Best book to learn market discipline

A naive can also use this book to gain the aptitude in stock market. This books is very easy, all you need is to often check the investopedia.com for financials terminologies. The auhtor tried his best to write the book as easy as it could be. In addition, without any doubt, Mr. Buffet's credentials are way to high to sum up in a book of 281 pages.

It took me few months to finish reading this book as I wanted to learn, understand and implement thoroughly. The basics lessons which motivate me are as follows:

1- It aint't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.
2- You can't beat the market.
3- Invest in equities and then don't open the mail.
4- Greedy when others are fearful and fearful when others are greedy.
5- It is too difficult to make hundreds of smart decisions in a lifetime. Rather position a portfolio so you have to make a few smart decisions.
6- There simply are no predictable patterns for guessing the future direction of the stock market. The exact patterns do not repeat. Still, the investors keep trying.

Worth reading!

Warren Buffet is arguably the most successful investor in the history of investing. Starting at an early age of just 11 years with meagre $100 investment, Buffet started to learn various investing strategies. Greatly influenced by Graham and Fisher – pioneers of market analysis during that time, Buffet developed his own investing strategy as a blend of value investing and company’s future prospects. The book covers following key tenets derived from Buffet’s investment methodologies:-
1. Business Tenets: Simple and understandable, consistent operating history and good long-term prospects
2. Management Tenets: Rational and honest with shareholders
3. Financial Tenets: Quality of return on equity and Owner’s earnings, high profit margins and creates atleast one dollar of market value for each dollar retained
4. Market Tenets: Evaluate the value of business and have patience to wait for significant discount prices wrt its value for investment margin of safety

The book also touches upon behavioural economics aspects such as loss aversion, mental accounting, confirmation bias etc to bring out that the efficient market theory is flawed and markets are subjected to psychological whims of human nature.

Some key never changing principles of investing are: Patience, Long-term horizon, curbing hyperactive trading, avoiding frequent market price watch, stopping prediction of economic trends, treating investment as a business partnership rather than just a stock and investing in selected few best businesses (as per analysis) than plethora of stocks in the name of diversification.

The book is full of pertinent examples and is written in an exceptionally free flowing manner which keeps the reader enticed, offering him life-long lessons on investing.

A well organized and clearly defined articulation of “tenants” and principles associated with arguably one of the greatest value investors of our time.

Pros:
— Extremely well sourced. I like how Hagstrom corroborated many of Buffett’s quotes and tenants from numerous sources, including many academic based sources, such as financial journals.
— The two best chapters were chapters 5 and 6 which discuss portfolio management and psychology of investing. I found the section about “Kelly Optimization” and the idea of “focus investing” to be especially interesting.
— Intuitive and clear writing style. The points were clear and reinforced (ref: Buffett’s 12 tenants)

Cons:
— I would probably suggest just reading Buffett’s Berkshire annual reports vice this book to get a true and more direct learning of Buffett’s principles. This book is good for additional supplement to Buffett’s own writings.
— Two of the “case studies” are WRT Buffett’s purchase of IBM and Heinz. In hindsight, those are arguable some of Buffett’s poorest investments.

Il libro è sicuramente un "must-read" per tutti coloro che si approcciano al mondo del trading e degli investimenti. Viene esplicitato nel dettaglio il metodo utilizzato da Warren Buffett nei suoi investimenti. Un metodo che non si basa sul prezzo delle azioni, ma sul reale valore dell'azienda. Warren Buffett predica pazienza ed è un investitore di lungo termine, a lui non importa l'evoluzione a breve termine del prezzo delle azioni, infatti dice che per lui la borsa potrebbe rimanere chiusa anche per due anni. Il motivo di questa affermazione è dovuto al fatto che si fida molto delle sue valutazioni che a lungo termine daranno i risultati calcolati. L'investitore si deve comportare come se l'azienda fosse sua (come in realtà lo è, seppur parzialmente) e in base a questa filosofia deve investire. Il libro si sofferma anche sugli aspetti psicologici del mercato, aspetti che sono fondamentali da studiare e comprendere per avere successo. Mi è piaciuto molto e lo annovero per il momento fra i migliori libri che ho letto sul mondo degli investimenti.

'The Warren buffet way' is the book meant to give you the perspective of one of the master investor on financial investment. Everyone know of the wit, charm, integrity, generosity and intellectual spirit of Warren buffet who started his investment with few hundred dollars in Berkshire hathway company and now owns the company with millions and followed by billions of dollars of profit today. The author cited examples from the buffet's company's annual report and several others to explain the fundamentals of investment and stock market, which is unpredictable at its best. He explained how Warren buffet would do it, citing several examples and case studies of several companies including Coca-Cola, stressing importance on import tenets like organization, busines,finance and market analysis. The gist is, the business real value, long term prospects, rationality and patience are very important, which would be analysed by buffet before investing. Author says, not to give in to 'myopic loss aversion' which is short sightedness of frequently selling and buying stocks depending on ever-changing stock market. Because ultimately only long term investment in to worthy stocks over long period like 10 years or more will proliferate in price and benefits.The diversification of stocks is also a good step. Ultimately, invest in good stocks and forget about it for long time, rather than keeping a hawk eye on ephemeral market is the main message of the book. Though, author tried his best, the book couldn't get much of my interest as it was more about finance and investment rather than buffets's life and that's also from the knowledge from secondary sources. And I am not a person who's in to money management or finance aficionado. Plus, there's many spelling mistakes in the book that stood out like a sour thumb unfortunately which I noticed as I am an academician. So, except for the last 3 chapters as 6, 7 and 8 on psychology of investing, value of patience and world's greatest investor, I couldn't enjoy the book much, despite having a great admiration for the Warren buffet. May be I should read his own book rather than other people's book on him. 2 stars for this one.

Apa yang menarik dari Warren Buffet?

Dia adalah salah satu orang terkaya yang tidak bergerak di bidang teknologi, Dia murni seorang Investor. Knowledge dan temperament adalah dua hal yang menarik dari Buffet. Kedua hal ini Ia dapatkan sejak kecil, dibangun dari kebiasaannya membaca di meja kerja ayahnya.

The power of Compounding menjadi salah satu kekuatan yang dimiliki oleh Buffet, Ia memulai bisnis pertamanya dengan berjualan Coca Cola di Nebraska. Hasil penjualan Ia tabung (compound).

Hagstorm merangkai Buku ini dari penelusuran kehidupan awal Warren Buffet. The world Gratest Investor di chapter awal mengurai Buffet dan Kecakapannya sebagai seorang investor. Selanjutnya, Hagstorm bercerita bagaimana Buffet bisa menjadi seorang "The Great Investor". Knowledge dan education adalah dua aspek utama yang menjadikan Buffet sebagai Great Investor. Keduanya diperoleh Buffet dari pengalaman juga dengan cara pedadogi.

Buffet menggabungkan dan menyerap pemikiran dan ide dasar yang dibangun Graham, Fischer, William, juga sahabatnya Charlie.

Buffet belajar Secure Analyst Invesment dari Graham, guru dan juga rekan kerjanya. Pendekatan Graham cenderung kuantitatif dan memperhatikan berbagai aspek seperti analysis, safety principal, dan satisfactory return. Definisi Graham tentang Invesment adalah Investasi harus memiliki guarantee yang diperoleh dari Analysis yang mendalam, bukan berdasar pada spekulasi.

Jika Graham terlalu quantitave, Fischer cenderung ke arah kualitatif. Pendekatan Fischer menitikberatkan pada aspek aspek seperti Management Perusahaan dan kualitas sang Manager. Fischer memiliki prinsip Less is good, Ia akan melakukan dialog ke setiap Manager yang ia temui.

Buffet menggabungkan2 ide dasar dari Fischer dan Graham. Secara kuantitatif ia akan melakukan research yang mendalam terhadap perusahaan yang akan diakuisisi oleh Berkshire and Hathway, seperti Operating History dan Income return. Segi Kualitatif, Buffet menyimak dari aspek Rational Manager, Temperative Instituion dan Operating History. Ia memiliki prinsip "Buying the business not the stock"

Saya meresapi ide ide buffet yang sederhana tapi memiliki visi jangka panjang. Setiap perusahaan yang berada di bawah naungan Berkshire Hathway punya prospek jangka panjang.

Berkshire dan Hathway di tahun 1954 memiliki modal awal $100 yang berasal dari 7 orang pemilik saham. Di tahun 2000, Keuntungan nya menjadi $59 billion.

Berkshire and Hathway memiliki sejumlah anak perusahaan yang bergerak di bidang Candy and Soda (permen dan minuman bersoda), Asuransi, Media dan Furniture. Beberapa perusahaan yang dijadikan sampel oleh Hagstorm diantaranya adalah Coca cola, Clayton Homes, Rose Blumkin, The Washington Post, Gillete, Walls Fargo.

"Anything less than 5 years is a Fool Theory"

Tenets atau Prinsip Buffet dalam melakukan Investasi ternyata sangat sederhana. Beberapa prinsipnya sangat rasional dan mudah untuk diaplikasikan, yang sulit hanyalah mengontrol emosi saat invest atau berbisnis. Greed dan Fear adalah 2 hal yang mempengaruhi emosi manusia.

Jika kita menyimak, prinsip Buffet dalam berinvestasi lebih mengarah ke Fischer. Beberapa hal sangat identik dengan Fischer, seperti Rational Manager, Understanding the Business Operation, Temperative Institution, dan Compare the Stock Company.

Apa hal yang unik dari Buffet?
Ia saya anggap sebagai old school man, Ia tidak terlalu menyukai teknologi. Bahkan di kantor Bershire and Hathway ia tidak memiliki LED dan Smart TV. Di Ruang kerja nya hanya ada TV tabung. Ia pun selalu menyempatkan untuk membaca annual report harian dari stock market.

Buffet sangat jarang atau bahkan tidak pernah membeli stock atau saham perusahaan yang bergerak di bidang teknologi. Buffet hanya membeli bonds dari Amazon.com di akhir tahun 1990an, alasannya pun simple : Ia menyukai membaca buku dan membelinya lewat online.

Hagstorm mengutip bagaimana buffet terhubung dengan online hanya berdasar pada tiga hal "He buy books, reading wall street journal, and playing bridges"

Ketakutan saya adalah pendekatan yang digunakan Buffet untuk tidak membeli stock perusahaan berbasis teknologi tidak reliable lagi di era millenial saat ini. Tapi lagi lagi buffet punya pandangan akan hal ini, "Buying business you simply understand".

Yang kurang menurut saya adalah biography semacam ini hanya menyerap potongan potongan ucapan dari Buffet, mungkin akan lebih baik jika Buffet yang menulisnya sendiri.

In the large unfathomable sea of investment, one boat is going for speculation and quick money other is going for indepth research of each owned business. You are still standing at the sea shore thinking which path to take and specially which path to follow to get highest amount of return. But before going to make a decision you must think what kind of person are you. Are you the silent time buyer or are you the one who need quick fix. This is what is called the difference between trading and long term investment. But don't try to be the other one just seeing the poster boy or an outlier.

The book dive into the way Warren Buffett thinks and follow. Warren Buffett is half Graham and half Fisher. The main focus of this piece is the principles that Buffett follows and you will see those principles at work in each investment Buffett makes.

One thing that is quite scintillating is that the author spoke about finding your own way in the sea of unknown. Don't try to be someone that you are not. If you think that applying the tenets of Buffett you will be successful then think twice. The position and parameters are different in each investment that you make. The most important thing is you can learn and tweak each principles to find the best for you.

Nota prévia é que leio este livro 20 anos depois da sua primeira edição (Isto é relevante na minha análise).
Em termos de escrita, o livro parece-me bem organizado, bem escrito e fácil de perceber.
No que toca à temática em si, da metodologia do Warren Buffet, estava a ler o livro e estava a pensar "é impossível replicar este método porque os tempos são outros" (isto parece fácil perceber, mas lá está, estou a ler isto 20 anos depois). Engraçado chegar ao fim livro e ver que o autor do livro tentou implementar o método e falhou redondamente.
Entretanto, com o avançar do livro, também passei a pensar "o método que ele usou não é replicavel, mas os princípios dele parecem muito bons". Também é engraçado chegar ao fim do livro e ler um parágrafo com o qual concordo em absoluto "Os mercados mudam, os preços mudam, os ambientes económicos mudam, as indústrias surgem e desaparecem. E os investidores inteligentes mudam o seu comportamento quotidiano para se adaptarem ao contexto de mudança. Aquilo que não muda, no entanto, são os princípios fundamentais. "
Percebo, e além do mais, concordo, com os princípios fundamentais que o autor apresenta de Buffet. Agora, a aplicação destes princípios está longe de ser fácil ou elementar.

The warren Buffett way

Constantly reinvent yourself but stay true to your strengths
Don’t tell a 400 hitter how to swing associate yourself with the best.
Kipling if poem was Phil Fishers favorite poem and he relates it this to Warrens temperament

Know who you are that’s the key be yourself and be the best you can be.

Grahams principles
Investing is using sound analysis of the facts to determine the true value of a business (back in his days book value to market value), only buying if there was a true margin of safety and using the psychology of the market to your advantage (fear and greed).

Fisher principles
Investing in companies with great potential - growing above industry average driven by strong marketing/sales and great product development. Business should have profitability in term not diluting the share count. Management intention is key need to examine how they respond to difficulty. Depth of management is important as well. Scuttlebut needs to be done to investigate the company further: interview competitors, suppliers, customers and former/current employers.

Invest only in companies within your circle of competence

Williams principles
The theory of investment classic - discounted cash flow and dividend discount model. Cash flow is everything.
Discount rate is what you determine the risk to be - warren uses long term equity returns or 10y bonds

Munger principles
Alter ego of warren a symbiotic relationship. Munger is a polymath key to his latticework of mental models. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. The psychology of human misjudgment.

Insurance
Geico cost competitive advantage
Ajit Jain odds vs premium
Gen Re reinsurance creating a franchise

Commodity product but Buffett distinguishes its business through financial strength and underwriting discipline.

Other operating businesses
Great franchises with long operating histories and favorable microeconomic factors to continue growth and high ROIC. Buy businesses that a dummy can run because eventually a dummy will.

Buffet tenets
Business tenets
1. Simple and understandable business
define your circle of competence and stay in it
2. Long term consistent operating performance
3. Favorable long term prospects
In commodity like products you need to be cost advantages or an industry with many supply right years


Management is so important - high character resistant to institutional imperative.
Management rational
Candid

Financial
Roe
Owner earning
Margins
Value creation

Valuation
Significant discount to price
What is the value

An Average book. There are better books about stock investment available. See my “Read” list if you’re interested in the gems.

Well, let me say this.

My journey started few years back going from penny stocks trading, to F&O bets, to stronger stocks trading, to technical analysis trading, to fundamental analysis investing to algorithmic trades. This journey has been not just enriching but profoundly impactful, adding layers of knowledge and experience to my finance, accounting and business domain of skills.

Progressing to value investing (which is the end goal to most), I have read few books and The Warren Buffett Way stands out as a great guidance literature for people actively seeking path of right guidance and investing for long term compounding.

Connecting dots from Warren Buffett's annual reports, letters and interviews, the author narrates about the importance of value and time, which are the core pillars for investing and compounding. The narration is simple, Warren's persona is appropriately demonstrated to motivate, reassure and guide. I have always been on the right side of Efficient Market Theory (or CAPM etc) thought schools. For me personally, this thoughts coming as reflection from great investors whose progress has been referred and explained in this book, is reassuring. Aside from main topic, the theory of behavioural finance, and rational thinking around decision making, which also is practiced through art of discipline, are important cornerstones of learning.

On limitations, the book doesn't cover the mistakes made and the reasoning behind it. The author doesn't have access to Warren himself, and therefore, critical points on decision making of each entry or exits are not covered. The real insights would come from the decision points. The book does give impression of a fan-like writeup by summarising various publicly available information.

For any seeker in 'value investing', I would recommend to read this book earlier in life, which possibly will guide them earlier and align strategies rightly.

The insights in whatever limited format shared, if rightly implemented, are profound.

Cheers.