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The Warren Buffett Philosophy of Investment: How a Combination of Value Investing and Smart Acquisitions Drives Extraordinary Success
Revealed! The secret behind Warren Buffett s 20% return rate over 60 YEARS "The Warren Buffett Philosophy of Investment" reveals for the first time how the world s #1 investor combines his trademark value investing with a unique approach to mergers and acquisitions.
The huge interest in Warren Buffett stems from the challenge to understand his history of earning more than 20% on capital annually during the last 60 years. Modern financial theory does not allow for this degree of success, nor has anyone else been able to replicate it.
The book argues that Buffett's secret can be explained only if one looks beyond the theory of investing. The author sees the major drivers of his success as the transformation of Mr. Buffett's name into a super-brand of mergers and acquisitions, as well as his hands-off policy with respect to the acquired companies. As a result, Buffett enjoys numerous opportunities to buy first-class companies at moderate prices and keeps the existing good managers responsible for further value creation.
Elena Chirkova is a professor of finance in the Higher School for Economics in Moscow and was previously Head of Corporate finance for Deloitte s office in Russia."
The huge interest in Warren Buffett stems from the challenge to understand his history of earning more than 20% on capital annually during the last 60 years. Modern financial theory does not allow for this degree of success, nor has anyone else been able to replicate it.
The book argues that Buffett's secret can be explained only if one looks beyond the theory of investing. The author sees the major drivers of his success as the transformation of Mr. Buffett's name into a super-brand of mergers and acquisitions, as well as his hands-off policy with respect to the acquired companies. As a result, Buffett enjoys numerous opportunities to buy first-class companies at moderate prices and keeps the existing good managers responsible for further value creation.
Elena Chirkova is a professor of finance in the Higher School for Economics in Moscow and was previously Head of Corporate finance for Deloitte s office in Russia."
337 pages, Kindle Edition
First published December 6, 2013
52 people are currently reading
148 people want to read
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Displaying 1 - 7 of 7 reviews
June 16, 2019
Good book on Buffett's changing investment philosophy. It is not 100% complimentary, which is good.
Buffett has been looking to buy businesses with high sustainable Return on Equity. Not always successfully as in many cases his investments lost this "indestructible" moat and value.
A lot of the companies Buffett bought were private family businesses, whose owners were looking to sell their businesses to good hands. And Buffett with his pay-cash, hands-off, never-sell approach appeals to them, and able to buy the companies cheaper than purely financial or strategic investors.
Another factor of success is the structure of the Berkshire Hathaway as a company not a fund. The BH as an insurance company has no on-demand liabilities. Buffett does not have investors who can demand their investment back. This allows Buffett to take a very long term view, invest in illiquid private companies and never sell. The insurance float has proven to be a cheap leverage tool for his investments.
Buffett does not believe it diversification. Diversification is for ignorant, he says. Those who know what they are doing are fine with concentrated portfolios (GEICO was 35% of his portfolio at some time in the early career).
My view: These factors now actually play against WB:
1. With the fund is larger and larger, it is more diversified and less concentrated, which means its returns are less likely to be very different from the market.
2. Never sell approach means that the fund has many old investments with returns on equity mean-reverting, and/or their valuations already fair.
3. WB is getting older, which means his appeal for family business owners may be weaker. Plus for a large investment vehicle such as BH it is very difficult to find bsnowners in size and quantity.
4. Market has become more efficient over years. Now there are more Graham and Dodd followers around who hunt for similar deals.
This is mostly why WB lowered his required annual return from 15% to 10%.
Still WB has some powder:
1. His investment approach seems sound and working. He has immense knowledge of the corporate america
2. His long term view with cheap float financing help the returns.
3. Now he is a well known investor with fine reputation and cash and able to make deals in distressful situations.
Buffett has been looking to buy businesses with high sustainable Return on Equity. Not always successfully as in many cases his investments lost this "indestructible" moat and value.
A lot of the companies Buffett bought were private family businesses, whose owners were looking to sell their businesses to good hands. And Buffett with his pay-cash, hands-off, never-sell approach appeals to them, and able to buy the companies cheaper than purely financial or strategic investors.
Another factor of success is the structure of the Berkshire Hathaway as a company not a fund. The BH as an insurance company has no on-demand liabilities. Buffett does not have investors who can demand their investment back. This allows Buffett to take a very long term view, invest in illiquid private companies and never sell. The insurance float has proven to be a cheap leverage tool for his investments.
Buffett does not believe it diversification. Diversification is for ignorant, he says. Those who know what they are doing are fine with concentrated portfolios (GEICO was 35% of his portfolio at some time in the early career).
My view: These factors now actually play against WB:
1. With the fund is larger and larger, it is more diversified and less concentrated, which means its returns are less likely to be very different from the market.
2. Never sell approach means that the fund has many old investments with returns on equity mean-reverting, and/or their valuations already fair.
3. WB is getting older, which means his appeal for family business owners may be weaker. Plus for a large investment vehicle such as BH it is very difficult to find bsnowners in size and quantity.
4. Market has become more efficient over years. Now there are more Graham and Dodd followers around who hunt for similar deals.
This is mostly why WB lowered his required annual return from 15% to 10%.
Still WB has some powder:
1. His investment approach seems sound and working. He has immense knowledge of the corporate america
2. His long term view with cheap float financing help the returns.
3. Now he is a well known investor with fine reputation and cash and able to make deals in distressful situations.
August 16, 2016
Awesome overview of Buffet's investment philosophy
This book really changed how I think about investments. I recommend it to all my friends. I'd suggest three improvements to the book: 1, put all footnotes and references to the back. This shouldn't read like an academic paper; 2, talk more about how retail investors can apply those principles; 3, add more anecdotes and pictures to make it less boring.
This book really changed how I think about investments. I recommend it to all my friends. I'd suggest three improvements to the book: 1, put all footnotes and references to the back. This shouldn't read like an academic paper; 2, talk more about how retail investors can apply those principles; 3, add more anecdotes and pictures to make it less boring.
May 27, 2018
At the beginning, it gives a lot of new knowledge about common stock
September 4, 2023
เป็นการนำสิ่งต่าง ๆ ที่ Buffett เคยทำมาวิเคราะห์หลักการและรายละเอียดต่าง ๆ สรุปออกมาเป็นลักษณะการลงทุนของ Buffett และหลักการในการเลือกบริษัทที่จะทำการลงทุนหรือเข้าซื้อกิจการ
November 28, 2024
First few chapters were very beneficial and not "enjoyable" but I managed. Once it got to the corporate finance chapter I just could not read it anymore.
June 2, 2015
I enjoyed the book, and it was an easy read, but it did not provide any real new insights. Lots of quotes from other books on Buffett - but I've already read those.
I did glean a couple of "reminders" on share options and management that will be useful for me in my own analysis and management. For me, this was largely entertaining reading.
I did glean a couple of "reminders" on share options and management that will be useful for me in my own analysis and management. For me, this was largely entertaining reading.
December 30, 2016
Useful contribution to the crowded market of books on Warren Buffett.
Displaying 1 - 7 of 7 reviews