Primer’s book to know Buffett-“Warren Buffett: Investor and Entrepreneur”

Warren Buffett

Introduction

“Warren Buffett: Investor and Entrepreneur” is published in 2022, written by Todd. A book about Buffett by Todd A. Finkle.

Reasons for recommendation

  • One of the best “primers’ book” to get to know Buffett; it is especially suitable for people who don’t want to read the 800-plus pages of Buffett’s biography (I have ever read the thousands-page Buffett biography “Of Permanent Value“).
  • The current rating of this book on Amazon is as high as 4.9. Since it was just published, it may be more accurate in a few years. However, even if it is published not long ago, as far as my experience is concerned, 4.9 is still a very high score.
  • The book is not thick, and for beginners, even those who have never heard of Buffett or are new to investing, can read it in a few days.
  • The most important thing is: the content basically covers Buffett, the greatest investor in history, his important life, investment career, and investment ideas; all the topics that ordinary people need to understand quickly are basically explained.

Different from other Buffett books

The author writes from two perspectives: Buffett’s hometown and personally leading students to visit Buffett six times. The author actually records Buffett’s life, investment career, several people who influenced him, major investment cases in his career, and his investment methods.

People who influence Buffett

Including Graham, Munger, Fisher and others, the author has made quite in-depth descriptions in the book.

Among them, Munger is particularly important to Buffett. I have previously written a special article about Charlie Munger, “Charlie Munger, a great investor worth remembering“

The best book he thinks

“I have been involved in investing since I was 7 years old. I have read all the investment books in the Omaha Public Library. Please read Chapter 8 and 20 of “The Intelligent Investor“. They are about investing. The best explanation. I read this book when I was 19 and learned everything I could. From then on, I did the same thing, looking for margins of safety and looking for undervalued stocks. “

His Path to maturity

Major investment cases

The author spends a lot of space introducing the major investment cases in his career one by one. From these major investment cases, readers can learn from Buffett’s investment skills and what considerations he made before making a decision.

Mergers, Acquisitions and Subsidiaries

This book spends a lot of time discussing in detail some of the major mergers and acquisitions in Buffett’s career, as well as Berkshire’s current organizational structure, famous subsidiaries, and Buffett’s management style.

Failed and missed investments

This book also spends a lot of space discussing some investment projects that Buffett himself admitted that he missed or later caused huge losses. And he himself said that as long as he is alive, such mistakes will continue to happen.

Quantitative and non-quantitative investing

IQ is not the main factor in success

In the book, the author repeatedly quotes Buffett’s views: “Non-quantitative factors determine success or failure of an investment“, “The most important qualifty for an investor is temperament, not intellect”, “Personality has a decisive impact on investment success or failure“, “Why people with high IQ prone invest failed” and “Too high IQ is not useful in investment, but will hinder“.

Discipline

Buffett told his students: “I don’t have the discipline to sell, only the discipline to buy. My philosophy is to buy at the appropriate price, and I have never thought about an exit strategy. The only thing to do is, even if the stock market is closed, after buying , it must be held for at least five years.”

On this topic, I have previously written a special article “Time, discipline and patience are the three elements of successful investment“, which can be used as a reference for investors.

Active or Passive Investing

Buffett told the visiting students: “If you are willing to invest time to select individual stocks, then buy individual stocks. If you don’t have time, then use the regular fixed investment method to buy low-cost index index funds.”

Generally speaking, investment methods can be divided into the following “”Qualitative and quantitative investment“:

Qualitative investment

Core investment principles

Moat, the stocks owned by investors are part of the company, margin of safety, the market (taking advantage of the market rather than being taken advantage of by the market). Except for the moat, which was advocated by Buffett himself; the latter three are mainly from Graham’s book “The Intelligent Stock Investor”.

Valuation

Buffett has repeatedly said that business school students only need to be taught two courses: how to evaluate the value of a company, and how investors interpret the market–that is, understanding human financial behavior.

What is a good company?

Mainly influenced by Munger and Fisher, Buffett abandoned the cigar-style investment method (please see my post of “Problems with Cigar Butt Investment“) and formed his investment method of buying good companies at reasonable prices. In a perfect situation where all conditions are met, one may even buy and hold it for life without selling.

Creteia to buy a business

Buffett has listed the conditions for companies he thinks are worth buying on the Berkshire website and in several letters to shareholders (the text of several versions may have slight differences, but the theme is similar). There are generally several conditions. : Reasonable price, good business prospects, run by an honest team, continuous good performance, the business model should not be too complicated, etc.

Buffett told his students: “The stocks I buy must be businesses that even a fool can run, because one day a fool will take over the business.”

His standard is to look at at least the company’s performance over the past ten years, as well as the company’s prospects in the next ten, twenty, or even thirty years.

I have previously written a special article analyzing “The three major commonalities of Buffett’s shareholdings – cheapness, fixed dividends, and treasury stocks”, which can be used as a reference for investors.

Quantitative investment

Inflation

The U.S. debt is out of control, which will cause the dollar to continue to depreciate. A dollar in 1930 has only six cents of purchasing power today. In the long run, the main reason for the depreciation of most currencies is inflation.

Fixed income investing is a mistake and makes absolutely no sense because currencies are depreciating every day due to inflation. The riskiest investment is currency.

For this part, please see the description of my article “Tax, inflation and rate are the top three serious killers to investors“.

Interest rate

Buffett has repeatedly emphasized the importance of interest rates in many places. He often uses long-term (such as thirty-year, twenty-year or ten-year) U.S. Treasury bill interest rates as an important decision-making goal for his investments. For this part, please see the description of my article “Tax, inflation and rate are the top three serious killers to investors“.

DCF

The author once personally asked Buffett what method he uses to value stocks. Buffett answered the discounted cash flow method (DCF). This answer is consistent with what he said in the shareholder letter and the shareholder meeting.

The discounted cash flow method is explained in detail in the book and is worthy of in-depth study by readers. Especially in the books and articles I have read, or in many articles, the discussion of discount rate, WACC, interest rate, and future value is almost vague (I personally believe that the authors of most books or articles The author himself does not understand these things). But the author explains it very clearly in this book.

You can refer to my previous posts of “DCF (Discounted Cash Flow) Calculator” and “What’s TSMC DCF intrinsic value?How to calculate it quickly with a free tool?“. For my explanations of these two special articles on the discounted cash flow method (DCF).

Life and other topics

Business and career

Important traits for building a successful career include:

  • Perseverance
  • Creativity
  • Unbridled thoughts
  • Leadership
  • Don’t take credit
  • Generous

He also suggested that students should improve their writing and speaking skills, as this will give them a salary increase of more than 50% in the future. He himself knew this very early. When he was a student, he spent money to take Carnegie’s interpersonal communication course.

Buffett tells his students: “If you want to be successful, you must really love your career.”

Life

The following is Buffett’s philosophy of life mentioned in the book:

  • Money cannot buy love and time.
  • Buffett believes: The most important decision in your life is who you marry.
  • The amount of money left for the children can be done whatever they want, but it cannot be so much that they can do nothing.

Hapiness

  • Money will not bring you satisfaction, only the things you already have in your hands and what you are doing will make you satisfied.
  • Work with people you love or admire, and if you don’t have one in front of you, find another place.
  • I don’t let work decisions or investments change my lifestyle.

Philanthropism

Buffett began to fulfill his promise in 2018 and gradually donated almost all of his wealth to five charitable foundations: including the Bill Gates and Melinda Foundation (see my previous post “Bill Gates’ Investment Empire“), three charities directed by his three children respectively. Foundation, the Glade Foundation.

Meet students

The author has taken students on three visits to meet Buffett, and they have learned a lot in the process.

The appendix of this book contains the complete manuscript of the Q&A transcripts that the author personally participated in when Buffett met with 162 students for readers’ reference──because a large amount of the content of this book is based on the original transcripts of these Q&A transcripts. content in.

Successful business people

According to Buffett, the successful business people he knows have several characteristics:

  • Rarely has an Ivy League degree
  • Those with the most business experience
  • The most perseverant
  • People who want to disrupt the business status quo

The typical entrepreneur doesn’t wait for others to tell them what they need to do or what they don’t need to do.

Manage

  • Bad news requires subordinates to inform him immediately.
  • Trust his subordinates and fully delegate authority, because he hates meetings and doesn’t want to spend time managing others.
  • After merging a company, they prefer to retain the original management team and leave 20% of the shares to the original seller. In this way, the interests of the original managers and owners are consistent with the company, and they are willing to fully contribute their efforts.

For this topic, please see my previous post of “How does Buffett manage Berkshire?“

Warren Buffett
credit: Amazon.com

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Author: Andy Lin

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