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Warren Buffetts
Investment Survival Guide

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Warren Buffetts Investment Survival Guide

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Warren Buffetts Investment Survival Guide


We all know the live fast and die young types, currencies. I wont give you particulars; in fact, it is the musical acts and athletic superstars who make largely irrelevant which currencies they are. What millions overnight and end up broke again within a does matter is the underlying point: To hold other few years. currencies is to believe that the dollar will decline. Were not saying rock stars and quarterbacks dont The dollar has fallen by 2.37 percent on average deserve their millions; just that its no surprise when each year since that article appeared, just about sudden wealth slips away from them. equal to the median inflation rate since 1882. Sounds The truly rich of the world are okay, but Buffett truly fears that the different from these instantly rich trend will change abruptly for the upon which the media tends to worse, returning Americans to the Buffett-isms ... dwell. double-digit destruction the country Only buy something that Americas real rich in nearly all experienced in the 1920s and again youd be perfectly happy to cases have worked hard to acquire in the early 1980s. hold if the market shut down their wealth, building businesses Inflation is a destroyer. It strikes for 10 years. slowly over many years. without obvious warning and, in They understand the importance certain situations, moves higher than of protecting those dollars, and they most investors believe is possible. innately grasp how easy it is to lose ones wealth in a Once entrenched, it takes huge amounts of flash. political will to dislodge, but not before devastating Consider how Warren Buffett built his wealth. damage has been done to the life savings of millions. Imagine you invested with Warren in the textile As President Ronald Reagan once put it, Inflation holding company he controlled in 1964. You put in is as violent as a mugger, as frightening as an armed just $10,000 and then did nothing. You never read robber, and as deadly as a hit man. a stock table, never bought The Wall Street Journal. In a televised interview, Buffett explicitly warned the Never fretted about market bulls and bears. Today, Obama administration which he supports that that same $10,000 would be worth $80 million! rising debt poses a huge risk to the U.S. economy. To truly appreciate the power of Buffetts investing At the time (May 2010), the Congressional Budget prowess, remember that the same $10,000 invested in Office predicted that government debt would peak at the S&P would be a relatively measly $600,000 some 54 percent of gross domestic product (GDP) in 2011. 46 years later. Buffett didnt buy the CBOs guesstimate. He Buffett is unlike any other investor because he predicted then that the ratio would surpass 80 plays by his own rules. And he sticks to them unless percent unless there were significant spending cuts he feels strongly of an instance he should break or tax increases. them. As we now know, U.S. debt as of mid-2012 was In recent years, Buffett has been breaking rules $15.89 trillion, more than 100 percent of GDP! to prepare for major economic upheaval. He hasnt As projected for 2012, the United States has a been quiet about this coming storm, discussing his budget deficit the immediate shortfall we face worries about the U.S. economy and his belief that right now to keep government going, covered in part massive inflation lies ahead. by borrowing from abroad of $1.2 trillion. Thats Consider his words in November 2003, in an up from $459 billion in the fiscal year that ended in article he penned for Fortune magazine, an article he September 2008, four months before Obama took continues to prominently feature on the online home office. page of his holding company, Berkshire Hathaway. A country that continuously expands its debt In the article, Buffett points that he had not bought as a percentage of GDP and raises much of the a foreign currency in his entire life until spring money abroad to finance that, at some point, its 2002. Since then Berkshire has made significant going to inflate its way out of the burden of that investments in and today holds several debt, Buffett warned back then. He went on: Every

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country that has Experts figure the Federal Debt Held by the Public states face hundreds denominated its debt $11 of billions in in its own currency $10 immediate shortfalls and has found itself $9 and trillions in with uncomfortable $8 unfunded retirement $7 amounts of debt $6 obligations. relative to the rest $5 There will be a of the world in $4 terrible problem, and the end, they inflate. $3 then the question That becomes a tax $2 becomes will the on everybody that $1 federal government 0 has fixed dollar 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 help, Buffett said investments. As the U.S. federal debt has risen, global investors have been watching carefully the at a hearing of the Or, as the late words of politicians and the Federal Reserve. Their chief fear: A U.S. default, however U.S. Financial Crisis economist Milton unthinkable, would drastically reduce the value of the debt and cause U.S. interest Inquiry Commission rates to skyrocket. Not shown here are billions in state and local debts. Friedman explained, in New York. I dont Inflation is taxation SOURCE: U.S. Department of the Treasury: Financial Management Service; 2012 research.stlouisfed.org know how I would without legislation. rate them myself. Its Friedman believed, a bet on how the federal government will act over and we find it hard to dismiss, that politicians time. actually want inflation, since it gets them off the Aug. 10: It is revealed that Berkshire Hathaway hook for spending they know has gone too far. shortened the duration of its bond holdings. When At the annual meeting of Berkshire Hathaway inflation and interest rates rise, long-duration bonds shareholders in 2010, Buffett expressly mentioned generally fall more than short-duration ones. It may the risk that government overspending would doom be a sign that Buffett expects interest rates to start the country. rising, maybe sooner than the conventional wisdom, The prospects for significant inflation have Meyer Shields, an analyst at Stifel Nicolaus, told increased, not only here but around the world, Bloomberg News. Buffett told 40,000 shareholders in attendance. Oct. 5: He points out that bonds have formed a Weaning ourselves from the medicine may be major bubble, warning specifically that rising inflation more difficult than enacting the stimuli in the first will pop that bubble, damaging trillions in wealth. place, he said. We are following policies that unless changed will Buffett went on to warn that the days of very low eventually lead to lots of inflation, Buffett said at a interest rates in the United States cannot continue. Washington, D.C., conference. We have started down It wont work forever to run huge budget deficits a path you dont want to go down. and easy money, Buffett said. Congressional Nov. 17: Buffett criticizes Federal Reserve spending, rather than the Federal Reserve, will be to Chairman Ben Bernanke for choosing to pursue a blame if inflation gets out of hand, he said. second round of so-called quantitative easing simply put, money printing to create inflation. Buffetts Inflation-Fighting Plan I dont get very enthused when central bankers Theres more, if you follow Buffett closely, which start targeting higher inflation, Buffett said. I think we do. Consider just a few more of his statements on it opens up certain dangers in terms of people inflation from 2010 and 2011: worrying about the United States government printing May 1, 2010: In a televised interview, Buffett money. explicitly warns that rising federal debt is a monster Specifically, he said, there is a psychological effect threat. Washington is unstoppable, he said then, and on investors if they see a government trying to we are all in danger. monetize debt. Once unleashed, that can be a little bit June 2: Buffett warns at a public hearing that a difficult to put back in the bottle, Buffett said. municipal bond meltdown would necessarily lead to Jan. 3, 2011: As the Fed seems set on continuing a federal bailout of some states, in his view. its $600 billion in new easing, Buffett sells $2 billion
Millions of Dollars

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in new Berkshire debt, most of it at a fixed rate just 95 approach, but also some contrarian bets on higher-risk investment vehicles, including investments abroad basis points over Treasurys, in order to retire floatingand assets likely to weather a declining dollar. rate notes. The move is widely interpreted as a defensive decision based on the idea that long-term rates are set Buy Stocks You Trust, to rise. With a Foreign Kicker A portion of the bonds, however, were sold at a Buffett-watchers are familiar with the concept of floating interest rate. This seems to indicate that an economic moat. This is Buffetts Buffett believes short-term rates will term for a sustainable competitive remain low for at least some time. advantage, the idea that a company Buffett-isms ... The Fed is determined to hold has the ability to maintain prices and Its far better to buy a down short-term rates. In Buffetts profit margins in the face of increased wonderful company at a fair view, Congress is equally determined competition. price than a fair company at a to boost long-term rates through His investment in Coca-Cola is wonderful price. deficit spending. a great example of this power. The Buffett has flatly stated that the product is a globally recognized, so U.S. government is very likely do much so that the brand name itself has value. Thanks what every other government has done in such to more than a century of brand-building, the Coke circumstances: Purposefully inflate, thus escaping the logo is instantly recognizable and the quality of the political consequences of runaway spending. product indisputable. Perhaps most importantly, Cokes distribution Kicking the Can Down the Road network ensures that consumers anywhere in the What Bernanke and the Fed do going forward in the world can get an ice cold soda anytime they choose. name of averting deflation risks the beginning of what Its hard to imagine a spot anywhere on earth where some in Congress clearly wouldnt mind an easy out youd be an hour away from someone willing to sell they can blame on the Fed rather than their own lack you a cold can of Coke. of will. In political circles, its known as kicking the And with corporate profits from foreign operations can down the road, making future generations pay for that far outweigh U.S. domestic profits, Coke is a yesterdays and todays spendthrift government ways. model stock for inflation-worried Buffett. But, in part due to his investing philosophy, Potential competitors (and they do exist) face the Buffett understands more than anyone how to create daunting task of getting past that moat. Many small impregnable security around his own wealth. In his soda producers create quality products but lack the deeds since 2010, it is clear to us that the Oracle of brand recognition enjoyed by Coke. As a result, many Omaha is presuming the worst is ahead, whatever he consumers reach past the unknown brands to grab the might say to the media about the recovery, American familiar red can. values, or the countrys bright long-term prospects. Building a similar distribution network would And it is clear that be believes the danger is fast-rising, require years and millions upon millions of very high inflation. dollars, resources beyond the reach of most small The worlds greatest investor is limited, of course, in companies and even many large ones. Coca-Cola what he can say, since any opinion he shares has the enjoys significant competitive advantages, and those potential to move the market. advantages translate into profits. In that spirit, we believe the actions that he takes Coke products are served more than 1.7 billion that impact his investment portfolio carry even more times a day in more than 200 countries, adding up to weight than his statements, and in this new decade nearly $100 million worth of soda and other products weve heard Buffett not only talk about inflation but every day. Almost 19 cents of each dollar in sales is we also saw him act to protect his wealth. profit, a very high margin for a mix of water and sugar. We can learn from his actions. In the following In comparison, Pepsi, the closest competitor to pages, you will learn what he looks for in picking great Coke, only keeps about 10 cents on a dollar of sales as investment plays for our inflationary times. profit. Both companies have excellent managers and Its a combination of his tried-and-true value an incredible ability to deliver their product anywhere

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in the world. But Cokes extra profit power comes company at a fair price than a fair company at a from its brand-power moat. wonderful price. One of the keys to Buffetts long record of investing Despite all the negative effects of the 2008 credit success is his ability to spot these moats. crisis on the American economy, Buffett has expressed In hindsight, we can all see the wisdom of his his confidence in U.S. business, writing that fears decisions and note the obvious advantages enjoyed by regarding the long-term prosperity of the nations the companies in which he chooses to invest. Buffett many sound companies make no sense. These invested about $1 billion in Coca-Cola in 1988. businesses will indeed suffer earnings hiccups, as they Back then, Cokes competitive advantage was clear to always have. But most major companies will be setting anyone willing to notice it. It was already a household new profit records five, 10, and 20 years from now. name and had been for generations. Confidence that he owns good companies makes it Buffetts genius is in that he didnt worry about easier for Buffett to sit through a bear market, up and being late to the party. He ignored literally hundreds down business cycles, and smile as his simple analyses of hot small company stocks with dazzling, sexy prove him right. stories to tell and instead looked ahead. To him, it was clear that people would continue to drink soda for Prepare for Inflation decades and decades to come. As we detailed in the first part of this report, He was right. In early 2010, the stock was selling Buffett increasingly has become concerned about at more than $78 a share, more than 26 times what the prospects of inflation over the past few years. He Buffett paid two decades earlier. cites the unprecedented increase in the U.S. budget What you see in Coke is a long-term investment deficit and debt burden as potential causes of serious Buffet bought at a bargain price in order to generate inflation down the road. cash over the complete business cycle, both in good When he said last year that he was buying U.S. times and bad. (Recession or not, who stops drinking stocks in his personal account, he added that he was Coke?) selling government bonds to pay for those purchases. Whats the right price? Buffetts long-time business While it is obvious that these investments will suffer partner, Charlie Munger, points out that its foolish to in inflationary times, the larger reality judge a firms prospects by short-term is that any dollar-denominated longmovements in its share price, up or term bond is a bigger risk. down. Speaking of the government Commenting on Berkshires falling Buffett-isms ... stimulus and bailout efforts, he noted, share price at the 2009 shareholders Risk comes from not We are certainly doing things that meeting, he told investors, If you knowing what youre doing. could lead to a lot of inflation. In think were in trouble because the economics there is no free lunch. stock price went down, you dont Buffetts investment activities today understand whats going on. should be viewed through this prism of Mungers point is that the stock price inflation. of Berkshire Hathaway, or any company, often has nothing to do with the underlying fundamentals of In a move that received little press attention, Buffett the business. went on a foreign bond spree in the second quarter Buffett and Munger first analyze a business and of 2009, buying $1.5 billion in foreign government decide what they think it is worth. bonds. Clearly, Buffett was worried about U.S. Then, and only then, do they look at the stock government debt instruments and worried about price. If the stock is priced below the value they have holding dollar-denominated debt. assigned to the business, it is a buy. And because they Another clue was Buffetts major play for the understand the business, they are able to stick with the Burlington Northern Santa Fe Railroad. The $34 investment even when the stock price declines. billion move had many on Wall Street scratching their See, to them, price and value are two separate things. heads. Why would Buffett invest such a huge wad of Correctly valued, they know the companys price will cash on a boring, slow-growth railroad? eventually rise to match. In fact, Buffett broke a number of his long-held As Buffett says, it is better to buy a wonderful investment strategies to buy Burlington Northern.

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First, he gave away valuable Berkshire stock to make the deal happen. This is usually a no-no for Warren. He then used up almost all his available cash to make the transaction. Finally, he went into debt to close the deal. Buffett hates debt with a passion. Not long after the deal closed, Buffett settled the mystery, though his explanation got by nearly everyone in the media. In November 2009, he appeared on the PBS Charlie Rose television show. Rose probed Buffett on the Burlington deal, and what Buffett said was simply astounding. Here is the key excerpt from the shows transcript: ROSE: When you look at the future, theres also the argument made that (the Burlington Northern deal) is something that goes with your philosophy today get out of cash and get into assets. Because we dont know whats going to happen to the dollar. BUFFETT: Well, cash is always a bad investment. I mean, when people said cash is king a year ago, I mean thats crazy. I mean, cash wasnt producing anything, and it was sure to go down in value over time . . . We came in with something over $40 billion in cash . . . and we have got about $20 billion now, and weve had some earnings. So, we weve put a lot of cash to work. And I like that. No, Id much rather own a good business than have cash. ROSE: And it is a hedge against the dollar? BUFFETT: Well, you can say all assets are a hedge against the dollar. I mean, but all you know is that the dollar is going to be worth less 10, 20, 30 years from now. I say worth less. Not worthless. (LAUGHTER) BUFFETT: You want to watch that. But it will be you know, and thats true of almost every currency that I can think of. The question is how much it depreciates in value. But cash cash is not a place . . . ROSE: Now, why is that? BUFFETT: Well, because . . . ROSE: . . . that the dollar is going to be worth less? BUFFETT: Because well print more of them in

relation to the amount of goods that are moving. You know, if we dropped if we dropped a million dollars of cash into every household in the United States today, everybody would feel very good except the people that invested in things that were denominated in dollars. You know . . . ROSE: Exactly. Got it. BUFFETT: There will be no tendency toward deflation in this country over time or or virtually . . . ROSE: A tendency toward inflation. BUFFETT: Absolutely. Burlington Northern represented Buffetts largest deal of the year. He announced the purchase at the end of 2009 but didnt complete the $34 billion acquisition until the middle of 2010. The railroad had been in his portfolio for at least two years before he decided to buy the entire company. This is very likely to be one of those slow and steady investments that, years later, Buffett is most famous for. In his own words, the Burlington buy is a bet on the U.S. economy. Railroads have always represented U.S. economic might. They made westward expansion possible and built great fortunes for the robber barons who built them, men such as Cornelius Vanderbilt and Leland Stanford. A large part of the economy still moves along railroad tracks; nearly 40 percent of all shipping is done by train. Buffett is not looking for a home run on this investment, just a lot of steady growth. When asked what he thought the returns would look like, he said, I think the return will be satisfactory but not mouthwatering. Itll be similar to our energy utilities. Consider, though, that given virtually unlimited resources and unparalleled access to information and economic analysis, Buffett chose to buy an oldfashioned railroad. We can learn a lot from this single investment. The moat is obvious. Thousands of miles of rail lines simply could not be built today. Environmental concerns and zoning problems would actually make the feat nearly impossible. But its also an ingenious inflation hedge. Heres why: Railroads move a significant amount of goods, especially raw materials. Buffetts railroad is

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the largest transporter of coal and grain in the country. made several diversification moves intended to reduce inflation risk. The prices of these products will go higher as inflation One of the relatively unknown gems in the rises, and food prices are starting to show large Berkshire family is a small division called CTB. increases all over the world. This company describes itself as a leading global Even at higher prices, though, demand for coal and designer, manufacturer, and marketer of systems and grains will be about the same. Coal is used to generate solutions for the poultry, pig, egg-production, and electricity, both in the United States and overseas. grain industries. China is rapidly becoming dependent on foreign coal Again, we spot a company involved in delivering supplies to meet their ever-growing electricity needs. products that are difficult to do without. Its a Consumers may be reluctant to pay more for bread common theme for Buffett: A boring company in an or electricity. But they will pay, because they must. industry that does well in inflationary times. Thus, in Burlington Northern, Buffett has acquired In 2010, CTB expanded with the acquisition of a a major inflation hedge: Rail traffic might slow, but it plastics manufacturer. Basic materials, like plastics wont stop. and coal, tend to do well as inflation rises. Companies The company will keep generating cash, even in an that produce raw materials are at the front end of the inflationary environment, and Buffett likes companies supply chain and their outputs go to manufacturers. that produce cash more than anything else. Internal Its up to manufacturers to raise cash flows fund his new investing praises on consumers. activities, the driving force of Buffett-isms ... Over the past year, inflation has Berkshires long-term value. We simply attempt to be been tame at the retail level, but As inflation rises, corporate profits fearful when others are greedy the prices of raw materials have can suffer. Some companies are and to be greedy only when risen dramatically. Corn, wheat, and reluctant to pass along the full impact others are fearful. soybeans all saw gains of nearly 30 of higher costs to consumers, fearing percent in 2010, and farmers are the they will substitute other goods or customers to which CTB caters. services to save money. The twist on this theme is that Buffett is growing In the case of Burlington, trucking offers an the companys overseas presence. CTB expanded by alternative to railroads, but the cost of moving opening a sales office and warehouse in Malaysia, a thousands of tons of coal by truck would be fast-growing Asian economy. prohibitive. Locating enough trucks to move grain Combined with his long-term concerns about the around the country would be impossible. health of the U.S. dollar, investing in Asia is not really These factors mean that Burlington can raise prices a surprise. As he noted on a trip there with billionaire and maintain even increase profit margins. buddy Bill Gates, the future is bright. People in India The ability to raise prices as inflation roars is a moat and China will be living better lives in 20 years than shared by many of Buffetts investments. His collection today, he said. Buffett clearly expects to profit from of brand names carries pricing power. those improvements. Some consumers may move to cheaper products, After buying shares in Chinese oil giant PetroChina, but many will not and Buffett will continue to receive which he later sold at a huge profit (more on cash dividends to reinvest. PetroChina later in this report), Buffett next moved BYD, a Chinese company that has a promising Foreign Companies, Multinationals into future in electric cars and battery technologies. as a Hedge Against a Weak Dollar BYD is a relatively small investment for Berkshire, Buffett is well known for distilling investment which acquired an initial stake of 10 percent of the principles into short sayings and is often assumed to company for just $230 million. think little of diversification, which he has referred to At one point in 2010, this small investment had as a protection against ignorance. Diversifying makes grown to a value of almost $2.5 billion but ended the very little sense for those who know what theyre year worth only about $1 billion, and has struggled doing, Buffett has argued. through 2012. Buffett, of course, knows what he is doing. Yet, he What is surprising to Buffett watchers is that he does in fact diversify to avoid risk and, in 2010, he didnt sell near the peak. In the past, Buffett has been

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known to take quick gains and move into other bearishness on the dollar, Buffett says. He has long investments that offer greater long-term potential. believed that major U.S. multinationals, such as CocaPerhaps Buffett believes in the potential of electric Cola, are a natural hedge against the dollar because cars. More likely, he believes in China and wants to they earn large profits overseas, which he thinks will be part of the long-term growth potential offered be a net plus over time. there. He has repeatedly expressed bullishness In fact, the companies that make up the S&P 500 about the future of the American economy, but he get about half of their sales and profits from overseas positions himself for growth overseas and he invests markets. Coke is fairly typical with 52 percent of sales in companies with the potential and nearly 90 percent of profits in a to withstand the pressures of recent quarter coming from outside significantly higher inflation. the United States. Buffett-isms ... Chinas a very big economy and Nevertheless, Buffett believes that In the business world, the its going to get a lot bigger, making investors should keep the bulk of their rearview mirror is always it a logical place for Berkshire to portfolio in the United States. clearer than the windshield. put large sums to work, Buffett said Despite our countrys many during the visit. imperfections and unrelenting Remember, we need to watch what problems of one sort or another, Buffett does just as much as we listen to what he says. Americas rule of law, market-responsive economic Buffetts conviction that the U.S. dollar is in the system, and belief in meritocracy are almost certain midst of a long-term decline prompted him to make to produce ever-growing prosperity for its citizens, he his first overseas acquisition in 2006. Its kind of says. startling, considering for how many decades Buffett This makes U.S. multinationals good investments in has been active in the markets, that only now is he his eyes, as well as a partial hedge against a falling dollar. seriously looking abroad. The declining dollar is a reality. This means higher Part of the reason, as he says, is that Berkshire does inflation and, thus, better performance in overseas not lack for great buys here at home. markets also are certain to become a reality. But, part of the reason, too, is that buying dollardenominated assets exclusively has begun to represent Sometimes a Stock Should Be Sold an unnecessary long-term risk. Buffett has joked that his preferred holding period The faster-growing overseas markets, including Brazil, for stocks is forever, but he does sell. He was once India, and China, are of great interest to Buffett. among the largest shareholders of housing giants Since that first 2006 move abroad hes become Fannie Mae and Freddie Mac but sold long before the almost addicted to foreign plays, frequently flying housing meltdown decimated their stock prices. off to Asia and investing in Brazil, South Korea, and Buffett also was once a large shareholder of Israel. PetroChina. In his 2007 letter to investors, Buffett Why? The declining dollar is the fault of the U.S. explained why he sold it: In 2002 and 2003 Berkshire consumer, according to Buffett, so the most logical bought 1.3 percent of PetroChina for $488 million, protection is to buy into the companies that feed our a price that valued the entire business at about $37 voracious appetite for cheap foreign goods. billion. Charlie and I then felt that the company was When asked later at a shareholder meeting whether worth about $100 billion. Berkshire is looking at purchasing entire private He went on: By 2007, two factors had materially companies based in China or India, Buffett replied, increased its value: the price of oil had climbed We would like to. If we get lucky, well buy one or two significantly, and PetroChinas management had in the next three or four years . . . But you will see the done a great job in building oil and gas reserves . . . day that Berkshire owns businesses in both countries. In the second half of last year, the market value of the Investing in these markets does require a special company rose to $275 billion, about what we thought expertise to evaluate companies and currencies. For it was worth compared to other giant oil companies. So the average investor, Buffett points out, the best hedge we sold our holdings for $4 billion. against inflation might be a large American company. That lesson was easy to understand: When the I would buy businesses with lots of earnings abroad, because thats a better way, in my view, to play market overvalues your stock significantly, sell it and

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put the cash to work in a better opportunity. Buffett sold near the top. PetroChina subsequently fell more than 75 percent.

Swim Against the Tide

Buffett truly seems to zig when everyone else on Wall Street zags. As the Dow fell sharply in October 2008, Buffett wrote an Op-Ed in The New York Times in which he stated, A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. Stocks fell for another few months and then staged a remarkable rebound. Perhaps Buffett learned to become an agile contrarian from his late father, Howard. As Warren tells the story, his father was prospering as a stockbroker when the Great Depression hit. Young Howard soon lost his job and was left, like many, utterly unemployed. As others fled the stock-selling business, though, his father dove back in, starting his own investment company. His father believed that, though the stock market had collapsed, there always would be a demand for safe stocks and bonds for investors. He was right, and his small, Omaha-based firm thrived. Derivatives are another area where we see Warrens contrarian nature at play. As derivatives led to the liquidation of large firms during the crash, Buffett felt these risky investments, which he famously had labeled financial weapons of mass destruction, nevertheless had a place at Berkshire Berkshire Hathaway A Shares Price History, 1990-2012 Hathaway. Of course, the derivatives 140K bet hammered 120K Berkshires stock 100K price when 80K that position was revealed. 60K Within 60 days of 40K announcing that 20K Berkshire had large losses from 1990 1995 2000 2005 2010 derivatives in the fall of 2008, the Even later investors in Buffetts Berkshire Hathaway holding company have seen their positions rise substantially. Note the holding companys hiccupsright around the time of the dot-com boom and, later, the 2008-2009 crisis. Both times, Buffetts holding company and the underlying investments powered their way back. stock-market value SOURCE: 2012 Yahoo Finance declined by half.

It turns out that in the summer of 2008, with stock prices near all-time highs in many markets, Buffett had placed a $37 billion bet on world equity markets that would come due starting in 2019. He sold contracts for $4.85 billion protecting buyers against declines in the S&P 500 and three other global stock indexes. By Sept. 30, Berkshire had been forced to write off more than $6 billion as stocks declined. Stocks would fall and the write-offs would grow even more in the next two quarters. Yet Buffett again appears to have been right over the long term. He even increased his positions by acting when the market neared its ultimate lows. While option contracts are usually short term, Buffetts were for the very long term. These puts had original terms of either 15 or 20 years and were written at the market price. This means that even a 1-point increase in the value of the index at the end of the contract would make them profitable for Berkshire. Of course, markets fell sharply almost immediately after the contracts were originated. However, for accepting the risk that stock markets would decline over a decade or more, Buffett received premiums of $4.5 billion. If stock markets are higher when the contracts expire between 2019 and 2027 than they were in 2008, Berkshire will keep the entire premium. Perhaps the biggest benefit of writing the contracts to Buffett is that he had more than $4 billion to invest for the next 10 to 20 years. If history is any guide, he

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is very likely to receive substantial income from those investments. In early 2009, Buffett calculated that if stock prices remained unchanged over the next 10 years Berkshire would face a loss of $13.3 billion on the derivatives. The worst-case loss would be $35.5 billion, which assumes all the worlds stock markets go to zero over that time frame. Independently, Bloomberg News calculated that Buffett needed stocks to post average annual returns of at least 6 percent just to break even on the contracts. Not content, Buffett restructured his trades. In effect, he sold some of the original contracts at a loss. He will be able to use this loss to offset capital gains for tax purposes, a move that will increase the wealth of Berkshire shareholders. Yet he was convinced, still, that stocks would move higher in the long term. So he sold new put contracts that will be profitable if the S&P 500 gains a total of only 15 percent over a decade. Buffett told CNBC he didnt pay a dime to restructure his derivatives. This means that he sold enough new contracts to offset the losses he realized in the old contracts. He is confident that the odds are in his favor and he will realize a profit on the new contracts as well as the old ones he still holds. Within three months of announcing this revised deal, the markets were up more than 20 percent and Buffett was once again showing a profit on these positions.

Get in While the Gettings Good

One piece of Wall Street wisdom that Buffett does seem to follow is to buy when there is blood on the streets. This oft-quoted adage is attributed to Philippe de Rothschild, an heir of the wealthy family known for attaining financial control of Europes banks in the 19th century. Buffett almost seems to enjoy price declines because theyre bargain-hunting opportunities for him. He wrote in one annual report that Overall, Berkshire and its long-term shareholders benefit from a sinking stock market much as a regular purchaser of food benefits from declining food prices. So when the market plummets as it will from time to time neither panic nor mourn. Its good news for Berkshire. Of course, Buffett is not one to simply buy cheap stocks unless he sees exceptional long-term value.

Yet, he does know exactly how to get into the right business at or near the bottom. During the darkest moment of the mortgage mess, for instance, municipal bond insurers ran into trouble, so he jumped into the business. As market leaders Ambac and MBIA reeled from mounting losses, Berkshire stepped in and guaranteed bonds for cities, counties, and states a $2.5 trillion market. At first, Buffett tried to bail out the ailing industry. According to Buffett, he offered to assume full liability for $800 billion worth of municipal bonds that three major bond insurers covered. Under the terms, Ambac Financial, MBIA, and Financial Guaranty Insurance would transfer all liability to Buffetts Berkshire Hathaway in exchange for a one-time payment of 1.5 times the premium they were receiving. The companies declined the offer, leaving Buffett with no choice except to compete with them. In less than a year, the new, Berkshire-backed company grew to become the third-largest player in the market. According to press reports, Berkshire was able to command a premium over the prices competitors offered. Buffett later offered some insight on pricing in the muni insurance market. Berkshire is charging a 2 percent premium, while the standard premiums are about half that, he said. In what may be an understatement, Buffett said, Were doing this to make money. The premium he has initially requested amounted to $12 billion. Analysts say that the long-term default rate for traditional munis is far, far less than 1 percent (specifically, its 0.02 percent). This means Buffett could experience losses of as little as $160 million. Even if losses increased from historically high levels, Buffett still would enjoy profits of more than $10 billion. His timing was equally as good as the credit crisis spread. Goldman Sachs took part in the government bailout of large financial firms about a month after Buffett had made a $10 billion investment in the Wall Street powerhouse. With the stock down nearly 25 percent in a month, many questioned Buffetts timing. In the end, it was revealed that he had gotten a better deal than the government and made more money on his investment than did the Treasury Department. Buffett was sitting on a 40 percent profit when the

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government cashed out nine months later with an annualized profit of just 23 percent.

if you need a computer to figure out if something is cheap, you should move on to something that is obviously cheap. Munger added that some of the worst business decisions ever made have been rationalized Back to Basics, With a Twist using needlessly complex financial models. If investing well was as easy and straightforward These models, Munger said, are developed in as Buffett says it is, then anyone could become a business schools because professors and students at millionaire. The formula itself is simple: Buy stocks at these schools have to do something. a price that is below fair value. The principles of value investing work in any market. The twist is to do it at the right time and stick with When he was a smaller investor, Buffett made large your analysis during the rough times. Even the math profits trading in the commodity markets. behind Berkshire Hathaways investment decisions is Buffett concedes that he is not infallible in all things. simple. Buffett and Munger perform their investment His specialty, though, is buying undervalued assets. But analysis without spreadsheets and they eschew that doesnt mean just beaten-down stocks. computer models. Non-stock investing is not new territory for Buffett. Buffett emphasized at a recent annual meeting that In the 1980s, he bought Washington Public Power Supply System (WPPSS) bonds that were associated with what Top Public Companies Owned by Berkshire Hathaway was, at that time, the largest as of June 29, 2012 municipal bond default in history. Name of Issuer Symbol % of Portfolio P/E Ratio Business Sector WPPSS had issued other Coca-Cola KO 21.01% 21 Beverages municipal bonds that were used Wells Fargo WFC 17.71% 12 Regional Banks to fund different projects, but International Business Machines IBM 16.92% 15 Computer Systems these were marked down to American Express AXP 11.86% 14 Credit Cards reflect the default. Buffett astutely Procter & Gamble PG 6.03% 19 Consumer Goods Wal-Mart WMT 4.37% 15 Retail observed they were still sound. Kraft KFT 4.05% 19 Food Buffett bought these bonds U.S. Bancorp USB 2.98% 12 Financial Services when they were paying a taxJohnson & Johnson JNJ 2.63% 19 Medical Products free yield of between 15 percent ConocoPhillips COP 2.18% 6 Oil and 17 percent. He explained DIREC TV DTV 1.51% 13 Cable TV Systems that very few investments at that Moodys MCO 1.40% 14 Commercial Services time were selling at a discount Washington Post WPO 0.87% 22 Publishing DaVita DVA 0.79% 18 Healthcare to book value yet were able to M & T Bank MTB 0.60% 13 Regional Banks produce such a high after-tax rate Costco COST 0.55% 27 Retail of earnings. These bonds ended Visa V 0.48% 20 Credit Cards up doubling in value. CVS Caremark CVS 0.45% 18 Drug Stores In recent SEC filings, USG USG 0.44% N/A Building Products Buffett noted a large holding Liberty Media Corporation LMCA 0.35% 17 Entertainment of municipal bonds. In his General Dynamics GD 0.34% 10 Aerospace/Defense estimation, they had become too Torchmark TMK 0.29% 10 Insurance Intel INTC 0.28% 11 Semiconductor cheap to ignore, and he bought Dollar General DG 0.27% 23 Retail them in pursuit of potential General Motors Company GM 0.26% 6 Auto Manufacturer capital gains rather than tax-free Mastercard MA 0.23% 27 Credit Cards interest, which most investors General Electric GE 0.22% 17 Manufacturing think about when considering Sanofi-Aventis SNY 0.21% 13 Pharmaceutical munis. Bank of New York Mellon BK 0.17% 11 Regional Banks As his investment stake has UPS UPS 0.15% 20 Package Delivery Verisk Analytics VRSK 0.15% 29 Business Services grown in size, though, he has Viacom VIAB 0.10% 14 Cable TV Systems needed to find larger markets to GlaxoSmithKline GSK 0.09% 15 Pharmaceutical exploit mispricing opportunities.

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In 2009, he again turned to the municipal bond market. This market is actually larger than the stock market, with more than 2 million individual securities and more than 50,000 issuers. The total market cap is well over $2 trillion. Not everyone can find the best investments in a market like this. For individuals seeking to duplicate this investment, Buffett advises buying an index fund. If you told me I had to go away for 20 years, I would rather take an index fund over long-term bonds, he once said. True enough, but readers of Financial Intelligence Report have been far better off following the advice of the FIR portfolio, which has beaten index funds handily and proved adept at finding value in stocks, bonds, commodities, and currencies.

Be Ready to Invest Have Cash

Another lesson from Buffett may surprise everyone. Despite sitting on tens of billions at a time, Buffett feels he has limited cash available to hunt for bargains. After investing in GE and Goldman Sachs last fall, he wrote, To fund these large purchases, I had to sell portions of some holdings that I would have preferred to keep (primarily Johnson & Johnson, Procter & Gamble, and ConocoPhillips). Selling involves not only cashing in when the market overvalues your holdings but also looking at comparative returns and going after the highest ones. Although Buffett may have wanted to hold his big U.S. consumer and oil stocks, he felt that other investments offered better opportunities. In the 2008 annual report, he wrote, I have pledged to you, the rating agencies, and myself to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrows obligations. When forced to choose, I will not trade even a nights sleep for the chance of extra profits. Even though he believes cash is earning close to nothing and will surely find its purchasing power eroded over time, Buffett consistently has held more than $20 billion in cash during the past several years because he feels he needs that amount as an emergency reserve. This is especially true because of his insurance company liabilities. Interestingly, this $20 billion represents close to six months of float in his insurance companies. Financial planners often tell individuals they should keep three to six months worth of cash in an emergency fund.

Whether by accident or design, Buffett seems to be doing the same thing. Given his extraordinary track record, it seems unlikely that any of his financial decisions are accidental. Having cash available to take advantage of opportunities in bull and bear markets is important to Buffett. Few war chests are as large as the $20 billion or so that Berkshire Hathaway has held for the past few years. But one thing that many overlook is that Buffett views each investment as an opportunity to generate more cash. For instance, purchases Buffett made of preferred stock in GE and Goldman Sachs in late 2008 came with a 10 percent annual yield, which will add at least $800 million in cash to his pool of investment capital. Although Buffett felt the prices of both companies were fair, he no doubt looks forward to reinvesting the dividend checks. By design, though, Berkshire has never paid a dividend to its shareholders, and thats just fine with them. As Buffett has explained, speaking of the Berkshire investment in candy maker Sees, Just as Adam and Eve kick-started an activity that led to 6 billion humans, Sees has given birth to multiple new streams of cash for us. (The biblical command to be fruitful and multiply is one we take seriously at Berkshire.) A fairly recent example of this philosophy in action involved the acquisition of 60 percent of the Pritzker family holding company, Marmon Group, for $4.5 billion. Marmon makes boring stuff, and lots of it. Among its 125 operating lines are companies that make wire and cable, railroad cars, flow-control devices for plumbing systems, and metal fasteners. It provides services to sectors of the transportation and construction industries. The company employs 21,000 people across more than 250 divisions in North America, Europe, and China. Marmon also makes lots of money, more than $800 million on revenue of $7 billion. Thats the interesting part of the story. Based on that level of income, the purchase price values Buffetts stake at less than nine times earnings, a relative bargain for a company with growing earnings at a time when stocks were trading at about 16 times earnings. Less well known than Buffett, the Pritzker family is among the nations richest. The total Pritzker fortune is estimated to be at least $23 billion; the family wealth comes largely from the Hyatt hotel chain. Eleven members of the family are on the Forbes list of

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the 400 Richest Americans. Although they are noted philanthropists, it is doubtful that they are looking to donate this business in a below-market sale to one of Americas richest men. This is the same family that had gotten top dollar for Chicagos Presidential Towers apartment complex only months earlier. That time the family sold for $470 million, or 28 times earnings. Other deals also have been done at premiums. This might be a run-of-the-mill transaction designed to cash out after decades of running a business. But, considering that Marmons financials were SarbanesOxley compliant at the time of the sale, according to its website, a stock offering was at least an option. There might be more here than meets the eye a need for cash by large and illiquid real estate investors. Fortunately for the Pritzker family, having cash allowed Buffett to step in once again when others were unable to take advantage of bargain pricing. Just as Buffett looks at ways to generate cash with his holdings, individual investors should do the same. Dividends or interest payments can be used for additional investments, compounding the growth of the original capital many times over. The FIR Portfolio, updated in each issue of Financial Intelligence Report, has seen significant gains come from dividends, for instance. Its also true that dividend-paying stocks offer a margin of safety during market declines. An emphasis on generating cash to reinvest has been a central theme of Buffetts career and is worth keeping in mind when selecting investments in your own portfolio. Although the Berkshire portfolio continually changes to take advantage of opportunities in the evolving economy, some things never change. More than 35,000 investors and fans traveled to Omaha for the 2012 annual meeting despite a tepid economy.

will be buying more candy in five years time, Buffett told the audience. We dont play big trends. They just dont mean that much. There is too much money to be made year-to-year rather than waiting for the big trends to expose themselves. Buffett and Munger ignore trends because, frankly, they end, usually badly for the trend investor who gets in too late, too big. Being contrarian has no special value over being a trend follower. You are correct because the facts are right. In focusing on business and investment decisions, look for things that are important and knowable. Remember, Buffett says, the market is there to serve us, not instruct us. It just tells us prices. If something is out of line, then you can do something about it the critical part is how you handle that piece of information, how you play out your hand. Let the market serve you rather than instruct you, and you cant miss.

Keys to Profitable Investing

Which strategies does Buffett employ when picking stocks? Each and every year, it hardly changes. Heres a list of additional attributes that Buffett looks for when buying stocks:

Simple Businesses

A Trek to Omaha

At one Berkshire shareholder meeting in Omaha a few years ago, Buffett explained how he and Munger still evaluate investment opportunities. He told the audience that the pair relies on three metaphorical boxes: In, Out, and Too Hard. They dismiss the last box as not worth the effort. Meanwhile, they evaluate the Ins thoroughly and, if those options pass serious examination, these are pursued, purchased, and moved into the Out box. We zero in on things we know, like whether people

Buffett likes to keep things simple and he likes his companies to do the same. Again and again, Buffett has railed against the kinds of companies that seem too complicated or are too difficult to value. His avoidance of Internet and technology companies during the dot-com bubble is the most famous manifestation of Buffetts keep it simple dictum. He likes to base his stock picks on, among other things, what a company will look like 10 years down the road. Technology companies, he contends, are much too volatile and risky for that kind of analysis. The 10-year rule also applies inversely: Buffett will consider only companies with a good 10-year track record. Most technology companies havent been around that long, and so they tend to fall off of Buffetts radar because of their lack of seasoning and earnings history.

Return on Equity

Another key criterion for Buffett is a companys return on equity (ROE). Again, he favors a 10-year plan through which he can predict ROE a decade out.

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Companies that cant be gauged accurately dont make it into the Buffett portfolio.

Cash on the Barrel

The Buffett way is to go long on companies that have deep pockets. Companies that have what Buffett refers to as ample cash flow are those that have the financial resources to pay their bills and to keep growing.

Low Debt

Companies that can limit and manage their debt are high on Warren Buffetts priority list. Insurance companies (he owns both GEICO and General Re Corporation) are particular favorites in this regard. For Buffett, low debt means that there will be significant room for growth. His emphasis on low debt is grounded in reality. With limited debt, earnings growth is based on shareholders equity, as opposed to borrowed money.

taxes income. Warren takes very little income for his chairmanship of Berkshire. His $100,000 salary hasnt changed in a quarter century. Since Berkshire pays no dividends or capital gains, he pays no taxes for the growth of Berkshires intrinsic value. And the income that flows into Berkshire from its myriad of public and private investments and companies is delivered with huge tax exemptions sometimes as much as 90 percent or more! Buffett understands the total formula to wealth creation is to continually compound growth as you pay little or no tax!

The Big Six

Emphasis on Value

Historically, Buffett targets investments in undervalued companies with good long-term growth potential. Identifying such companies isnt easy, but Buffett has mastered the technique. In a nutshell, he favors stocks that are unjustifiably low, based on their intrinsic worth. He calculates intrinsic worth by analyzing a companys fundamentals. As with most bargain hunters, Buffett targets companies that are good revenue producers and are capably managed though underpriced. Buffett is also famous for his aversion to reading stock market tea leaves. Thats not what hes about. Simply, he selects stocks solely on the basis of their overall potential as a company. Once he has added such stocks to his portfolio, he will hang on to them for years, even decades. Buffett has no interest in whether other investors ever get around to recognizing the stock markets total value. His only concern is that his companies earn money, and lots of it.

Avoid the Tax Man

The Sage of Omaha has been quoted saying that the rich should be paying more in taxes. He complains his own secretary pays more in taxes than he does! But while Warren is running to Washington with a checkbook to make donations to the U.S. Treasury okay, not really he does, in fact, grasp some very key tax facts that can make you wealthy. The first is that government does not tax wealth, it

There are other highly visible cues to take from The Oracle on his investing philosophy. In fact, Buffetts investing criteria are outlined in his yearly reports to shareholders. They are: 1) Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units) 2) Demonstrated consistent earning power (future projections are of no interest to us, nor are turnaround situations) 3) Businesses earning good returns on equity while employing little or no debt 4) Management in place (we cant supply it) 5) Simple businesses (if theres lots of technology, we wont understand it) 6) An offering price (we dont want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown) A recent Berkshire Hathaway annual report adds, The larger the company, the greater will be our interest: We would like to make an acquisition in the $5 billion to $20 billion range. We are not interested, however, in receiving suggestions about purchases we might make in the general stock market. Buffett has said candidly that if a company falls within these criteria, dont call an investment banker call him. Buffett can be a bit of a contrarian, sliding away from his own investment philosophy from time to time. In the end, though, Buffetts investment philosophy is simple. He believes that investors should be buying a business, not simply a stock. His annual reports are highly readable quite famously so and perhaps the best window into the way the mans mind works. One such report contained what is probably as clear a one-paragraph summary of Buffetts investment philosophy as can ever be stated:

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Whenever we buy common stocks . . . we approach the transaction as if we were buying into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay. We do not have in mind any time or price for sale. Indeed, we are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate. When investing, we view ourselves as business analysts not as market analysts, not as macroeconomic analysts, and not even as security analysts. On the one hand, this paragraph is so steeped in old-fashioned values largely vanished from tradingobsessed Wall Street that one can understand immediately why Buffett has followers. On the other hand, its clear that his investing style just isnt that difficult to understand. Its nothing more than a balanced, four-legged stool: Buffett cares about the future prospects of the business. He wants to know that management has both integrity and drive. He doesnt want to overpay for a companys stock. And whether the shares go up or down, he wont sell, so long as the fundamentals remain the same. Its pretty simple, right? So is it a bit over-the-top to call Buffett a modernday miracle worker? Perhaps, but its not too far off the mark. Its not as if he is parting the Red Sea, though his investment record, which boasts an average annual gain of over 20.3 percent in book value since 1964, is not too far off. He is certainly a living, breathing antithesis of the random walk theory beloved by economists who try to rationalize market behavior.

success to hard work than to his supernatural talent, so too does the greatest investor of our time make investing seem easier than it actually is. Listening to Buffett speak, reading his many writings on investing, absorbing his messages, and watching his investment moves over the years, an investor is more likely to gain hope than to lose it. How difficult can it be, after all, to buy Coca-Cola and hold it forever a practice at the core of Buffetts investment methodology? It should make the average investor feel a lot more confident to know that Buffett firmly rejects all the fancy trading techniques so beloved by modern Wall Street the tenets that make it seem as though the big boys have an insurmountable advantage over the rest of the hoi polloi. Simplicity is the key. So why doesnt everyone invest like Buffett? For one thing, very few people can stomach the ups and downs of the market without wanting to jump on and off. For most investors, it is difficult not to panic when

The Buffett Paradox

As the experts like to tout, the random walk theory espouses that stock movement is random because all information about the prospects of a company is already built into its share price. They try to explain away Buffetts unusual successes by pointing out that in any game of chance someone has to come out on top and they say it just happens to be him. Of course, everyone knows thats not true. No, Buffett has something we mere mortals have no real hope of emulating. It is something that leads to the real Buffett paradox, a phenomenon that is quite the opposite of the supposed random walk theory of stock selection. Just as a top athlete is far more likely to ascribe his

American financial executive, b. Omaha, Neb., studied at Wharton School of Finance (1947-49), grad. Univ. of Nebraska (B.S., 1950), Columbia Univ. (M.S., 1951). His father, Howard Homan Buffett, (1903-64), an investment banker, was a U.S. congressman from Nebraska (1943-49, 1951-53). After working as an investment salesman and securities analyst, Warren Buffett was a partner (1956-69) in the investment firm Buffett Partnership, Ltd. In 1965, he acquired the textile manufacturer Berkshire Hathaway and became (1970) chairman and CEO. Through judicious investments and acquisitions of insurance companies and manufacturing and service firms, Buffett has transformed Berkshire into a large conglomerate. He coauthored Warren Buffett Speaks (with J.C. Lowe, 1997) and Thoughts of Chairman Buffett (with S. Reynolds, 1998). More recently, he cooperated with the writing of The Snowball: Warren Buffett and the Business of Life, by Alice Shroeder (2008). He has stated that he will pass nearly all of his wealth to charity upon his death. He and Microsoft Founder Bill Gates encourage wealthy people around the world to give away half of their fortunes through The Giving Pledge organization he cofounded with Gates.

Warren Edward Buffett (1930-Pres.)

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the market tanks, and it can be tricky to resist jumping on a really hot stock. The sort of even-keeled thinking necessary to be a great investor is an extremely rare thing. But that is Buffett in a nutshell. He is happy when markets tank because he can buy stocks at a cheaper price.

Buffettology 101

Simply following in Buffetts footsteps can be very profitable. One study found that if you took Buffetts lead and bought the same stocks he bought, you would have beat the Standard & Poors 500 Index by 100 percent over the past three decades. Researchers Gerald Martin of American University in Washington and John Puthenpurackal of the University of Nevada, Las Vegas, found that, historically, investors could have reaped a 24.6 percent annual return by simply buying Buffetts stock picks after he disclosed his holdings in SEC filings. The S&P 500 rose 12.8 percent a year in the same 30 years. In other words, Buffetts stock picks were so good that investors could have bought stocks as late as four months after Buffett did and still have made big returns. The advantage of taking a cue from Buffett in selecting stocks appears to be well-known to a significant number of investors. Yet the second reason most people dont invest like Buffett is that his methods are a lot more complicated than they appear. When Buffett talks about the economic prospects of a potential investment, hes talking

about the position of the business 10 years down the road. So, if he can see the business remaining dominant for the next decade, hell consider buying the stock. Buffett and Munger have an uncanny ability to predict very accurately which companies will be dominant players in 10 years a gift not many investors can claim. This acumen may be based partly on Buffetts genius when it comes to numbers. Accounting, he likes to say, is the language of business. Its a language in which his own fluency is unsurpassed, giving him an enormous competitive advantage. Usually, all he needs is a quick glance at a balance sheet to know whether hes interested in buying a company or not because he finds meaning in numbers that most investors are not capable of understanding. Many students of Buffettology have struggled to get their heads around accounting ideas that are second nature to him. A classic example is intrinsic value, which is Buffetts way of evaluating the true worth of a company. He describes it as the only logical approach to evaluating the relative attractiveness of investments and businesses. He has said that intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life. This definition may be simple for Buffett, but its clearly not that simple for the rest of the investment community, as they bang their heads against the wall trying to play catch-up to Buffetts successes.

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