THE WARREN BUFFETT WAY: An article worth contemplating from Robert G. Hagstorm

The book “THE WARREN BUFFETT WAY” published in 1994 provides us the insight into the investing philosophy of Warren Buffet. As per the book, the investing philosophy of the warren buffet can be summarized as:

• Think of buying stocks as buying fractional interests in the whole business.
• Construct a focused low-turnover portfolio.
• Invest in only what you can understand and analyze thoroughly.
• Demand a margin of safety between the purchase price & the company’s long term value.

Starting point of the investing :

From the early age of eight, Warren Buffett started reading the books written by his father on the stock market. At age twenty-five, Buffett started a limited investment partnership with seven limited partners who together contributed $105000.Over the next thirteen years, Buffett compounded money at an annual rate of 29.5%.

Warren Buffett’s investing philosophy:

One of the Buffetts investing mechanisms is like his mentor Ben Graham’s, “buying the quality stock at Low Price and holding them for long term”. We can describe this mechanism in Buffett's word which is “ Be fearful when others are greedy, and be greedy only when others are fearful”. The few examples are given below justify this:

• Tainted by a scandal involving one of its clients, American Express saw its shares drop from $65 to $35 almost overnight. Buffett had learned Ben Graham’s Lesson well: When stocks of the strong companies are selling below their intrinsic value, act decisively. Buffett made the bold decision to put 40 percent of the partnership’s total assets, $13 million, into American Express stock. Over the next two years, the shares tripled in price, and the partners netted a cool $20 million in profit.

• Purchase GEICO at $2.00 or Wells Fargo or General Dynamics when they were depressed as there were numerous learned people saying those companies were in substantial trouble.

Evolving the Value Investing philosophy:

As early as 1965, Buffett was becoming aware that Graham’s strategy of buying cheap stocks was not ideal. Following his mentor’s approach of searching for companies that were selling for less than their net working capital, Buffett bought some genuine losers. When evaluating stocks, Graham did not think about the specifics of the businesses. Nor did he ponder the capabilities of management.

Buffett evolved Graham’s teaching by beginning to appreciate the qualitative nature of certain companies compared with the quantitative aspects of others. But the margin of the safety that Graham emphasized was so important for Buffett that he could overlook all other current weaknesses of Graham’s methodology.

Today’s status of the Warren Buffett:

Warren Buffett’s net worth as of December 2019 is the US $88.9 billion making him the fourth wealthiest person in the world.

At last some valuable quotes for the investors by Warren Buffett:

• “We just focus on a few outstanding companies. We’re focus investors.”
• “I cannot be involved in 50 or 75 things. That’s Noah Ark's way of investing –you end up with a zoo. I like to put meaningful amounts of money in a few things.”
• “We don’t have to be smarter than the rest, we have to be more disciplined than the rest.”
• “Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with the management of the highest integrity and ability. Then you own those shares forever.”