Thursday, September 13, 2007

Warren Buffett Speaks

Janet Lowe has authored a completely revised version of her "Warren Buffett Speaks: Wit and Wisdom from the World's Greatest Investor." In order to provide complete disclosure, let me advise that John Wiley & Sons, the publisher, sent me a complimentary copy for which I am quite grateful.

There are many adoring fans of Buffett, myself included. I own and peruse regularly almost all of the writings about WEB as well as his own well-crafted annual reports. Of course, most of us who have been involved in value investing can recite almost verbatim, some of the quotations that are here. But many less familiar ones are here as well.

Ms. Lowe has completed a beautifully written and well organized book that provides a concise guide to investing as well as about life in general.There is no preaching or proselytizing here. The message is relaxed and provides excellent "thinking" in an easy read.

Some of the less familiar quotes provide great insight into how one should lead one's life. For some of my younger readers who aspire to being investment analysts or portfolio managers, there is valuable advice. Indeed, to those among us who are crotchety and old ( like yours truly and a few of my former co-workers) it provides a valuable reminder of certain principles.

Let me highlight a few:

The importance of cultivating good character: "Always hang around people better than you and you'll float up a little bit. Hang around with the other kind and you start sliding down the pole."

The importance of a mentor: "You're lucky in life if you have the right heroes. I advise all of you, to the extent that you can, pick out a few heroes. There's nothing like the right ones."

Understanding your place in the world (and this is a Munger quote): "If you're a duck on a pond, and it's rising due to a downpour, you start going up in the world. But you think it's you, not the pond."

Working with Good People: "I choose to work with every single person that I work with. That ends up being the most important factor. I don't interact with people I don't like or admire. That's the key. It's like marrying."

In addition on that same theme:

"Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you."

Having a Philosophy: "When proper temperament joins with proper intellectual framework, then you get rational behavior."

in addition, consider:

"If principles can become dated, they're not principles."

On investing: "The market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses."

and an important one to consider in these volatile times:

"You can't get rich with a weather vane."

Buffett's philosophy and techniques have been a touchstone for me and many value investors for many years. The investment principles hewed by Benjamin Graham have stood the test of time, and hence truly are principles:

  1. Look at stocks as small pieces of the business.
  2. Look at market fluctuations as your friend rather than your enemy-profit from folly rather than participate in it.
  3. Margin of Safety

These truly are the cornerstones for successful investing.

Finally, one poignant quotation that I found truly touching about the definition of friendship:

"I remember asking that question of a woman who had survived Auschwitz. She said her test was, 'Would they hide me?'"

There have been some great, and some not so great books about WEB. There are some great ones on the way. This much revised and updated compact edition deserves a place on your bookshelf, if not your desk. Buy it, read it, live it!


At 7:13 PM, Blogger W. P. Thatcher said...

WEB has famously said that if you can't stomach a 50% loss to your positions, then you shouldn't be in the market. Isn't this a bit much? How many people can take a 50% loss on a stock and not sell? Would they wrong to sell? Probably not most of the time.

At 9:57 AM, Blogger Rick said...

As is so often the case, it all depends. Frequently, if I have misjudged a management or the earnings power, it becomes very evident with a loss of 10-20%. I can think of many junior Canadian stocks that provided opportunities to get out with a loss of 10-20% following a couple of bad quarters that have completely disappeared.

On the other hand, there are many companies where I have been down 30-50% that have come back to be great winners.

There is a great Benjamin Graham quote," The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment."

Declines need to be brought into context. A rotten day nowadays in Dow Jones averages would be down 300 points. The media would be all over it and investors would be desperate. Yet, this is the equivalent fluctuation of the temperature hitting 78 degrees rather than 80...hardly a noteworthy event.

Thanks for your comment


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