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Buffettology

by Mary Buffett and David Clark

I got this book because it was recommended by Mike Burry, who predicted the subprime crisis before anyone else and went from being middle-class to being worth $100 million off it. Here's the forum post where he mentions the book:
http://www.siliconinvestor.com/readmsg. ... id=2865794

After having read a good portion of it I can say it is a superb, superb book. The chapters are short (just a few pages), everything is explained in very clear language, and the book ramps up at a very nice pace--not too quickly or too slowly.

The information in it is stuff I haven't read anywhere else (although I haven't read very much at this point).

Investment Valuation by Aswath Damodaran

Rec'd by Michael Burry
http://www.siliconinvestor.com/readmsg. ... id=1975723

Margin of Safety by Seth Klarman

This book is out of print and the remaining hard copies are expensive, but you can find a pdf copy of it online:
http://www.my10000dollars.com/MS.pdf

Notable Quotes

- "Wall Street, the financial marketplace where capital is allocated worldwide, is in many ways just a gigantic casino" (xv)
- "Hundreds of billions of dollars are invested in virtual or complete ignorance of underlying business fundamentals, often using indexing strategies designed to avoid significant underperformance at the cost of assured mediocrity." (xv)
- "I believe that indexing will turn out to be just another Wall Street fad. When it passes, the prices of securities included in popular indexes will almost certainly decline relative to those that have been excluded." (p53)


Contents

I Where Most Investors Stumble
1. Speculators and Unsuccessful Investors
2. The Nature of Wall Street Works Against Investors
3. The Institutional Performance Derby: The Client Is the Loser
4. Delusions of Value: The Myths and Misconceptions of Junk Bonds in the 1980s

II A Value-Investment Philosophy
5. Defining Your Investment Goals
6. Value Investing: The Importance of a Margin of Safety
7. At the Root of a Value-Investment Philosophy
8. The Art of Business Valuation

III The Value-Investment Process
9. Investment Research: The Challenge of Finding Attractive Investments
10. Areas of Opportunity for Value Investors: Catalysts, Market Inefficiencies, and Institutional Constraints
11. Investing in Thrift Conversions
12. Investing in Financially Distressed and Bankrupt Securities
13. Portfolio Management and Trading
14. Investment Alternatives for the Individual Investor

Security Analysis by Benjamin Graham and David Dodd

Michael Burry on Security Analysis:
http://www.siliconinvestor.com/readmsg. ... id=2865794
"you can get a lot of the same info in a more accessible format elsewhere, but everyone says that Buffett's favorite version is the 1951 edition. Yes there are differences, and the current version has a lot of non-Graham like stuff in it."

The Intelligent Investor by Ben Graham

John T Reed's review of the book:
http://www.johntreed.com/Graham.html

ATM it seems this is considered the Bible of value investing, although you'll need to go far beyond what it teaches in order to do well. It's written for the everyman.

The current edition has chapter-by-chapter commentary by the latest editor (a WSJ writer, I think); on a whim I've been reading through all the commentary first without reading the actual book.

The Little Book that Beats the Market by Joel Greenblatt

Value Investing Made Easy by Janet Lowe

I got this book because it was recommended by Mike Burry:
http://www.siliconinvestor.com/readmsg. ... id=2865794
"To get started, I'd suggest the following four books: [...] Another book you might want to consider is Value Investing Made Easy by Janet Lowe - a quick read."

This book is well-organized; key points are clearly displayed, so that writing out a full point-by-point summary here might not be as useful as with other books (which are just paragraphs of prose).

Contents

1. The Virtue of Value Investing
2. Safety in the Balance Sheet
3. Identifying Growth in the Income Statement
4. Management's Role
5. Building a Portfolio
6. Picking a Stock of Value
7. Thriving in Every Market
8. Risk Management
9. Special Circumstances
10. The Truth Shall Make You Wealthy
- Follow Those Who Do Best
- Value Investing Condensed
- The Simpler the Better
- Beyond Ben Graham - A discussion of how to use the internet; the book was written in 1996 and it serves as a stark reminder of just how different the world was then. Information is much more readily available nowadays, and it makes me wonder what effect on competition this is having.
- Three Pillars
- Checkpoints
- Graham on Diversification - Always have at least 25% in bonds and 25% in stocks; then move around the rest depending on market conditions. Graham would hold 75+ stocks whereas Buffett would have fewer than a dozen.
- Parting Words - i) Value investing has lasted through all kinds of markets for many years for many different investors. ii) Have the right attitude toward investing; enjoy the experience. iii) Good luck!

Appendix: The Geico Story
Recommended Reading

Warren Buffett Speaks by Janet Lowe

This is a worthwhile collection of Buffett's thoughts on various subjects. Janet Lowe (the author) also wrote "Value Investing Made Easy", which is the book that Michael Burry recommended to people as the most user-friendly introduction to value investing.

I'm going to list here the quotes I found most useful:
17 - "Any young person who doesn't take up bridge is making a big mistake."
26 - "...essentially there is no one, virtually with the exception of an assassin, that can do you as much damage as somebody can in the press, if they do something the wrong way."
31 - Buffett asked to work for Ben Graham for free
35 - "Buffett describes his own style as 85% Ben Graham and 15% Phil Fisher" Source: 1969 Forbes article: "The Money Men"
44 - Lowe says "Munger isn't a particular fan" of Ben Graham's philosophy
49 - a mention of the "Outstanding Investor Digest"
55 - a mention of John Train's "The New Money Masters"
58 - Irving Kahn, a Columbia classmate of Buffett: "He was much the same as he is now, but he was a brash, cocky young guy--he was always busy on his own. He has tremendous energy. He could wear you out talking to you. He was very ambitious about making money."
62 - Michael Lewis, in a '92 article on Buffett ("The Temptation of St. Warren"), claimed Buffett's success was a result of random chance (EMH).
68 - "I choose to work with every single person that I work with. That ends up being the most important factor. I don't interact with people I don't like or admire. That's the key. It's like marrying." [I'm of the same opinion]
69 - "I believe in going to work for businesses you admire and people you admire. Anytime you're around somebody that you're getting something out of and you feel good about the organization, you just have to get a good result. I advise you never to do anything because you think it's miserable now but it's going to be great 10 years from now..."
70 - "I gave a talk last year; some student at Harvard asked me, 'Who should I go work for?' I said go to work for whoever you admire the most..."
75 - "If you understand an idea, you can express it so others can understand it. I find that every year when I write the report, I hit these blocks. The block isn't because I've run out of words in the dictionary. They block is because I haven't got it straight in my own mind yet. There's nothing like writing to force you to think and to get your thoughts straight."
- a mention of the fact that Buffett did the Dale Carnegie speaking course and found it very useful (John T Reed says everyone should do it)
87 - "...stocks are probably still the best of all the poor alternatives in an era of inflation--at least they are if you buy in at appropriate prices."
91 - "Ben Graham wanted everything to be a quantitative bargain. I want it to be a quantitative bargain in terms of future streams of cash. My guess is the last big time to do it Ben's way was in '73 or '74, when you could have done it quite easily."
94 - "It has been helpful to me to have tens of thousands (of students) turned out of business schools taught that it didn't do any good to think."
94 - "Current finance classes can help you do average."
95 - Lowe: How can an investor be sure that the price of a stock that is undervalued by the market eventually will rise? Buffett: "When I worked for Graham-Newman, I asked Ben Graham, who was then my boss, about that. He just shrugged and replied that the market always eventually does." [Source: '74 Forbes article]
97 - "Keynes essentially said, don't try and figure out what the market is doing. Figure out a business you understand, and concentrate."
102 - mention of the NY Society of Security Analysts (haven't heard of them before)
104 - "We like stocks that generate high returns on invested capital where there is a strong likelihood that it will continue to do so. For example, the last time we bought Coca-Cola, it was selling at about 23 times earnings. Using our purchase price and today's earnings, that makes it about 5 times earnings. It's really the interaction of capital employed, the return on that capital, and future capital generated versus the purchase price today."
108 - Lowe: "Buffet calls borrowed money a dagger tied to a company's steering wheel pointed straight at its heart:" Buffet: "You will someday hit a pothole."
109 - On the trade deficit: "Our riches are our curse in our attempts to attain a trade balance. If we were less well-off, commercial realities would constrain our trade deficit. Because we are rich, however, we can continue to trade earning properties for consumable trinkets. We are much like a wealthy farm family that annually sells acreage so that it can sustain a lifestyle unwarranted by its current output. Until the plantation is gone, it's all pleasure and no pain. In the end, however, the family will have traded the life of an owner for the life of a tenant farmer." [This is exactly what happens to the wealthy Hwang family in the novel "The Good Earth"; the main character goes the opposite way by being frugal, but in the end his sons appear destined to follow in the Hwang's footsteps.]
113 - "You have to think for yourself. It always amazes me how high-IQ people mindlessly imitate. Inever get good ideas talking to other people." [he could not have meant this literally, because he has admitted getting good ideas from Charlie Munger and his underlings]
117 - factors you need to understand in order to be a successful investor: "...nuances of corporate governance factors or tax factors or attitudes toward capitalists..."
121 - Lowe: "How does Buffett determine the value of a business:" Buffet: "Do a lot of reading." (separate quote:) "I read annual reports of the company I'm looking at and I read the annual reports of the competitors--that is the main source of material."
121 cont'd - Lowe: When he first took an interest in GEICO, this is what Buffett did: "I read a lot. I was over at the library...I started with Bests' (insurance rating service) looking at a lot of companies, reading some books about it, reading annual reports, talking to (insurance specialists), talking to managements when I could."
123 - "(Value Investing) ideas seem so simple and commonplace. It seems like a waste to go to school and get a PhD in economics. It's a little like spending eight years in divinity school and having someone tell you the ten commandments are all that matter."
124 - "Talking at business schools, I always say (students) would be better off if, when they got out of school, they got a ticket with 20 punches on it. And every time they make an investment decision it uses up a punch. You'll never use up all 20 punches if you save them for the great ideas." Lowe: Forbes economist Mark Hulbert ran some numbers and determined that if you remove Buffett's 15 best decisions from the hundreds of others, his long-term performance would be mediocre.
126-127 WSJ ad / investment checklist: 1. Large purchases (not applicable to small investors) 2. Demonstrated consistent earning power (future projections are of little interest to us, nor are "turnaround" situations). 3. Business earning good returns on equity while employing little or no debt. 4. Management in place (we can't supply it). 5. Simple business (if there's a lot of technology, we won't understand it). 6. An offering price (we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).
128 - "Read Ben Graham and Phil Fisher, read annual reports, but don't do equations with Greek letters in them."
129 - mention of an article Buffett had published in Barron's when he was only 17 regarding his use of "odd-lot figures"
129-130 - frugality is crucial
130 - mention of a novel Buffett seemed to enjoy called "Memos from the Chairman" by Alan Green-berg
131 - apparently Buffett was on the TV show "All My Children"
135 - When asked why he abandoned some value investing principels, Buffett replied: "As we work with larger sums of money, it simply is not possible to stay with those subworking capital types of situations. It requires learning more about what's going to produce steady and increasing flows of cash in the future--if you are working with small sums of money, you don't even have to work that hard. We (at Graham-Newman) used to have a one-page sheet where you put down all the numbers on a company, and if it met certain tests of book value, working capital, and earnings, you bought it. It was that simple."
143 - very important - Buffett describing how someone at Kitty Hawk might have clearly seen how air travel would revolutionize the world, but that "the net return to owners for the entire airline industry, if you'd owned it all, and you'd put up all this money, is less than zero."
144 - Lowe: Buffett says he made one of his worst decisions at age 21 when he put 20 percent of his net worth in a gasoline station.
146 - Storybook stocks: "...we like great companies with dominant positions, whose franchise is hard to duplicate and has tremendous staying power or some permanence to it."
148 - "You should invest in a business that even a fool can run, because someday a fool will."
148 - Mentioning how Coca-Cola's stock price dropped after WW1 because of the change in sugar prices. This reminded me of the part in Liar's Poker where the brilliant bond trader would buy some random commodity because he knew that some seemingly-unrelated event on the other side of the world would cause demand for the commodity to eventually go up.
149 - "Let's say you were going away for 10 years and you wanted to make one investment and you know everything you know now, and you couldn't change it while you were gone. What would you think about? I came up with anything in terms of certainty, where I knew the market was going to continue to grow, where I knew the leader was going to continue to be the leader--I mean worldwide--and where I knew there would be big unit growth, I just don't know anything like Coke."
150 - "The definition of a great company is one that will be great for 25 or 30 years."
151 - Buffett using a horse racing analogy (it may be worth learning about it to be able to find common successful strategies)
158 - "Our conclusion is that, with few exceptions, when management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact."