{"id":4509,"date":"2016-10-25T08:52:37","date_gmt":"2016-10-25T08:52:37","guid":{"rendered":"http:\/\/www.beatthemarketanalyzer.com\/blog\/?p=4509"},"modified":"2016-10-25T08:55:15","modified_gmt":"2016-10-25T08:55:15","slug":"the-warren-buffett-way-review-notes","status":"publish","type":"post","link":"https:\/\/www.beatthemarketanalyzer.com\/blog\/the-warren-buffett-way-review-notes\/","title":{"rendered":"The Warren Buffett Way Review Notes"},"content":{"rendered":"

Below\u00a0are notes that my student Clayton took about ” The Warren Buffett Way ” while listening to the audiobook.<\/p>\n

You can also download the notes in Microsoft Word format here.<\/a><\/p>\n

————————————————————————————-<\/p>\n

THE WARREN BUFFETT WAY BOOK REVIEW<\/strong><\/h2>\n

Clayton’s notes from \u201cThe Warren Buffett Way\u201d audiobook
\n<\/strong>(Quickly typed out while listening to the audiobook)<\/p>\n

Also, watch our video review of \u201cThe Warren Buffett Way\u201d here:<\/strong>
\nhttps:\/\/youtu.be\/w_CT70g296g<\/a><\/p>\n

 <\/p>\n

Background
\n<\/strong>(5min)<\/p>\n

Worked for his father, and then joined a group. Had about 100k$ to invest, but controlled maybe just 100 himself.<\/p>\n

1969 he stopped stocks because market got tough. Company value was 25mil at that point<\/p>\n

He really didn\u2019t like the \u201cNifty-fifty\u201d stocks that were so popular. He sought value.<\/p>\n

Great statement: \u2026\u201dstick with what you know and don\u2019t chance speculative profit, etc.\u201d (gist)<\/p>\n

But he bought and kept a textile company. In 1980 it was hard. In 1985 he closed it. Kind of a failure\u2026 but learned 1) that it\u2019s hard to turn a company around; and 2) that insurance is a great business\u2026 monthly income that can be put into investments.<\/p>\n

    \n
  1. Hathaway is a \u201cholding company\u201d. He liked to buy simple, well managed companies.<\/li>\n<\/ol>\n

    Wingman, Charles Munger.<\/p>\n

    Buffett nicely aligns incentives at BH. Cuts checks as rewards for meeting targets for one\u2019s specific job.<\/p>\n

     <\/p>\n

    23min<\/p>\n

    Buffett Education<\/strong><\/p>\n

     <\/p>\n

    Benjamin Grahm<\/u> – financial analysis.\u00a0 1934 book.\u00a0 And Intellegent investor (1949)<\/p>\n

    Hired buffett for some time. Taught at Columbia. Ruined by crash. Worked with David Dodd. Security Analysis <\/u>(1934) ; \u201cmargin of safety\u201d; Determined \u201cintrinsic value\u201d of a company. There are some measurable factors: (quality of management is not so measureable), fixed assets, dividends, current and historic earnings\u2026 and others are measureable.<\/p>\n

    Phil Fischer<\/u><\/p>\n

    Need product potential, and look for long-term.<\/p>\n

    Invest in things you know.<\/p>\n

     <\/p>\n

    Gram and Fischer are kind of different. Gram wants potential and measurables. Fischer wants what you know without so much focus on \u2026<\/p>\n

     <\/p>\n

    Buffett learned from Gram that others invest on emotion. And If you can insulate yourself from that emotion and impulse, you can capitalize off others\u2019 irrational behavior. Fischer gave the methodology for finding longterm investments. \u2026 Buffett synthesized Gram and Fischer<\/u> and implements the strategies well.<\/p>\n

    35min<\/p>\n

    Fear or Greed means that price is not equal to value\u2026 but it will eventually go back to the price. <\/em><\/p>\n

    Must master your emotions. <\/em><\/p>\n

     <\/p>\n

    37min<\/p>\n

    Mr. Market allegory(1987 annual report) : Mr. Market is emotionally unstable, and is randomly bullish or bearish.\u00a0 And he does not mind being snubbed. Take advantage of him. Don\u2019t take any of his \u201cadvice\u201d though.<\/p>\n

     <\/p>\n

    He doesn\u2019t but any faith in the talking heads or fads.\u00a0 Only in his own method.<\/p>\n

     <\/p>\n

    Buffett Way 2<\/strong><\/p>\n

     <\/p>\n

    What he\u2019s invested in<\/strong> in the past…<\/p>\n

    Bought general foods and coke. 3x and 4X gains.\u00a0 Bought when nobody saw it. Also saw inflation coming to raise food prices, etc.<\/p>\n

     <\/p>\n

    Two things to watch:<\/strong><\/p>\n

    Inflation <\/u><\/strong>does have an effect on returns, so it has to be considered.<\/p>\n

    Budget deficit is ok, but trade deficit is not\u2026 because it will drive inflation\u2026<\/p>\n

    4min<\/p>\n

    Avoid companies that could be hurt by inflation\u2026<\/p>\n

    That means avoid fixed asset companies.\u00a0 No fixed asset companies suffer less from inflation.<\/p>\n

    Economic good will<\/strong><\/u> is not hurt by inflation\u2026<\/p>\n

    Seas Candy Shop.\u00a0 Good company. Had a good reputation. So it could price above the cost. This good will is really important, because its benefit goes up with inflation.<\/p>\n

     <\/p>\n

    Portfolio management\u2026\u00a0 how to buy<\/u> explained in 1991 report\u2026 first, long term character, second, management ability, finally, reasonability of stock price.<\/p>\n

     <\/p>\n

    Had just 3 companies in 1987\u2026<\/p>\n

    Then coke in 1988\u2026<\/p>\n

     <\/p>\n

    Coke , geico, gillett, \u2026 guiness\u2026<\/p>\n

    76%in top 4 companies<\/p>\n

     <\/p>\n

    11min<\/p>\n

    Invested in: Consumer staples, financial goods, consumer cyclicals, capital goods\u2026<\/p>\n

     <\/p>\n

    Willingness to say \u201cno\u201d<\/u><\/p>\n

    Gram only did if all signs pointed to yes.<\/p>\n

    A few homeruns.\u00a0 Just 20 big decisions in life.\u00a0 Wait for a great opportunity.<\/p>\n

     <\/p>\n

    15min<\/p>\n

    What you do with earnings is much more important. So don\u2019t get so caught up in earnings reports.\u00a0\u00a0 He made \u201clookthrough earnings\u201d to show a better picture of earnings\u2026<\/p>\n

     <\/p>\n

     <\/p>\n

    17min<\/p>\n

     <\/p>\n

    4 Tenets<\/strong><\/p>\n

    Business<\/p>\n

    Management<\/p>\n

    Financial<\/p>\n

    Market<\/p>\n

     <\/p>\n

    Biz.<\/strong><\/p>\n

    1) simple? Understandable?;<\/p>\n

    2) consistent history?\u00a0 …same product over many years<\/p>\n

    3) favorable long-term prospects? \u2026 price flexibility of franchises\u2026 good-will, (commodities don\u2019t have goodwill or price flex\u2026 today, computers are commodities)<\/p>\n

     <\/p>\n

    Management<\/strong><\/p>\n

    1) behave like owners\u2026 rational\u2026 <\/em>\u00a0allocate capital in a growth mindset<\/p>\n

    2) fully honest about company? Communicate earnings and other clearly? Discuss failures?<\/p>\n

    3) resist \u201cinstitutional imperative\u201d? The habit of one company copying others\u2019 habits.. A kind of group think<\/p>\n

     <\/p>\n

    Financials<\/strong><\/p>\n

    1) focus on return on equity<\/em>, not earnings per share. (at 26min)..without debt\/leverage<\/p>\n

    2) calculate owner earnings<\/em>\u2026 cashflow is not a perfect measure\u2026 foolish stock price\u2026\u00a0 Formula at 29min…<\/p>\n

    3) high profit margins<\/em>. Low cost operations always find a way to cut costs\u2026 always\u2026 naturally\u2026 corporate overhead is bad\u2026<\/p>\n

     <\/p>\n

    Market<\/strong>. (31 min-ish)<\/p>\n

    1) for every dollar retained, one dollar of market value should be there\u2026 If a company\u2019s earnings are not invested well, then it will show\u2026<\/p>\n

     <\/p>\n

    When to invest.<\/strong><\/p>\n

    Rational Investing:<\/p>\n

    1) good value? 2) good price\/time to buy?<\/p>\n

     <\/p>\n

    33min<\/p>\n

    John Burr Williams. : \u201cThe theory of Investment value\u201d<\/p>\n

     <\/p>\n

    Buffett says if you get the right variables you can<\/p>\n

    Discount is US gov\u2019t bond rate in Buffett\u2019s equation\u2026<\/p>\n

     <\/p>\n

    Growth vs Value investors.<\/p>\n

    Today, Buffett thinks they are tied at the hip\u2026<\/p>\n

     <\/p>\n

     <\/p>\n

     <\/p>\n

    36min<\/p>\n

    Mistakes <\/strong>stem from:<\/p>\n