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"I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet riches to men of understanding, nor yet favor to men of skill; but time and chance happeneth to them all."

Ecclesiastes 9:11


"Life consists not in holding good cards but in playing those you do hold well"

Josh Billings

Masters of Investing

This page is a review of investment strategies of legendary masters of investing.  I have found reading biographies of great investors and incorporating their ideas into my own investment strategy.  I have not found many other investors who have adopted one investors style and adopted it as their own, but weave new ideas into their own style, evolving into an individualistic personal investment style of their own.  This page will feature a different investor each month.  Check back monthly or bookmark this page for future reference.


Warren Buffett - the Oracle of Omaha.

Warren Buffett was a student of Benjamin Graham, who is known as the father of value investing.  His investment style is like a story Benjamin Graham used to tell about  Mr. market.  He asks you to imagine that you work for a crazy  boss, Mr. Market.  Every day you come to work he offers to sell you the business.  In days when he is in a good mood the price is vastly overstated.  On days when he is in a black mood the price is unrealistically cheap.  This is essentially Buffett's style. Investments will be selected on the basis of value, based on discounted future earnings, and the risk of permanent capital loss is at a minimum, little consideration is given to short-term quotational loss.  Buffett holds a small number of investments, that he understands well, with the intention of holding them for a long, long time.  

According to John Train in his classic book The New Money Masters,  Buffett believes that in order to be a successful investor you must have six qualities:

  1. You must be animated by controlled greed, and fascinated y the investment process.  If you are greedy  you will take too many risks, if you don't care you will not put the necessary effort into your investment decisions. 
  2. You must have patience.  Buffett has said that investors would make better investment decisions if they were only allowed to make only ten investments in their lifetime.  Only ten.
  3. You  must think independently.  "The fact that other people agree or disagree with you makes you neither right nor wrong.  you will be right if your facts and reasoning are correct."
  4. You must have the security and the self-confidence that comes from knowledge, without being rash or headstrong.
  5. Accept it when you don't know something.  Concentrate in your strengths, you cannot be an expert in everything, and that's OK.
  6. Be flexible as to the types of business you buy, but never pay more than the business is worth.

Buffett believes that you should only buy great companies and that there are only a handful of  great business in the whole country.  What Buffett looks for in great companies is:

  1. They have a good return on capital without accounting gimmicks or lots of borrowed money.
  2. They are understandable.  
  3. They see there profits in cash.
  4. They have strong franchises and thus freedom to price.  Buy companies that have strong brand recognition and demand (ie. consumer monopolies) like Coka-Cola and/or whose products  wear out fast and need to be replaced like Gillette and Colgate.  Look for  products that stores need to carry or they will loose sales.   Another favorite investment are companies that provide repetitive services that require neither products nor skilled labor like Service Master and Cox Communication.  Avoid commodity products have no pricing power and whose prices are set in the market place.
  5. They don't take a genius to run.  Companies that rely on charismatic leadership will suffer and are vulnerable to leadership changes.  "Buy a company that any idiot can run because sooner or later it will be".
  6. There earnings are predictable
  7. They are not natural targets of regulation.
  8. They have low inventories and high turnover of assets.
  9. The management is owner-oriented
  10. There is a high rate of return on the total of inventories plus plant and equipment.
  11. The best business is a royalty on the growth of others, requiring little capital itself.

This is a partial list of companies that Buffet owns or has owned, notice the absence of technology companies:

  • American Express
  • Anheuser-Busch
  • Bristol-Myers Squib
  • Campbell Soup
  • Coca-Cola
  • Cox Communication
  • Walt Disney
  • General Electric
  • Knight-Ridder
  • MBNA
  • McDonald's
  • Merrill Lynch
  • New York Times
  • Phillip Morris
  • Ralston Purina Group
  • Seagram
  • Tiffany & Company
  • Wal-Mart
  • Washington Post
  • Wells Fargo

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