Warren Buffett

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If there were a Mount Rushmore for investment greats, Warren Buffett's face would surely be depicted.  A student of Benjamin Graham, Mr. Buffett started out his investment career in Omaha, Nebraska.  He never left and,over 50+ years, shrewdly invested in stocks, bonds and insurance companies.  He made himself a multi billionaire and many of his early investors multimillionaires.

Mr. Buffett's company, Berkshire Hathaway, is the vehicle through which he makes his investments.  It is publicly traded and could be viewed as a gigantic mutual fund run by one of the most successful fund managers in history.  Ironically, the name of the company comes from one of his early investment mistakes, a New England textile manufacturer which he liquidated after many years of financial struggle.  He admits that this investment was based, in large part, on his early investment style; the one he learned from Benjamin Graham - buying companies as cheaply as possible.  Sometimes companies are cheap because they should be, not because the market has mistakenly undervalued them.  These days Mr. Buffett says he looks for investments with an "attractive price."

Unlike most fund managers on Wall Street, Mr. Buffett has the majority of his wealth invested in his company.  The company's results have the same effect on him as on his investors, i.e., he "eats what he cooks."  By living in Omaha, he also avoids the "group think" so common on Wall Street.  He explained this by recounting a story from Mr. Graham:

Ben Graham told a story 40 years ago that illustrates why investment professionals behave as they do:  An oil prospector moving to his heavenly reward, was met by St. Peter with bad news. "You're qualified for residence:, said St. Peter, "but, as you can see, the compound reserved for oil men is packed.  There's no way to squeeze you in."  After thinking a moment, the prospector asked if he might say just four words to the present occupants.  That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, "Oil discovered in hell."  Immediately the gate to the compound opened and all of the oil men marched out to head for the nether regions.  Impressed, St. Peter invited the prospector to move in and make himself comfortable.  The prospector paused.  "No," he said, "I think I'll go along with the rest of the boys.  There might be some truth to that rumor after all."

There have been a multitude of books written about Warren Buffett, his life and his investment strategy.  The best way to learn his value investing methods is to read his annual letter to the Berkshire Hathaway shareholders, the first of which was written in 1977.  As with Philip Carret's book, The Art of Speculation, these letters provide an "at the time" history of what was going on then in the financial world.  An individual investor interested in value investing could not do much better than to read these letters and, in effect, learn from the master.  On the right side of this blog site is a link to those letters on the Berkshire website.

An even easier way to learn how Buffett thinks is to read The Essays of Warren Buffett: Lessons for Corporate America, an authorized compilation of material from the shareholder letters edited by Lawrence A. Cunningham.  The first edition was published in 2001, and a second edition came out in 2008.  His writing style is professional and his humor self deprecating.  I look forward to reading his new letter each year and often reread them to refresh my ideas on investments.

I can not add to the volumes of information on Mr. Buffett, so I'll stop here.  In our next blog, I will try to coalesce the value investment strategies of Phillip Carrett, Benjamin Graham, Al Frank and Warren Buffet.

Comments are always welcome.