The Warren Buffett Way (2013) chronicles the unprecedented success of one of the world’s greatest investors. From his first $120 investment to his ultimate $120 billion net worth, it focuses on the history and strategies of the man who seemed to do the impossible: beat the market.
Table of Contents
Robert G. Hagstrom discusses Warren Buffett’s secrets, covering how he became the most successful investor in the world and, as a result, one of the world’s wealthiest men. Hagstrom begins by describing Buffett’s early influences, from Benjamin Graham, the first professional financial analyst, to Philip Fisher, a professor and investment counselor. The key to Buffett’s success is that he held onto his core principles for making investment decisions, based on four key steps: Turn off the stock market; don’t worry about the economy; buy a business, not a stock; and manage a portfolio of businesses. The book is an excellent summary of the major principles and practices that led to Buffett’s success. However, the extensive amount of financial analysis provides a lot of information about each of Buffett’s investments. This can seem like too much detail if you just want an understanding of his basic investment principles. We recommend this fundamental book to everyone involved in making investment decisions.
- Warren Buffett started his investment partnership in 1956 with an investment of only $100.
- As of 1993, this investment had grown into $8.3 billion.
- Starting in 1965, Buffett used the Berkshire Hathaway Company as a holding company for his investments.
- Buffett carefully evaluates any company before investing. He studies the business, not the market.
- Be ready to say no and wait if the deal isn’t right.
- It is better to buy a small selection of the very best businesses at reasonable prices than to have a widely diversified portfolio, just for the sake of having diversification.
- Forget what happens on the stock market; don’t pay attention to it. Emotion heavily influences the market.
- It doesn’t matter what happens to a stock’s price on a day-to-day basis.
- Forget about what happens to the economy; don’t worry about economic cycles.
- There is no difference between buying a complete business and buying shares in it.
Introduction: Learn about the greatest investor in the world.
Many people think of Warren Buffett as a statistical anomaly, so you might be surprised to find out what he attributes his success to. It isn’t intelligence or an advantageous start. It isn’t a supernatural insight into the market. Distilled into the simplest terms, it’s just following sound business practices and putting in the time – both of which can be taught.
In this summary, we’ll get into Buffett’s background and the early lessons that set him on the path to investment success. Then we’ll discuss the influential figures and decisions in his life. After that, we’ll outline his basic business tenets, the psychology of finance, and the importance of rational thinking.
A promising start
When he was eleven years old, Warren Buffett made his first investment. He’d saved $120 from entrepreneurial endeavors like selling soda and peanuts. So he studied the price charts and confidently made his purchase. But as it often happens, the stocks dipped, immediately losing value. When they rose again to slightly above what he paid, Buffett panicked and sold at a profit of $5. Shortly after that, the stock value skyrocketed.
He’d learned two tough lessons: He would never again obsess over what he paid for a stock. And he would never sell for anything less than a substantial profit.
After that, everything Warren Buffett touched seemed to turn to gold. Not that he didn’t work for it – he graduated college and then fought for a position at Graham-Newman Corporation, where he got his real education in trading. Then, at the age of 25, he started his first limited liability partnership with a $100 investment and the simple goal of beating the Dow Jones by 10 percent a year. He ended up beating it by 22 percent – and, over a 12 year period, grew his investment to $25 million.
In 1965, four years before ending the partnership, Buffett bought Berkshire Hathaway, which had begun in 1889 as a cotton manufacturer. As the textile part of the business was slowly dying, Buffett made a decision that would shape the rest of his life. In 1967, he bought up the outstanding stock in two decently healthy firms: National Indemnity Company and National Fire & Marine Insurance Company. It was a dramatic departure from textiles – and it took Berkshire Hathaway from $2.9 million in securities to $5.4 million in just two years. This decision set the company on course to becoming the investing giant it is today.
From his first limited liability investment of $100, Warren Buffett is now worth over $100 billion. Many people consider him to be a systemic anomaly. There’s a long-accepted school of thought in the investor world called the Efficient Market Hypothesis that says you can’t beat the market. And Buffett himself expresses that he won a genetic lottery, having the right skills in the right moment in time to flourish.
That said, the rest of this summary will explore Buffett’s ability to beat the market not with chance, but with skill.
A good education
In 1921, a grandmother in Los Angeles opened a candy shop in her neighborhood. Her name was Mary See, and See’s Candies became a multigenerational, multimillion dollar company. It survived some of the hardest times for a small business, including the Great Depression and the sugar-rationing that happened during World War II. The company survived because it was just that good. Quality took them the distance. So, when Grandmother See’s heirs were ready to sell in 1971, they did so for $25 million – to Berkshire Hathaway.
To understand the point of this story, we have to go back and talk about the many influences in Warren Buffett’s life.
The first was Benjamin Graham, author of Security Analysis and The Intelligent Investor. In 1926, Graham partnered with Jerome Newman to form the company that Buffett would work for when he graduated college. In investing, Graham had one simple rule: don’t lose. He leveraged his attention to research and detail to identify two key factors in a good investment: First, look for companies selling for less than two-thirds of their value. And second, make sure the stocks have a low price-to-earnings ratio. Buffett became a student of this approach all the way up to the point that he bought See’s Candies.
The second influential person in Buffett’s education was Philip Fisher. Fisher started an investment counseling firm shortly after the stock market crash, with two assumptions: First, investors would definitely be looking for advice. And second, they’d have time on their hands to talk. Fisher dived into the research of finding out what it takes to identify a good investment, and he developed a philosophy quite different from Graham’s. Rather than purchasing a bargain, he believed in purchasing quality.
One of the ways Fisher influenced Buffett was through his long-standing friend and unofficial investment partner, Charlie Munger. Charlie started out a lawyer dabbling in investments. After creating a partnership similar to the one Buffett started, and reaping similar rewards, he left law and focused on investments. He bought Blue Chip Stamps, which later merged with Berkshire Hathaway – at which point Charlie became Vice Chairman. Buying See’s Candies was Charlie’s idea, and it was based on Fisher’s philosophies. See’s wasn’t selling for less than its value, meaning it wasn’t a bargain, but the quality was there.
Buffett was reluctant to veer from his tried-and-true Graham methods of investing, but he allowed himself to be talked into it. Ten years after the $25 million purchase of See’s, he was offered $125 million to sell it. He passed, and See’s Candies is still held by Berkshire Hathaway to this day.
The Buffett buying guide
So how does Warren Buffett decide what businesses to buy? Over the decades, he has developed twelve tenets – or checkpoints – to determine whether he’s willing to make an investment.
First, there are the three basic business characteristics. Warren Buffett has long been a believer in investing only within the realm of your own knowledge. In other words, he believes you should know the businesses you’re buying. The businesses should be simple and easy to understand, have an operating history that’s consistent, and offer a favorable long-term outlook.
Next are the three qualities he looks for in management. Evaluating management isn’t as simple as evaluating a business. There are some metrics you can use as indicators, but there is also just a lot of interviewing and having conversations. Fisher called this the “scuttlebutt” process, and it involves gathering anecdotal information through the corporate grapevine. First, Buffett looks for managers who take care of their finances rationally – that is, in a way that Buffett approves of. Second, he looks for leaders who are candid and honest with their shareholders. Third, he seeks management that resists the urge to go along with the crowd, even when it means admitting mistakes or changing courses.
Then come the four financial decisions. Buffett isn’t interested in yearly results – he prefers to look at the five-year averages. When reviewing a company’s finances, Buffett looks for a few specific things: returns on equity, or the comparison of operating earnings to shareholder equity; owner earnings, which are somewhat based on estimates but still considered closer to the whole story than cash flow; high profit margins; and increasing market value.
Finally, he looks at two simple market considerations. First of all, is the company a good value? This could mean that it’s being sold for less than its intrinsic value. Or it could mean that its value has a lot of long-term potential. Second, is the price good? The stock market price is what it is, but is that price one that is commensurate with the value of the company?
Warren Buffett’s ultimate goal is to buy good companies that are managed with integrity and have an upward trajectory with the potential for massive returns. His tenets have been developed as a result of decades of investment experience.
But being a good investor takes more than business savvy. Next, we’ll talk about behavioral finance.
Meet Mr. Market
Imagine you own shares in a business with your partner, Mr. Market. Fortunately, your business is economically stable and has a promising future outlook. But that doesn’t matter to Mr. Market, because he’s prone to sudden shifts in temperament. Every day, Mr. Market offers to buy your shares in the company. Some days, he’s in a great mood and sees the future as bright and sunny – on those days, he offers you a high price. Other days, he sees nothing but doom and gloom, so he offers you a low price. The good thing is, he makes the offer every day, no matter how much you reject him; you can’t hurt his feelings. The last thing to know about Mr. Market is that you’re free to ignore him or accept his offer, but you absolutely should not submit to his influence.
This little analogy was created by Ben Graham, who we discussed earlier. It’s designed to illustrate the importance of being psychologically ready for investing. To be free of Mr. Market’s emotional upheavals, a field of study was formed called Behavioral Finance. Students of this field have discovered several psychological traps that cause investors to make bad decisions. Among them are simple concepts like overconfidence, loss aversion, and the lemming effect – which is the tendency to follow the crowd.
Another psychological trap that’s slightly more complicated is overreaction bias. This is the tendency to recognize a few unrelated events as a trend when, in fact, they aren’t. You can get into trouble buying or selling when you overreact to a set of circumstances that aren’t actually trends.
Mental accounting is another insidious trap. Say you find a five-dollar bill in your coat pocket at the start of winter. That’s bonus money, right? But last summer, it was something different. Maybe it was your lunch money. So, it feels like the money is on a different account now: your view has changed with the circumstances. You might be inclined to spend the five dollars for something luxurious instead of buying lunch – it’s bonus money, after all! The truth is, it’s just five dollars. Don’t let your emotions trick you into believing something belongs to a special account.
The last trap is called myopic loss aversion. This was created by two researchers named Richard Thaler and Shlomo Benartzi, who discovered that holding an investment for longer makes it more attractive to the investor – but only if it isn’t evaluated frequently. In other words, don’t look at your stocks every day. This is a long game.
The fact is, most of the movement you see in the market is based on emotions, which are stronger than reason. To be a smart investor, you have to be psychologically prepared to ride out those shifts. And that requires patience, which we’ll get into in the final section.
Patience and rationality
A study analyzed the one-year, three-year, and five-year returns for S&P stocks over a 43-year period. The results showed that the proportion of stocks that doubled in one year was only 1.8 percent on average. For the three-year report, it was 15.3 percent. For the five-year report, 29.9 percent had doubled.
The aim of the study was to answer the question of whether large returns are possible from long-term investments. And the answer is yes. But still, most stock market activity happens in a reactionary state with short-term thinking in mind. Obviously, this isn’t how Warren Buffett operates, and that’s what makes him so special. But why is he different?
Buffett is on record as saying his abilities have nothing to do with intelligence – and everything to do with patience and rationality. That’s a key distinction; rationality is not the same as intelligence.
In 2011, Daniel Kahneman wrote a best-selling book called Thinking Fast and Slow. It’s based on what psychologists have long referred to as System 1 and System 2 thinking. System 1 thinking is fast and requires relatively little effort. It’s based on your intuition and at-hand knowledge. If you see a stock you’re interested in and do some quick math to assess its trajectory, compare some numbers, and make a decision, you’re operating in System 1 – along with most stock market investors. System 2 thinking is slow and rational. It requires reflection and good judgment. To use System 2 thinking, you need self-control, which can often feel unpleasant. The payoff is too far away to be rewarding in the moment. Essentially, we’re talking about patience.
A Yale University professor named Shane Frederick did an experiment to illustrate this. He gathered some Ivy League students from various schools and asked them three math questions, ranging from simple to complex. But even the simple one required them to pause and think; if they jumped to the first answer, they’d get it wrong. Over half the students got the wrong answer. Frederick’s conclusions were that people aren’t used to using System 2 thinking – and worse, the System 2 part of the brain doesn’t do a good job of monitoring System 1 for errors.
One of the problems caused by failing to exercise patience and rational thinking is something called a mindware gap. This is when you miss information because you don’t have the patience to go through the important steps of researching an investment.
If you were Warren Buffett, you might read the annual reports of the company you’re interested in, along with those of its competitors. But you wouldn’t stop there. Next, you’d run some models to assess different growth rate possibilities. You’d go on to get to know the capital allocation strategy of the company’s management. You’d even start talking to people involved in the company as well as its competitors to get the “scuttlebutt,” as Fisher called it.
To attain Warren Buffett level success, you have to live in System 2 thinking. It may be uncomfortable at first – but ultimately, it can lead to amazing long-term yields.
America’s Richest Man
In 1993, Warren Buffett was America’s richest person, with a net worth of $8.3 billion. He is still the only person among the 61 Americans with a billion-dollar plus net worth who made his wealth from the stock market. Yet, he started his investment partnership in 1956 with an investment of only $100 and seven limited partners who contributed $105,000 to the investment pool. Thirteen years later, he had $25 million. In the following 22 years, he built it up to $8.3 billion.
Buffett’s Strategy for Success
Buffett’s success came from pursuing a strategy based on firm business principles. Starting in 1965, he used a textile firm, Berkshire Hathaway Company, as a vehicle – a holding company – for expanding into other investments. After buying stock in two insurance companies, he made a series of other very successful investments, including going into Blue Chip Stamps, the “Buffalo News,” the Nebraska Furniture Mart, the H. H. Brown Shoe Company, and many others. In each case, he carefully evaluated the fundamentals of the business, including its management and its stock value relative to earnings, to decide if it was a good investment. Then, the earnings from these companies gave the Berkshire Hathaway Company the funds for further expansion.
Two Early Influences
Two men strongly influenced Buffett as he developed the investment approach that worked so well for him. Benjamin Graham was considered the dean of financial analysis, since he established the profession. His book, Security Analysis, provided Buffett with his initial orientation toward analyzing any stock investment as a business investment. This was predicated on the premise that a well-chosen, diversified portfolio of common stocks, based on reasonable prices, can be a sound investment. Graham emphasized the importance of gathering facts about the investment, analyzing the merits of the investment, and then determining the security’s attractiveness based on whether it has an underlying safety of principle and a satisfactory rate of return. He said investors would do best if they identified securities that were undervalued, regardless of the overall market price level.
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”
Buffett’s other major early influence was Philip Fisher, an investment counselor who began his career in the late 1920’s. Fisher taught Buffett the importance of investing in firms with an “above average potential” and a highly capable management team. Firms that could increase sales and profits over the years at rates greater than the industry average particularly impressed Fisher. He sought firms that grew by marketing products or services with enough potential to allow for further sales increase over several years. Such a firm has good profit margins, along with effective cost analysis and accounting controls.
“Successful investing involves the purchase of stocks when the market price of those stocks is at a significant discount to the underlying business value.”
On the basis of these financial gurus’ ideas, his own early experiences and a few mistakes he made by investing in overpriced firms, Buffett learned to evaluate any companies carefully before he invested. He learned to study not only the financial report, but the firm’s management attributes. He developed a large number of contacts who told him how the firms he was evaluating were doing. Buffett also learned to disregard stock market fluctuations and to reach his own independent judgment of the potential of the business. He determined whether a business’ current price made it a good investment value. Then, as his approach was to invest for the long-term, he waited for the right time to invest.
Ignore the Market
Buffett has avoided being swayed by the stock market throughout his investment career. A key reason is that emotions, particularly fear and greed, heavily influence the market. Therefore, the value of a stock can be out of line with the fundamental value of a business. Speculators take advantage of these ups and downs by anticipating price changes. However, in the long run, stocks won’t indefinitely outperform the business fundamentals, so over time, the speculator won’t do as well as the serious business investor.
“You are neither right nor wrong because the crowd disagrees with you: You are right because your data and reasoning are right.”
Most people investing in the stock market, and most fund managers, act like lemmings. They respond to the short-term shifts of the market, and can easily be led to disaster. However, the savvy investor is willing to go against the grain, including making substantial purchases at a time when others are panicking. This can be a time to take advantage of the low-valuation of a solid business. Ignore economic cycles, since the economy is like a horse on a racetrack, which runs well some days and poorly on others. The company’s long-term performance is important. Although economic cycles themselves are not important, it is critical to pay attention to inflation. Since inflation can dampen a company’s rate of return, investors should assess how well a company is dealing with it.
A company’s economic goodwill is also important. This is not the same as its accounting goodwill, which appears on the balance sheet and determines the firm’s book value.
“Because emotions are stronger than reason, fear and greed move stock prices above and below a company’s intrinsic value.”
Economic goodwill is the attitude people have about the company as a result of its good performance. As long as a company maintains a good, favorable reputation, it can charge premium prices and gain high returns for its products and services. Thus, economic goodwill helps to enhance the value of its stocks, as well.
Maintaining a Diversified Portfolio
You are better off purchasing a small selection of the very best businesses at reasonable prices than having a diversified portfolio, simply for the purpose of diversity. Rather than putting your eggs in a lot of baskets, be more selective of the particular baskets you choose. They should all be good businesses, bought at a good value. For the most part, Buffett’s own portfolio consisted of companies in the finance industry and in consumer manufacturing.
“To be successful, one needs good business judgment and the ability to protect oneself from the emotional whirlwind that Mr. Market unleashes.”
In the past, he did not invest in any technology companies. He focused on certain types of industries because he wanted to invest in companies he could understand well in order to make an informed judgment. He also did not invest in utility companies, to avoid industries where the companies and their profits were regulated.
“The first lesson of economic goodwill is that companies that generate above-average returns on capital are worth considerably more than the sum of their identifiable assets.”
Buffett has several effective stock purchasing strategies. For instance, he is always ready to say “no” if a deal isn’t right. While most investors frequently buy and sell stocks to make a short-term profit, Buffett often sits tight and holds onto stocks for the long term.
In his view, “tinkering with a portfolio each day is unwise.” Rather, it’s better to buy and hold onto very good businesses than switch around from stock to stock in businesses that are “far from great.”
Principles for Identifying a Good Business Purchase
Buffett believes there is no difference between buying a complete business and buying shares in it.
“Investors are better served if they concentrate on locating a few spectacular investments rather than jumping from one mediocre idea to another.”
He invests in businesses with these key characteristics:
- He understands them.
- They have favorable long-term potential.
- They are managed by effective and honest managers.
- They are available at attractive prices.
To use Buffett’s approach in evaluating a business or stock, consider four factors: the business, the management, the financial profile and the market value.
- Business tenets – The business is simple and understandable, with a consistent operating history and good long-term prospects.
- Management tenets – Management is based on rational principles, including investing excess capital at above average rates of return to shareholders. Managers should be honest with the shareholders about the company.
- Financial tenets – Look at the company’s return on equity rather than the earnings per share. Select a company with a high profit margin. Seek a company that creates at least one dollar of market value for every dollar retained.
- Market tenets – Value the business and then determine if it can be purchased at a significant discount compared to its value.
As he achieved his great success, Buffett acquired a mix of holdings. These include permanent holdings, fixed-income marketable securities, equity marketable securities, and some individual high-performance stocks.
“Referring to money managers as investors is like calling a person who engages in one-night stands romantic.”
His holdings include:
- His permanent holdings, chosen because they represent great value, are four companies that Buffett has determined he will never sell. He chose the Washington Post Company, in part, because it is a dominant newspaper which has high economic goodwill value. Buffett values Geico Corporation, a property-and-casualty insurance provider, because of its long-lasting profitable franchise as a seller of low-cost insurance without an agent. Capital Cities/ABC is a third permanent holding. Capital Cities is an $11 billion media and communications business with TV, radio, cable, and other media networks. Buffett recently also invested in Coca-Cola, which has both high name-brand recognition and the best worldwide distribution system for its products.
- Buffett’s fixed-income marketable securities include investments that offer the highest after-tax returns. His long-term bonds include Washington Public Power Supply System and RJR Nabisco. His convertible preferred stocks include investments in Salmon, Inc., the USAir Group, Champion International and American Express.
- Buffet has selected several equity marketable securities, including the Gillette Company, General Dynamics, the Federal Home Loan Mortgage Corporation, Guinness PLC and the Wells Fargo Company.
- The individual stocks Buffett owns include the Gannett Company, PNC Bank Corporation, Salomon Incorporated, the American Express Company and the Walt Disney Company.
Buffett’s investment approach, based on his common sense philosophy, has proven consistently superior over time. While other investors see only a stock price and spend much of their time watching, predicting, and anticipating price changes, Buffett focuses on understanding the business.
“Above-average results are often produced by doing ordinary things. The key is to do those ordinary things exceptionally well.”
To understand the business, Buffett looks at a variety of factors, including, income statements, capital reinvestment requirements, and the cash-generating capabilities of his companies.
His view is that the investor and business person should look at a company in the same way, because they both want a profitable company. The only difference is that the business person wants to buy the whole company, while the investor just wants to buy part of it.
“Energy can be more profitably expended by purchasing good businesses at reasonable prices than difficult businesses at cheaper prices.”
If these economic measurements keep improving, then the share price will eventually reflect that trend. It doesn’t matter what happens to the stock price on a day-to-day basis.
In its most simple form, Buffett’s Way boils down to four key steps:
- Forget what happens on the stock market; don’t pay attention to it.
- Forget what happens to the economy; don’t worry about economic cycles.
- Remember that you are not buying a stock; you are buying a business.
- Select the best businesses available when you manage your portfolio. You don’t have to widely diversify and you don’t need to include every major industry. Stick to businesses you know best, businesses that do well and provide good value.
Even someone as rich and powerful as Warren Buffett can come from humble beginnings. From his first investment at age eleven to his $100 investment in his limited partnership to the over $100 billion net worth of today, Warren Buffett played the game differently and accomplished the seemingly impossible. With some sound business sense combined with psychological resilience, patience, and rational thinking, Buffett himself believes that anyone can repeat his success.
About the Author
Robert G. Hagstrom is the Senior Vice President and Director of Legg Mason Focus Capital and Portfolio Manager of the Legg Mason Focus Trust. He previously wrote The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy and The NASCAR Way: The Business That Drives the Sport.
Money, Investments, Motivation, Inspiration, Biography, Memoir
Table of Contents
Foreword: The Exception vii
Foreword to the Second Edition xvii
Foreword to the First Edition xix
Peter S. Lynch
Kenneth L. Fisher
Chapter One A Five-Sigma Event: The World’s
Greatest Investor 1
Personal History and Investment Beginnings 3
The Buffett Partnership Ltd. 10
Berkshire Hathaway 13
Insurance Operations 15
The Man and His Company 17
Five-Sigma Event 18
Chapter Two The Education of Warren Buffett 21
Benjamin Graham 21
Philip Fisher 30
Charlie Munger 35
A Blending of Intellectual Influences 38
Chapter Three Buying a Business: The Twelve Immutable Tenets 45
Business Tenets 46
Management Tenets 50
Financial Tenets 59
Market Tenets 64
Anatomy of a Long-Term Stock Price 69
Chapter Four Common Stock Purchases: Nine Case Studies 71
The Washington Post Company 72
GEICO Corporation 81
Capital Cities/ABC 91
The Coca-Cola Company 100
General Dynamics 110
Wells Fargo & Company 114
American Express Company 120
International Business Machines 123
H.J. Heinz Company 130
A Common Theme 135
Chapter Five Portfolio Management: The Mathematics of Investing 137
The Mathematics of Focus Investing 143
Focus Investors in Graham-and-Doddsville 155
Chapter Six The Psychology of Investing 179
The Intersection of Psychology and Economics 180
Behavioral Finance 182
And on the Other Side, Warren Buffett 194
Why Psychology Matters 199
Chapter Seven The Value of Patience 201
For the Long Term 202
Rationality: The Critical Difference 205
Slow-Moving Ideas 206
System 1 and System 2 207
The Mindware Gap 210
Time and Patience 211
Chapter Eight The World’s Greatest Investor 213
The Private Buffett 216
The Buffett Advantage 218
Learning to Think Like Buffett 224
Finding Your Own Way 232
About the Author 267
The book is a comprehensive analysis of the investment philosophy and methods of Warren Buffett, one of the most successful investors in history. The author, Robert G. Hagstrom, is a portfolio manager and a fan of Buffett’s approach. He explains how Buffett applies the principles of value investing, which he learned from his mentor Benjamin Graham, to identify undervalued companies with strong business fundamentals, competitive advantages, and growth potential. Hagstrom also explores how Buffett evaluates the management, financial performance, and intrinsic value of these companies, and how he decides when to buy and sell them. He illustrates each concept with examples from Buffett’s portfolio, such as Coca-Cola, American Express, GEICO, and Berkshire Hathaway. He also discusses how Buffett diversifies his holdings, avoids market fluctuations, and adheres to his long-term vision.
The book consists of three parts:
- Part One: The book introduces the concept of the Warren Buffett way, which is a set of principles and practices that guide Buffett’s investment decisions. It also outlines the main characteristics and advantages of Buffett’s approach, such as simplicity, discipline, patience, rationality, and independence.
- Part Two: The book provides a detailed examination of Buffett’s investment strategies, which are based on his understanding of business, finance, and human psychology. It explains how Buffett selects, evaluates, and buys undervalued companies that have durable competitive advantages, strong management, and consistent earnings growth. It also explains how Buffett manages his portfolio, diversifies his risks, and maximizes his returns.
- Part Three: The book explores the implications and applications of the Warren Buffett way for individual investors who want to emulate Buffett’s success. It offers some practical advice and examples on how to adopt Buffett’s mindset, methods, and habits. It also discusses some of the challenges and limitations of the Warren Buffett way in today’s changing and complex market environment.
The book is a well-written and insightful guide for anyone who wants to learn from Buffett’s wisdom and success. It is not a biography of Buffett, but rather a detailed examination of his investment strategy and philosophy. The author does a great job of explaining the key concepts and principles of value investing in a clear and simple way, without using too much jargon or technical terms. He also provides useful charts, tables, and diagrams to illustrate his points and show how Buffett applies them in practice. The book is full of interesting anecdotes and quotes from Buffett himself, as well as from his partners, friends, and critics. The book is not only informative, but also entertaining and inspiring. It shows how Buffett combines rationality, discipline, patience, and passion to achieve extraordinary results in the stock market. It also reveals how Buffett’s personality, values, and ethics influence his investment decisions and shape his business culture.
The book is suitable for both beginners and experienced investors who want to improve their skills and knowledge. It is not a step-by-step manual or a formula for guaranteed success, but rather a framework for thinking and acting like Buffett. It encourages readers to develop their own style and criteria based on their goals, preferences, and risk tolerance. It also warns readers of the common pitfalls and challenges that investors face, such as emotions, biases, noise, and overconfidence. The book is not a substitute for doing one’s own research and analysis, but rather a source of inspiration and guidance.
The book is a classic in the field of investing literature and has been updated several times since its first publication in 1994. It reflects the changes and developments in Buffett’s portfolio and strategy over the years, as well as the evolution of the market environment and the business world. The book is relevant and applicable to today’s investors who want to learn from one of the best in the business.