Warren Buffett is the most famous investor of all time and one of today’s most admired business leaders. He became a billionaire and investment sage by looking at companies as businesses rather than prices on a stock screen. The first two editions of The Warren Buffett Way gave investors their first in-depth look at the innovative investment and business strategies behind Buffett's spectacular success. The new edition updates readers on the latest investments by Buffett. And, more importantly, it draws on the new field of behavioral finance to explain how investors can overcome the common obstacles that prevent them from investing like Buffett.
New material includes:
- How to think like a long-term investor - just like Buffett
- Why "loss aversion", the tendency of most investors to overweight the pain of losing money, is one of the biggest obstacles that investors must overcome.
- Why behaving rationally in the face of the ups and downs of the market has been the key to Buffett's investing success
- Analysis of Buffett's recent acquisition of H.J. Heinz and his investment in IBM stock
The greatest challenge to emulating Buffett is not in the selection of the right stocks, Hagstrom writes, but in having the fortitude to stick with sound investments in the face of economic and market uncertainty. The new edition explains the psychological foundations of Buffett's approach, thus giving readers the best roadmap yet for mastering both the principles and behaviors that have made Buffett the greatest investor of our generation.
Table of Contents
Foreword: The Exception vii
Howard Marks
Foreword to the Second Edition xvii
Bill Miller
Foreword to the First Edition xix
Peter S. Lynch
Introduction xxv
Kenneth L. Fisher
Preface xxxi
Chapter One A Five-Sigma Event: The World’s
Greatest Investor 1
Personal History and Investment Beginnings 3
The Buffett Partnership Ltd. 10
Berkshire Hathaway 13
Insurance Operations 15
The Man and His Company 17
Five-Sigma Event 18
Chapter Two The Education of Warren Buffett 21
Benjamin Graham 21
Philip Fisher 30
Charlie Munger 35
A Blending of Intellectual Influences 38
Chapter Three Buying a Business: The Twelve Immutable Tenets 45
Business Tenets 46
Management Tenets 50
Financial Tenets 59
Market Tenets 64
Anatomy of a Long-Term Stock Price 69
Chapter Four Common Stock Purchases: Nine Case Studies 71
The Washington Post Company 72
GEICO Corporation 81
Capital Cities/ABC 91
The Coca-Cola Company 100
General Dynamics 110
Wells Fargo & Company 114
American Express Company 120
International Business Machines 123
H.J. Heinz Company 130
A Common Theme 135
Chapter Five Portfolio Management: The Mathematics of Investing 137
The Mathematics of Focus Investing 143
Focus Investors in Graham-and-Doddsville 155
Chapter Six The Psychology of Investing 179
The Intersection of Psychology and Economics 180
Behavioral Finance 182
And on the Other Side, Warren Buffett 194
Why Psychology Matters 199
Chapter Seven The Value of Patience 201
For the Long Term 202
Rationality: The Critical Difference 205
Slow-Moving Ideas 206
System 1 and System 2 207
The Mindware Gap 210
Time and Patience 211
Chapter Eight The World’s Greatest Investor 213
The Private Buffett 216
The Buffett Advantage 218
Learning to Think Like Buffett 224
Finding Your Own Way 232
Appendix 235
Notes 253
Acknowledgments 263
About the Author 267
Index 269
