Recently I read the book The Warren Buffett Way by Robert Hagstrom. The book talks about the investing principle of Warren Buffett and his journey towards becoming the second richest person on earth.
The book talks in detail about some of the special qualities of Warren Buffet
- His super smartness
- Overarching philosophy
- Mental flexibility
- He is contrarian and iconoclastic
- He is counter cyclical
- His long term focus
- He is unafraid to bet big on his ideas
- He is willing to be inactive
- He is not worried about losing his job
The first chapter talks about the early life of Warren Buffet. How he was fascinated by numbers. By the time he entered kindergarten he has became a counting machine. His childhood days were in extreme poverty. By the age of 6 he has started doing business. His first business was of selling Chiclets. He kept on growing his business. He would buy a six pack of coke at his grandfather grocery store for 25 cents and sell the individual bottles for 30 cents. He also sold the copies of newspapers and magazines door to door.
By the age of 9 he has started developing interest for stocks. He was the frequent visitor to his dad’s brokerage office. He started reading books on investment from his father’s bookshelf. When Buffett turned 10, his stock broker father asked him what birthday gift you want, he said I want to see New York Stock Exchange take me there. By the age of 11 he began charting stock prices himself.
His first investment was at the age of 11. He bought three shares of city services. Sold it for a profit of 5$. But the stock went up 100% in few months . Buffet learned the first lesson that stocks should be held for long.
The book describes the education life of Buffet. What he learned from the legendary investors like Benjamin Graham and Philip Fisher.
The Book describes tenets of his investing style
- Business Tenets
- Management Tenets
- Financial Tenets
- Market Tenets
- Is the business simple and understandable?
- Does the business have a consistent operating history?
- Does the business have favorable long term prospects?
- Is management rational ?
- Is management candid with its shareholders?
- Does the management resist the institutional imperative ?
- Focus on return on equity, not earning per share
- Calculate owner earnings
- Look for companies with high profit margins
- For every dollar retained, make sure the company has created at least one dollar of market value.
- What is the value of a business?
- Can the business be purchased at a significant discount to its value ?
There is also the case study of 9 companies in which Buffett has invested applying the above tenets
Book is a good read. You will enjoy and learn a lot, but not a beginner friendly one must have some basic understanding of investing to understand this book.