[Book Review] The Warren Buffett Way by Robert G. Hagstrom
Warren Buffett is an investor that needs no introduction. Books on dominate the bookshelves at investment section of bookstores. Among the sea of books, Robert G. Hagstrom's name outstands. This is the review of New York Times Best Seller "The Warren Buffett Way"
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Successful investment is a journey and this book does a wonderful job in giving its readers a peek on how Buffett's investment philosophy evolved over the period of time. The Warren Buffet Way is not a conventional compendium to riches, rather an investment journey of Oracle of Omaha, how he was open-minded to blend his Benjamin Graham school of Investing with that of Philip Fisher.
The difficulty lies not in the new ideas but in escaping from the old ones.
Warren Buffet recollects about his change of thinking (Graham's way of stock picking) and quotes John Maynard Keynes, the famous twentieth century British economist, in the above quote.
Benjamin Grahm's The Intelligent Investor and Fisher's Common Stocks and Uncommon Profits has deeply shaped Buffet's philosophy of stock picking. Buffett himself has indicated that "I'm 15 percent Fisher and 85 percent Benjamin Graham", although Hagstrom notes that this was in 1990 and that Buffet has probably moved closely towards Fisher since then.
Warren Buffett’s four investment tenets
Robert Hagstrom has distilled Buffet's investment framework into business, management, financials and value tenets. Each tenet has its own subset of questions or checklists to guide your investment analysis.
Business Tenets
- Is the business simple and understandable?
- Does the business have a consistent operating history?
- Does the business have good long-term prospects?
Management Tenets
- Is management rational? (Management has to display integrity with their shareholders)
- Is management candid with shareholders?
- Does management resist the institutional imperative?
Financial Tenets
- What is the return on equity? (Not simply earning per share)
- What are the profit margins?
- What are the company’s owner earnings?
- Does the company create at-least one dollar of market value for every dollar retained?
Value Tenets
- What is the value of the company?
- Can it be purchased at an attractive discount to its value?
When I finished the book I was awed (well that seem to be NEWS!!) by Warren Buffett and his amazing talent and skill. The book serves as a good reminder for the important principles to remember when investing. That getting swept up hoopla and the musings of the market can be tempting, but when you think about yourself as a shareholder second and a business owner first, you want to buy a portion of a business that is managed well, instead of plunging head first into the ocean like a lemming controlled by Mr. Market and his mood swings.
This book is designed for anyone that is interested in the investment profession: whether you have a remote curiosity into what made Warren Buffett one of the most successful investors or you are seriously considering learning about a career as an a capital allocator, The Warren Buffett Way walks the readers through the thinking of the 'Sage of Omaha'.