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Summary: The Classic Book About Warren Buffett's Investment Way
Review: "The Warren Buffett Way" by Robert G. Hagstrom provides insight into the investment principles used by America's greatest investor, Warren Buffett.
In 1956, Buffett started his first investment partnership with $100. He cashed out after 13 years with $25 million, achieving a compounded rate of investment return of 29.5% for his investors. Today, Buffett's net worth is about $43 billion.
We learn two different schools of investment thought influenced Buffett. Ben Graham taught Buffett to seek value. Philip Fisher and Buffett's investment partner Charlie Munger taught Buffett to seek quality companies with the potential to grow their earnings.
To determine a stock's value, Buffett examines the business behind the stock and evaluates the company's worth by making an estimate of the future cash flows of the company and then discounting these cash flows back to their present value. Buffett only purchases the company if the purchase price is below its discounted value. This provides Buffett a margin of safety.
Hagstrom explains that Buffett uses a focused approach to investing and often only holds a handful of stocks. And, Buffett invests within his "circle of competence" which usually involves traditional companies Buffett understands. Buffett avoids high-tech investments in companies he doesn't understand. Buffett prefers companies he could hold forever. He avoids businesses without a solid track record or businesses lacking honest and competent management.
Quoting Buffett, Hagstrom writes: "In evaluating people, you look for three qualities: integrity, intelligence, and energy. If you don't have the first, the other two will kill you."
"The Warren Buffett Way" shows how Buffett's investment criteria came into play for several major companies he purchased, including GEICO (Berkshire Hathaway, Buffett's company, owns 100% of GEICO), Clayton Homes (mobile homes), The Pampered Chef (kitchenware sold direct at in-house parties), Gillette, and Coca-Cola. The book's appendix lists Berkshire's major stock holdings each year from 1977 to 2003.
Buffett is most likely to purchase entire companies today. Smaller successful investments do little to grow Berkshire Hathaway.
So, can investors today benefit from Buffett's investment approach? Yes and no, argues Hagstrom. For example, Buffett spends a great deal of time reading annual reports to learn about a company.
Hagstrom writes: "It must be said here, with sadness, that it is possible that the documents you study are filled with inflated numbers, half-truths, and deliberate obfuscations. We all know the names of the companies charged with doing this; they are a rogue's gallery of American businesses, and some of their leaders are finding themselves with lots of time in prison to rethink their actions. Sometimes the manipulations are so skillful that even forensic accountants are fooled; how then can you, an investor without any special knowledge, fully understand what you are seeing? The regrettable answer is, you cannot."
Hagstrom shares a few of Buffett's tips for spotting accounting problems and irregularities in financial documents, such as looking for "unintelligible footnotes."
Also, today, the stock market is composed of many more companies. Hagstrom relates the story of Buffett's interview on the show Money World:
"Appearing on the PBS show Money World in 1993, Buffett was asked what investment advice he would give a money manager just starting out. 'I'd tell him to do exactly what I did 40-odd years ago, which is to learn about every company in the United States that has publicly traded securities.'
Moderator Adam Smith protested, 'But there's 27,000 public companies.'
'Well,' said Buffett, 'start with the A's.'"
Further, Hagstrom argues too many desirable investments are in the field of high technology. To those investors wishing to follow Buffett's approach to investing, Hagstrom suggests: "...expand your circle of competence by studying intently the business models of the companies participating in the New Economy landscape..." Investors who are less willing to spend time understanding business might want to consider indexing their money in a low-cost mutual fund instead.
If you want to understand the investment principles of Warren Buffett, I highly recommend "The Warren Buffett Way."
Peter Hupalo, Author of "Becoming An Investor"
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Summary: The Warren Buffet Way (paperback)
Review: Advice: Don't buy the '97 paperback edition. Small 4 1/8" X 6 3/4" sized. Print so small, it's very difficult to read.
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Summary: Value Investing the Proletariat Way
Review: After reading this book, I have seen the errors in my ways.
I have discovered that the only way to real power is becoming a day trader.At any rate, me and buddy Trotsky have founded a new investors club which meets at my crypt each Saturday. Best of luck to my friends the Deaniacs.
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Summary: The Warren Buffett Way
Review: An easy read that give us insight into the world of investing done right. This book is a must read for all business major students, without exception.
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Summary: Required. reading, nothing less.
Review: An investment breakthrough. Finally, after 30 years of investing, a book which lays out a rational game plan. Each point in the book is explained and justified. What I could have done with this method in the last 30 years! The mathematics are not so clear, but you can have it done for you at www.poolboys.com/buffett
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Summary: If investors were smart, they would all read this book
Review: As an abnormal investor, I have noted Buffett's investment strategies as being almost the same as my own, except that I do not have the financial backing or expertise of the "sage from Omaha". Truthfully, with the track record that Warren Buffett has demonstrated, why do investors follow the theories of other "gurus" that went to MBA school just to network and not learn a [darn] thing about business strategy and how to identify true value? While I did find the author a tad hard to follow at times, the information gave me insight into how Warren Buffett makes his superior investment decisions.
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Summary: Read Another Book
Review: As part of my senior level college investment project, my professor recommended that I read some books on Warren Buffett and his investment strategies. At the bottom of the list he put "The Warren Buffett Way" by Hagstrom and after reading it, I now know why. I have read his yearly BH letters, and they are a much better method of devising Buffett's strategy then this book. It is good if you know nothing about Buffett as a simple intro course, perhaps its one redeeming factor.
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Summary: A poorly written precise of Buffett's annual reports.
Review: Far from giving the reader an insight into the investment strategies of the world's greatest investor this book simply summarises selected comments from Buffett in his annual reports of Berkshire Hathaway. Having read the book and the annual reports I can honestly say that Warren Buffett does it better! You can download the reports free of charge from the Berkshire Hathaway web site. Don't waste your time with this book.
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Summary: A tedious read with very little practical application
Review: First let me say that the low rating I'm giving does not reflect my opinion of Warren Buffett and his methods in general, but rather specifically this book by Hagstrom. I was quite disappointed by this book. It seems confused about whether it is an investment guide or historical narrative, and so fails to do an adequate job of either. (For a much more interesting account of Buffett's life and investments, read Roger Lowenstein's biography). I was hoping this book would explain in specific detail HOW Buffett determines whether a company's shares are undervalued by the market and by how much. However I found that the few explanations in this book are too vague to be of any real practical application in analyzing companies and making investment decisions. The book spends more time detailing WHAT Buffett has invested in, as opposed to WHY. And more time discussing what happened to these companies AFTER Buffett had invested in them, rather than what specifically made them attractive to Buffett beforehand. Maybe this would be a good enough book for someone to read as an introduction to Buffett, if it wasn't just so boring!
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Summary: Revised Viewpoint is More Interesting
Review: First published in 1994, ten years ago the Warren Buffett Way introduced us to the way he evaluated and chose stocks. Since that time, his magic has continued --he is number two on the Fortune list of the richest Americans, and the only one in the top five who made his fortune in the stock market.
His basic rule is very simple: invest in businesses that are simple and understandable, have a consistent operating history and have favorable long term prospects. Now, keep that in mind while the world is changing about you, while people are crashing airplanes into buildings, going to war in Iraq, through inflation, deflation, stock booms and busts, and all the personal troubles that we fall into.
This second edition is completely revised and brought up to date and includes two new chapters that help to update and revise his strategy. This is one of those books that you simply must be aware.
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