The Warrent Buffett Way

[elessar78]

A couple of other posters and I got into the investing discussion in another thread and we got on the topic of this book I'm reading called, The Warren Buffett Way by Robert G. Hagstrom.

I'm several chapters in and thought I'd share some interesting concepts.

The True Valuation of the Market
Buffett is convinced that, even though the market may temporarily ignore a company's economic fundamentals, eventually the market will acknowledge a company's good fortune. Sch a ntion is uncomfrortable for those investors who have not done their financial homework and who depend on the stock market as the final arbiter. But that is precisely why people have difficulty making money in the stock market. Buffett is able to eliminate the difficulty of share price and value because he dismisses the notion that the stock market is the final arbiter.

"As far as I am concerned, " he says, "the stock market doesn't exist. It is there only as a reference to see if anybody is offering to do anything foolish..."

Buffett has long realized that Graham's precepts about the stock market were correct. The stock market is not a guide, but merely there to serve you in buying or selling your interests.

[Seeker]

What the concept boils down to is the fact that the stock market is the follower... the company is the leader.

Follow the leaders and their actions... not the stock market.

If you follow the followers, you will be "late."

[Broken Arrow]

Thanks for sharing!

[EEinNJ]

When I first got serious about investing I read a couple of books about Buffett's approach. His principles are sound, there's no denying his success. I just don't think an individual small investor could come any where near his results. He has much greater access to management of companies, ability to analyze their financials, and lots of equity to influence how they are run.

In the last few years I don't think Berkshire has done as well, either, because the kinds of businesses he likes to invest in have not done so well (AX, NYT, KO) and he has historically avoided things like tech companies.

[elessar78]

When I first got serious about investing I read a couple of books about Buffett's approach. His principles are sound, there's no denying his success. I just don't think an individual small investor could come any where near his results. He has much greater access to management of companies, ability to analyze their financials, and lots of equity to influence how they are run.

Nah, small, individual investor can't come close but this was just to point out interesting view points of his that probably other people don't realize (at least I didn't).

Although, my take is that he puts a lot of equity (or outright purchases) into a company. But tends to be hands off on the day to day operations of management, because he believes in the management that made the company successful in the first place to attract his attention.

[amarowsky]

It seems like most people follow his purchases like mindless sheep. Buffet will throw $3 billion and GE under his own "terms" which is a hefty 10% dividend assured preferred stock purchase.

Buffett to Invest $3 Billion in G.E. - DealBook Blog - NYTimes.com

No one can invest like him because he is the proverbial "big swinging dick" and companies are just begging for him to buy up their stocks because no matter what company name comes out of his mouth the price will jump up a quick 10% (not literally).

I really really wanted to buy the GE common stock when they were paying almost an 8% dividend on common stock at a price in the $13-20 range. That would have been amazing, but then they had to be lame and drop out their dividend down to like 2-3% and not even return with a much higher stock price.

I really respect Warren Buffet and I am very eager to read his book "the Snowball" but I have a feeling the company I wanted to jump on had to throw away their common stock dividend to just to keep "Daddy's" preferred 10%/$300,000,000.00 a year allowance on the table for him. He is the man! And I think I hate/envy him for it!

f.y.i. Daddy = Warren Buffet

[Broken Arrow]

It seems like most people follow his purchases like mindless sheep. Buffet will throw $3 billion and GE under his own "terms" which is a hefty 10% dividend assured preferred stock purchase.

Heh, well, you do bring up a very good point. That's something that I've learned almost the hard way myself.

Warren Buffett gets sweet preferential treatments offered to him all the time, especially in this recession where a lot of businesses are hurting for capital. Both Goldman and GE deals are preferred stocks at a substantial discount, and both also pay substantial dividends.

What Warren gets is NOT what we main streeters or even what many wall streeters get.

So, yes, you can not coat tail him. The best you can do is to learn from him, and then apply those lessons on your own... with common stocks.

In fact, you actually have to be careful when investing with him. To most of the general public, perhaps he seems like the nice, rich uncle we know in the family, but when it comes to business and investing, he is the great white shark and we're in his little pond.

For example, remember PetroChina? He bought in before everybody else did. He sung its praises. Everybody who bought his line bought into it as well, despite the over-inflated valuations by that point. And then within a year? Sold. He decided that it was as over-inflated as it was going to get, and not having forgotten that the Chinese government is a wild card, he decided to dump the entire position.

Now, did he deliberately pump and dump PetroChina? Some bitterly complain that he did. But I think he bought in when he thought it was a good idea, and he simply sold when he thought it was a good idea. That was it. He made the right call. Everybody else that went along for the ride? Well, they probably got shafted.

Learn from him. Respect him. Have lunch and go to the carnival with him. Even love and worship him. But don't just invest like him! When it come to business, he is your competitor, not your friend!

But if it makes you feel any better, 2008 probably contained some of the biggest mis-steps he's ever made in his investing career. Or so he openly confesses. The timing of Conoco Philips is one, and some are questioning his option positions, but that remains to be seen.

[amarowsky]

But if it makes you feel any better, 2008 probably contained some of the biggest mis-steps he's ever made in his investing career. Or so he openly confesses. The timing of Conoco Philips is one, and some are questioning his option positions, but that remains to be seen.

Actually I have been meaning to read about his "comeback" from 2008. Last month's issue of smart money mag. has him on the front page displaying the article they have about "buffet's comeback".

[spock0149]

I love the fact he's know as the man who 'Brought Down the Bank of England'. Nice one Warren!

[wincrasher]

Well there is good advice to be had from Mr. Buffett.

Invest only in companies that you understand their business. Look at the fundamentals. Think long term. Buy on rumor, sell on news.