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Buffettology, The Previously Unexplained Techniques That Have Made WARREN BUFFETT the World’s Most Famous Investor (Paperback)
by Mary Buffett, David Clark
| Category:
Investing, Value investing, Stock investing |
| Market price: ¥ 178.00
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¥ 158.00
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| MSL Pointer Review:
A detailed financial guide on the Warren Buffett way of value investing. |
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Author: Mary Buffett, David Clark
Publisher: Scribner
Pub. in:
ISBN: 068484821X
Pages: 320
Measurements: 8.4 x 5.6 x 0.8 inches
Origin of product: USA
Order code: BA00140
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- Awards & Credential -
One of our highly recommended books on Buffett and value investing. |
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- MSL Picks -
Buffettology is the first book from someone who, thanks to personal and professional access to Warren Buffett, has been uniquely positioned to learn from the master. Mary Buffett had the privilege - during her twelve years as his daughter-in-law - of sharing some of this very private genius's informal discussions of his investing philosophy, and now she shares some of her invaluable observations with us.
This breakthrough book offers a full-blown explanation of how Buffett uses Business Perspective Investing as a wealth-building tool. His strategy is not so much to "pick stock" but to search for and invest in excellent companies whose intrinsic value and potential earnings he can reasonably predict through a series of steps we learn about throughout the book.
Citing many fascinating case histories and examples, Buffettology shows us what kinds of companies Buffett looks for and why, and which he avoids and why. The authors show us the mathematical models and equations Buffett uses to determine the basic value and earnings potential of his final choices (and the right price to pay, for which he is willing to wait). We also learn how with the aid of an inexpensive, widely available handheld calculator, anyone can do similar equations.
In addition to providing such in-depth analysis, this book offers two more firsts. One is a chapter on Buffett's rarely discussed and extremely successful arbitrage operations. The book gives us the arbitrage equation he uses to determine the positions he should take. The other is a comprehensive list and brief analysis of fifty-four companies in which Buffett has invested and the authors believe he continues to follow, many of which have never before been publicly identified as "Buffett companies."
Target readers:
Value investors, investment consultants, Buffett fans, and anyone else who is interested in personal finance and stock investing.
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- Better with -
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The Warren Buffett Way, Second Edition
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Mary Buffett is an internationally acclaimed writer and lecturer on Warren Buffett's investment techniques. She is also the CEO of a multimillion-dollar-a-year commercial and film editing company with clientele that ranges from Coca-Cola to Madonna. She currently makes her home in Santa Monica, California.
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HOW WARREN BUFFETT DID IT - AND HOW YOU CAN TOO
In the world of investing, the name Warren Buffett is synonymous with success and prosperity. Building from the ground up, Buffett chose wisely and picked his stocks with care, in turn amassing the huge fortune for which he is now famous. Mary Buffett, former daughter-in-law of this legendary financial genius and a successful businesswoman in her own right, has teamed up with noted Buffettologist David Clark to create Buffettology, a one-of-a-kind investment guide that explains the winning strategies of the master.
- Learn how to approach investing the way Buffett does, based on the authors' firsthand knowledge of the secrets that have made Buffett the world's second wealthiest man
- Use Buffett's proven method of investing in stocks that will continue to grow over time
- Master the straightforward mathematical equipments that assist Buffett in making investments
- Examine the kinds of companies that capture Buffett's interest, and learn how you can use this information to make your own investment choices of the future
Complete with profiles of fifty-four "Buffett companies" - companies in which Buffett has invested and which the authors believe he continues to follow - Buffettology can show any investor, from beginner to savvy pro, how to create a profitable portfolio.
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How to Use This Book
Folly and discipline are the key elements of Warren Buffett's philosophy of investing - other people's follies and Warren's discipline. Warren commits capital to investment only when it makes sense from a business perspective. It is business perspective investing that gives him the discipline to exploit the stock market's folly. Business perspective investing is the theme of this book.
This discipline of investing from a business perspective has made Warren the second richest business person in the world. Currently Warren's net worth is in excess of $20 billion. Warren is the only billionaire who has made it to the Forbes list of the four hundred richest Americans solely by investing in the stock market. Over the last thirty-two years his investment portfolio has produced an average annual compounding rate of return of 23.8%.
As humans we are susceptible to the herd mentality, and so we often fall victim to the emotional vicissitudes that propel the stock market and feed enormous profits to those who are disciplined, like Warren. When the Dow Jones Industrial Average has just dropped 508 points and all the sheep are jumping ship, it is investing from a business perspective that gives Warren the confidence to step into that pit of fear and greed we call the stock market and start buying. When the stock market soars to the stratosphere, it is the discipline of investing from a business perspective that keeps Warren from foolishly allocating capital to business ventures that have neither hope nor prospects of giving him a decent return on his investment.
This book is about the discipline of investing only from a business perspective. Together we will explore the origin and evolution of this philosophy. We will delve into the early writings of Warren's mentor Benjamin Graham and the ideas of other financial luminaries of this century, and travel to the present to explore the substance of Warren's philosophy.
Warren made his fortune investing in the securities of many different types of businesses. His preference is to acquire 100% ownership of an enterprise that has excellent business economics and management. When he is unable to do that, his next choice is to make a long-term minority investment in the common stock of a company that also has excellent business economics and management. What confuses people who are trying to decipher his philosophy is that he also makes investments in long-, medium-, and short-term income securities. And he is a big player in the field of arbitrage.
The characteristics of the businesses that he is investing in will vary according to the nature of his investment. A company that he is willing to invest in for arbitrage purposes may not be the kind of business in which he wants to make a long-term investment. But regardless of the type of business or the nature of the investment, Warren always uses the basics of business perspective investing as the foundation for his decision.
Most people have the intellectual capacity to understand Warren's philosophy of investing from a business perspective, but few have the dedication and willingness to work to learn the tools of his craft. The purpose of this book is to lay out, step by step, the foundation of Warren's philosophy and the manner in which he applies it. This book is a tool to facilitate the task of learning, and it is our intention to teach you Warren's philosophy so that you may acquire the skills to practice this discipline yourself.
Before we start, I would like to introduce a few concepts and terms that will be used throughout the book and give you an idea of where we will be heading as we voyage through the seas of high finance.
First of all, let's take the term "intrinsic value." Its definition has been debated for the last hundred years. It fits into our scheme because Warren will buy into a business only when it is selling at a price that makes business sense given the business's intrinsic value.
Determining a business's intrinsic value is a key to deciphering Warren's investment philosophy. To Warren the intrinsic value of an investment is the projected annual compounding rate of return the investment will produce.
It is this projected annual compounding rate of return that Warren uses to determine if the investment makes business sense. What Warren is doing is projecting a future value for the business, say, ten years out; then he compares the price he is going to pay for the business against the business's future, projected value, and the length of time required for the business to reach that projected value. By using an equation that we will show you later in the book, Warren is able to project the annual compounding rate of return that the investment will produce. The annual compounding rate of return the investment is projected to produce is the value he uses to determine if the investment makes business sense when compared to other investments.
In its simplest manifestation it works like this: If Warren can buy a share of stock in X Corporation for $10 and can project that in ten years the share will be worth $50, he can then calculate that his projected annual compounding rate of return will be approximately 17.46% for the ten-year period. It is this projected annual compounding return of 17.46% that he will then compare to other investments to determine whether the investment in X Corporation makes business sense.
You may be wondering: If Warren's intrinsic value model requires a projection of a business's future value, then how does he go about determining that future value?
That, my friends, is the crux of solving the enigma of Warren's investment philosophy. Just how does one determine the future earnings of a business in order to project its future value and, thus, its intrinsic value? This problem and Warren's method of solving it will be the focus of much of this book.
In short, Warren focuses on the predictability of future earnings; and he believes that without some predictability of future earnings, any calculation of a future value is mere speculation, and speculation is an invitation to folly.
Warren will make long-term investments only in businesses whose future earnings are predictable to a high degree of certainty. The certainty of future earnings removes the element of risk from the equation and allows for a sound determination of a business's future value.
After we have learned what Warren believes are the characteristics of a business with predictable earnings, we will learn how to apply the mathematical calculations he uses for determining the business's intrinsic value and what the return on his investment will be. The nature of the business enterprise and whether it can be bought at a price that will yield a sufficient return will determine the investment's worth and whether or not we are investing from a business perspective.
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The Claw (MSL quote), USA
<2006-12-28 00:00>
I read this book a while ago when I was first getting serious about understanding the investing techniques of successful investors. It is an interesting read and has some good ideas about how to approach investing generally. In particular, it does a decent job of enumerating the differences between a commodity business and a consumer monopoly to identify the latter for investing purposes.
Most interesting to me was the overview of the 3 different ways Buffett purportedly analyzes stocks: by comparing to the yield in a T-Bill, the ROE model, and the "equity bond with a coupon model." I find these models somewhat useful because they enable some level of analytical understanding of how to value stocks. However, it does not impart just how much work goes into finding stocks to invest in, and it does not disclose some of the "special situations" that have helped Buffett enjoy as much success as he has.
Because the book is "hands on," it does not delve into various theories of stock value (for example, John Burr Williams theorized that stocks are worth the aggregate value of their dividends, discounted to present value), nor does it discuss cash flow analysis.
Although the book is generally useful, it also does not emphasize financial statement analysis, which is particularly important given that the models used tend to project ROE and earnings per share forward.
In all, however, this book is an easy read, and because it provides some analytical tools, I found it useful. Moreover, I found the list and discussion of companies that might make suitable investments at the back to be interesting, if somewhat dated, because the descriptions articulated exactly what constitutes a "consumer monopoly" or otherwise desireable target.
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Jeff Drader (MSL quote), USA
<2006-12-28 00:00>
I originally purchased this book in 1998, or so. I recently picked it up off my bookshelf and re-read it. Whether you believe that Mary Buffett is an expert on Warren Buffett or not, she definitely conveys good common sense about how to value companies and to invest for the long run.
Buffettology addresses, among other fundamental investing concepts, how to pick well priced stocks of companies that have many years of history expanding earnings and return on equity. This book is divided into two parts: the first part is a qualitative discussion of Warren Buffett's investment styles, the second part delves into some ways to quantitatively evaluate companies and their stock prices. In the second part of the book, the authors introduce the reader to simple trend analysis, future value and present value approaches to evaluating the long-term likelihood of returning a fair return, or better, to the investor.
I found the analysis and case studies to be a good reminder that there is more to stock analysis than P/E ratios and price, and a good introduction to common sense financial evaluation of companies and stocks for long term investing.
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Patrick Pollock (MSL quote), USA
<2006-12-28 00:00>
I liked reading Buffettology. I'm somewhat new to investing and found the principles of valuation enlightening. However, there are some necessary clarifications for the naive like me and others. First, I don't think the small time investor could ever even approach Buffett's record (not even a 15 % compounding rate of return). He's the only one in history to have achieved his remarkable rates of return over 30 odd years. Secondly, Buffett is not a mutual fund mananger but a business acquirer who applies the principles of value investing. It becomes easier to earn higher rates of return when you have the power to influence the direction of major management decisions. This is how he adds value for the shareholders and is one of the less discussed "ingredients" in Chef Buffetts arsenal. With these ideas in mind, the small time investor without the enormous capital required to acquire a major holding in a business could be undertaking high risk when building a concentrated portfolio. Therefore, a stock picking strategy may not work for us. So I would say that with the right perspective this book is valuable, but should be read with a cautious eye. I would like to hear from any small time investor who has succeeded (achieved a 15 % rate of return or higher over 15 years)using a concentrated portfolio and a value investing strategy. |
David Stokes (MSL quote), USA
<2006-12-28 00:00>
I felt that this was almost a great book. I have toyed with the stock market, not as a day trader, but as someone with the idea that I could buy low, make a quick profit, and reinvest. Boy, did I have the wrong idea. I am a firm believer that a steady, long-term, 15%-or better compounding interest investment is the best way to go. I was a little confused, because Warren invests multi-millions, versus my limited investment capability. One concept that I am learning on an on-going basis is, get a profitable system and stick with it through thick and thin times. It makes sense to follow the example set by someone who has "walked their talk". The authors make no attempt to guide an investor with limited capital. On the upside, this book is an excellent guide to the kind of companies which monopolize their various products, thus providing the best constant growth. There is so much valuable information within its covers that this book must be read, and re-read. But, as you read, be sure to read between the lines. I have yet to read the other books about Buffet which have been published, but I will. |
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