The way Warren Buffett thinks of a great value is really gross

Warren Buffett reflects on his purchase of Berkshire Hathaway in his new 2014 letter to shareholders.

As a long-term investment, Buffett admits Berkshire was pretty much a disaster.

But as a short-term arbitrage trade, it was a no-brainer.

"I purchased [Buffett Partnership Ltd]'s first shares of Berkshire in December 1962, anticipating more closings and more repurchases," Buffett said. "The stock was then selling for $7.50, a wide discount from per-share working capital of $10.25 and book value of $20.20."

Here's how Buffett characterized such a value.

Buying the stock at that price was like picking up a discarded cigar butt that had one puff remaining in it. Though the stub might be ugly and soggy, the puff would be free. Once that momentary pleasure was enjoyed, however, no more could be expected.

Two years later, Buffett had the opportunity to sell at a whopping 50% profit. Unfortunately, he allowed his emotions to take over, and he clung to that soggy cigar for another twenty years.

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