The Warren Buffett Way: The World’s Greatest Investor
When Robert Hagstrom first published The Warren Buffett Way in 1994, it quickly became a phenomenon. To date, more than 1.2 million copies have been sold. The book’s popularity is a testimony to the accuracy of its analysis and the value of its advice.
Any time the subject is Warren Buffett, it is easy to become overwhelmed by the sheer size of the numbers. Whereas most investors think in terms of hundreds or perhaps thousands, Buffett moves in a world of millions and billions. But that does not mean he has nothing to teach us. Quite the opposite. If we look at what he does and has done, and are able to discern the underlying thinking, we can model our decisions on his. That is the profound contribution of Robert’s book.
He closely studied Warren Buffett’s actions, words, and decisions for a number of years, and then set about analyzing them for common threads. For this book, he distilled those common threads into twelve tenets, timeless principles that guide Buffett’s investment philosophy through all circumstances and all markets. In just the same way, they can guide any investor. The enduring value of Robert’s work is due to this clear focus—although the book talks about investment techniques, it is fundamentally about investment principles.
And principles do not change. I can almost hear Warren saying, with his wry smile, “That’s why they call them principles.” The past ten years have given us a vivid demonstration of that basic truth. In those ten years, the trends of the stock market changed several times over.
We witnessed a high-flying bubble that made many people rich, and then a steep crash into a protracted, painful bear market before the market finally hit bottom in the spring of 2003 and started to turn back up. All along the way, Warren Buffett’s investment approach never changed. He has continued to follow the same principles outlined in this book:
• Think of buying stocks as buying fractional interests in whole businesses.
• Construct a focused low-turnover portfolio
• Invest in only what you can understand and analyze
• Demand a margin of safety between the purchase price and the company’s long-term value
Berkshire Hathaway investors, as usual, reap the benefits of that steady approach. Since the recovery began in 2003, Berkshire Hathaway stock is up about $20,000 per share, more than 30 percent, far surpassing the returns of the overall market over the comparable period. There is a chain of thinking for value investors that begins with Benjamin Graham, through Warren Buffett and his contemporaries, to the next generation of practitioners such as Robert Hagstrom. Buffett, Graham’s best-known disciple, frequently advises investors to study Graham’s book The Intelligent Investor. I often make the same recommendation myself. And I am convinced that Robert’s work shares with that classic book one critical quality: the advice may not make you rich, but it is highly unlikely to make you poor. If understood and intelligently implemented, the techniques and principles presented here should make you a better investor.
