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Book Review: The Warren Buffett Way

Friday 17th June 2005

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The Warren Buffett Way
by Robert Hagstrom

Reviewed by Tony Cross, on behalf of Good Returns.

Nearly all people would have heard of Warren Buffet – The Oracle from Omaha. His financial prowess and wealth are legendary. One could expect any book published on him and his investment philosophies would be eagerly sought after. Buffet’s investment company- Berkshire Hathaway – has experienced an average return since 1964 of 22.2% and its shares now trade for $US 92,000 each. Buffet rates as the second wealthiest billionaire in the U.S with personal wealth of $42 billion. All this from an initial investment of $100 in 1956. As CEO of Berkshire Buffett pays himself a salary of $100,000 with no stock options!!

The book charts Buffet’s early business start and development subsequently. Good coverage is made of those people that influenced Buffet’s investment thinking including : Benjamin Graham, Phillip Fisher, John Burr Williams and Charles Munger. I must admit to not knowing any of these people but I am sure most Americans’ would be very familiar with them.

Berkshire Hathaway has gone from being a purchaser of shares in companies to buying up whole companies by necessity given the billions in funds it manages. Two of the key investment criteria that Buffet follows is that he will only invest within his circle of competence (which rules out most high-tech stocks) and that investments are made with a long term view. There are some real gem of quotes from Buffett such as “All we want to invest in are businesses that we understand, run by people we like, and are attractive relative to their future prospects.”

Buffett particularly likes to invest in franchises where a franchise is defined as a company whose product is desired and has no close substitute and is not regulated. The book gives numerous examples of companies that Berkshire has purchased and the reasons why.

One section of the book deals with Buffet’s purchases of Fixed Interest Securities which is interesting as most people associate Buffett with shares - but Berkshire Hathway has around 30% of its portfolio invested in fixed interest. Again with fixed interest investments Buffett is very much focused on value investing.

The final focus of the book looks at investor psychology which offers some really valuable thoughts to investors and potential investors. Buffet himself uses a fictional character called Mr. Market extensively in his talks to illustrate the vagaries of the share market.

My overall feeling was that this book will appeal to most people with an interest in shares and financial markets. It should be compulsory reading for anyone who wants to invest directly in the markets. Little pearls of wisdom are scattered throughout the book and Buffet’s 50 years of investment experience and knowledge are thoroughly dissected in the text.

My only criticism is that parts of the book appear disjointed at times. References are made to companies Buffet has invested in such as Gillette and General and comment of these companies is often repeated throughout different chapters in the book. I would have preferred information on each company mentioned to be contained within each chapter.

Also the book is full of success stories. I am sure that Buffett has also made a few errors in his days but these seldom get mentioned. In this regard I wonder if the book gives a fully balanced view of Buffett’s abilities, but then again the man is worth $42 billion so can’t have made too many blunders.


The Warren Buffett Way is available online through the Good Returns Bookstore at www.goodreturnsbooks.co.nz



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