Why commercial trial lawyers should read Buffett

Commercial trial lawyers who find themselves dealing with corporate governance, finance, accounting, or securities issues would profit from reading Buffett's annual reports, especially his annual letters to shareholders. (Lawrence Cunningham, currently a law professor at George Washington University, has book containing an excellent collection of Buffett's letters organized topically.)

Buffett's most recent letter, published today, applies his long-standing skepticism about mergers and acquisitions to 2017's market. Many of the deals he describes have triggered, or will trigger in the future, litigation of all shapes and sizes as certain companies, when expanded beyond reasonable capacity, find themselves unable to honor contracts, succumb to the temptation to misrepresent their results, or fall victim to any number exogenous events.

Buffett frames commercial issues in plain terms, something trial lawyers are supposed to do but often fail to deliver. Here's Buffett in today's letter:

"Prices for decent, but far from spectacular, businesses hit an all-time high [in 2017]. Indeed, price seemed almost irrelevant to an army of optimistic purchasers. Why the purchasing frenzy? In part, it’s because the CEO job self-selects for 'can-do' types.If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.

"If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life."

"Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well. (Don’t ask the barber whether you need a haircut.) If the historical performance of the target falls short of validating its acquisition, large 'synergies' will be forecast. Spreadsheets never disappoint. The ample availability of extraordinarily cheap debt in 2017 further fueled purchase activity."

Almost a century ago, as the 1920s roared, Yale economist Irving Fisher told us that things “Stock prices have reached what looks like a permanently high plateau.” Again we find ourselves in a hot market. Perhaps this time is different. Again, Buffett warns investors to prepare for tough economic times, recognizing no one can predict when:

"In the next 53 years our shares (and others) will experience declines resembling those in the table. No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow. When major declines occur, however, they offer extraordinary opportunities to those who are not handicapped by debt.

"That’s the time to heed these lines from Kipling’s If:

If you can keep your head when all about you are losing theirs...

If you can wait and not be tired by waiting...

If you can think – and not make thoughts your aim...

If you can trust yourself when all men doubt you...

Yours is the Earth and everything that’s in it.

In short, check Buffett out. He's great.