’s size and its
geographic reach. One hundred years ago, the company employed ten
traveling salesmen to cover the entire United States. At that point, the
company was selling 116,492 gallons of syrup a year, for annual sales of
$148,000.
9
Fifty years later, in 1938, the company was selling 207 million

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I n v e s t i n g G u i d e l i n e s : B u s i n e s s Te n e t s
6 9
cases of soft drinks annually ( having converted sales from gallons to
cases). That year, an article in 
Fortune
noted, “It would be hard to
name any company comparable to Coca-Cola and selling, as Coca-Cola
does, an unchanged product that can point to a ten year record anything
like Coca-Cola’s.”
10
Today, nearly seventy years after that article was published, Coca-
Cola is still selling syrup. The only difference is the increase in quantity.
By the year 2003, the company was selling over 19 billion cases of soft
drink in more than 200 countries, generating $22 billion a year in sales.
The Washington Post Company
Buffett tells Berkshire’s shareholders that his f irst f inancial connection
with the