The Warren Buffett Portfolio : Mastering the Power of the Focus Investment Strategy

Rating:
Summary: Take It With A Grain of Salt
Review: Don't get me wrong- I learned a lot of valuable lessons about investing from this book. However, I believe most people don't understand the true secret of Mr. Buffet's success, and that is his ability to buy influential stakes in large concerns that he understands thoroughly. Buffet is not the typical small investor who is trying to nickel and dime his way to riches. Far from this, he is a man who has a lot of cash behind him, and can wield that cash to obtain seats on the boards of promising companies. Once there, using a bit of common business sense and uncommon financial influence, he can effect positive change in a company (there may also be a few derivatives being bandied about to boot). None of us small investors can ever do that.

Like I said, I learned a lot from the book. Instead of telling me which stock to buy, the book offered me basic principles to guide me in my investment activity. The book also helped me to better understand my own financial behavior and accurately diagnose my investment temperament. It also gave me some very important pieces for a strong blueprint for successful investing. Three of the most important lessons that I took from this book are first, buy only those companies that you understand intuitively, second, be patient with your investments, and third, the most important lesson, never hesitate to buy into quality and transparency. The book also pointed me in the direction of other references that I believe are worth reading, such as John Burr Williams' Theory of Investment Value, Benjamin Graham's Security Analysis, B. Graham's Intelligent Investor, and Philip Fisher's Common Stocks and Uncommon Profits. One gem from the book I found especially startling (and very insightful) is Buffett's overwhelming approval and outright endorsement of index investing to those of us who want to be in the market, but either can't stomach the volatility or are too lazy (or dense) to do our own investment research.

I also found that reading this book in combination with John Bogle's Common Sense Investing in Mutual Funds made for good, strong positive reinforcement.

If you can't beat the market, join (index) it!

Rating:
Summary: It doesn't add much to the understanding of Warren Buffett
Review: Don't get me wrong...the book isn't awful. It is just that it is more of a compilation of 3 sources of Buffett-isms and investment psychology than anything else. If you have read Warren's Letters to Shareholders, and Peter Bernstein's "Against the Gods - The Story of Risk", and have ever heard Charlie Munger speak, there is nothing new here. The author is a qualified mutual fund manager, and I commend him for not plugging his own fund throughout (though he does plug his first Buffett book many times.) But precisely because he has written 'one of these' before, I view this current effort as irrelevant. Go to the sources...get online, read the letters yourself, read "Against the Gods" and read "Buffett - The Making of an American Capitalist." Those give you much more color, flavor, and insight on what makes The Oracle tick.

Rating:
Summary: Warren Buffett Portfolio---An Investment Gem
Review: Hagstrom's second book is outstanding, especially for anyone looking to develop and define a rational investment style and process for managing their own money. As a professional money manager, I have read many books on investing, and like to refer the better ones to my clients. This one would be at the top of my recommended list, because it is clearly written, logical in its approach (Hagstrom backs up the tenets of his "focused portfolio" approach to investing with good empirical data), and provides a consistent and rational framework for people to invest their money. Hagstrom advocates that investors own relatively few stocks (maybe 10-15), and concentrate their holdings in companies that have a high probability of enjoying financial success over the long term. He points out the risks of this approach (fewer stocks in a portfolio can result in higher than average portfolio volatility in the short run, which can be disconcerting to some investors), but also highlights the success that Buffett and other practicioners of a long term, focused approach have had historically. Hagstrom includes interesting discussions of the math underlying his strategy, and the psychological factors that predispose a person to embrace or reject the principles of investing he recommends. The beauty of the book, and the focused portfolio approach to investing, is that it is logical, supported by solid mathematical principles, makes sense intuitively, is relatively easy to apply, skews the odds of outstanding absolute and relative total returns in the investor's favor, and provides a solid framework against which to invest in a world that is fraught with risk and dominated by a media culture that probably hurts more individual investors it helps (CNBC, internet sites, mutual fund advertising, etc). Hagstrom's approach is obviously not for everyone--despite its simplicity and logic, few professionals or individuals, in my experience, have the patience or discipline to concentrate their investments and stay with them over a period of years. But for those people looking for an approach that cuts through all the clutter in the investment world, this book is worth a read. For what it is worth, the best book on Buffett himself is Lowenstein's "The Making of an American Capitalist;" other must read or own books for do-it-yourself investors would include "Investment Policy" by Ellis, "Against the Gods" by Bernstein, "The Gorilla Game" (for technology stock investing) by Moore, "Classics" and "Classics II " by Ellis, and "When Genius Failed" by Lowenstein.

Rating:
Summary: If Hagstrom's so smart...why isn't he rich?
Review: I have always been fascinated by Warren Buffett ever since I heard about this character in Omaha who didn't even have a stock ticker his office but had remarkable results in Adam Smith's SUPERMONEY.

I read THE WARREN BUFFETT WAY with interest and watched with anticipation as Hagstrom launched Focus Trust as a means of replicating Buffett's success. Alas, after an initial doubling of value in the Bull market the fund has generally hovered around $20 and singularly failed to even come close to matching Buffetts track record.

Hence, I'm forced to agree that too much emphasis is on Buffett the stock picker and not enough on Buffett the Business and Management analyst. Look elsewhere.

Rating:
Summary: This book adds something to the existing literature.
Review: I read this book the week before the annual meeting and hoped Warren or Charlie would comment on it. Charlie Munger did not disappoint. He recommended it even though he did not care for Hagstrom's first book. As someone who enjoys reading Charlie's ideas and philosophy, which are usually published in Outstanding Investor's Digest, I found this book to be quite interesting. New and different ideas are covered which may inspire the reader to investigate further. The topics of probability and psychology are discussed as they relate to investing and some actual data is presented instead of the usual anecdotal evidence. If Charlie recommends it, it must be worth reading. Other books he recommended at the meeting were Ron Chernow's "Titan: The Life of John D. Rockefeller, Sr." and David Landes' "The Wealth and Poverty of Nations." Warren Buffett recommended reading Washington Post Chairman Katherine Graham's autobiography "Personal History" and John Bogle's "Common Sense on Mutual Funds."

Rating:
Summary: A good read, but not the best on Buffett
Review: I wasn't expecting much, so I was pleasantly surprised. It's a pretty solid overview of Buffett's investment philosophy, with an emphasis on his portfolio management style, which Hagstrom calls Focus Investing. He defines it as:

"Choose a few stocks that are likely to produce above-average returns over the long haul, concentrate the bulk of your investments in those stocks, and have the fortitude to hold steady during any short-term market gyrations."

I couldn't agree more!

The book has a lot of other somewhat random but interesting stuff like a chapter on The Psychology of Investing, which is a shorter version of one of my favorite books, Why Smart People Make Big Money Mistakes.

In short, I wouldn't recommend this book above many others on Buffett (starting with The Collected Essays of Warren Buffett), but if you've read those and just can't get enough of Buffett, this book is an enjoyable read.

Rating:
Summary: A true treasure among modern investment books...
Review: In "The Warren Buffett Portfolio", author Robert Hagstrom devotes an entire book to debunking the greatest misconception prevalent in the investment world today: the myth of "diversification". Hagstrom sets out to prove that Mark Twain was a market wizard when he said "put all of your eggs in one basket, and guard the hell out of that basket!"

The heart of this book rests on the premise that a proper portfolio must be "diverse" (i.e. must include 40 to 100 different companies) in order to remain "safe" and avoid a loss of capital. However, while such a notion may decrease short-term volatility, it does not necessarily increase returns. Hagstrom examines investment guru Warren Buffett's ideas on the subject, such as "knowledge decreases risk, not the number of stocks in your portfolio". Such an approach makes sense. Which is better, to own a few companies that you know everything about, or a lot of companies that you know little or nothing about? The less you know about a company, the more likely it is that an unforeseen event will sneak up on you and hammer your portfolio.

The book also addresses the fallacy of "re-balancing a portfolio". Again, Warren asks, why are you selling off your best company to buy a bunch of under-performing companies? Such a line of thinking is akin to saying "Michael Jordan takes too many shots and makes too much money relative to the other players on his team, so he should be traded to another team for three players so as to decrease the risk of an injury hurting the team... or we should give more shot opportunities to players of lesser talent so that the team doesn't become dependent on Michael Jordan to win." Nobody ever won an NBA Championship with run-of-the-mill players, but the Bulls won six NBA titles by relying on Michael Jordan.

It's this stalwart advance in the face of conventional wisdom that separates this book from most in the stock investment genre. Give it a try. You may find it's the most profitable book you've ever purchased...

Britt Gillette
Author of "Conquest of Paradise: An End-Times Nano-Thriller"

Rating:
Summary: A true treasure among modern investment books...
Review: In "The Warren Buffett Portfolio", author Robert Hagstrom devotes an entire book to debunking the greatest misconception prevalent in the investment world today: the myth of "diversification". Hagstrom sets out to prove that Mark Twain was a market wizard when he said "put all of your eggs in one basket, and guard the hell out of that basket!"

The heart of this book rests on the premise that a proper portfolio must be "diverse" (i.e. must include 40 to 100 different companies) in order to remain "safe" and avoid a loss of capital. However, while such a notion may decrease short-term volatility, it does not necessarily increase returns. Hagstrom examines investment guru Warren Buffett's ideas on the subject, such as "knowledge decreases risk, not the number of stocks in your portfolio". Such an approach makes sense. Which is better, to own a few companies that you know everything about, or a lot of companies that you know little or nothing about? The less you know about a company, the more likely it is that an unforeseen event will sneak up on you and hammer your portfolio.

The book also addresses the fallacy of "re-balancing a portfolio". Again, Warren asks, why are you selling off your best company to buy a bunch of under-performing companies? Such a line of thinking is akin to saying "Michael Jordan takes too many shots and makes too much money relative to the other players on his team, so he should be traded to another team for three players so as to decrease the risk of an injury hurting the team... or we should give more shot opportunities to players of lesser talent so that the team doesn't become dependent on Michael Jordan to win." Nobody ever won an NBA Championship with run-of-the-mill players, but the Bulls won six NBA titles by relying on Michael Jordan.

It's this stalwart advance in the face of conventional wisdom that separates this book from most in the stock investment genre. Give it a try. You may find it's the most profitable book you've ever purchased...

Britt Gillette
Author of "Conquest of Paradise: An End-Times Nano-Thriller"

Rating:
Summary: Light, enjoyable and enlightening
Review: This book presents Buffet's and Hagstrom's portfolio allocation methods. I say Hagstrom's because I think that much of Buffet's allocation methodology remains between Buffet's ears -- and not that of Hagstrom the author. Also, I believe Buffet is more opportunistic; he acts decisively when opportunities present themselves.

The author adds discussion of technology stocks, an anathema of Buffet's, and the obligatory discussion of complex adaptive networks which might not be Buffet thinking but more along the lines of Charles Munger, his cohort.

Nevertheless, there are many interesting points in this book. I listened to the audio tapes and they excellent. I then took the book out from the library and liked the tapes more.

The author covers several important topics, in a summarized way, but also in a very interesting way. One topic done well was thinking in terms of probabilities. Another was diversification: don't over-diversify.

The author also quoted from several books outside of the financial area and have become intrigued with them. They were: Fire in the Mind (Johnson), Full House (Gould), Against the Gods (Bernstein).

I think Hagstrom is a very good author but his works seem to lack the detail that I like to see. He's one that can pull the strands of many topics together but perhaps skates over their details. I would have liked more detail on subjective probabilities as applied to the stock market for example. More on how Bayes, etc.

John Dunbar
Sugar Land, TX