A good book for introducing general investing and specific value investing principles, but not much new for anyone who's read a bit around investing. Good for people new to value investing.

No matter where you sit in the investing world, this is an extremely useful book. It’s timeless, fundamental principles can be applied across venture, private equity, and entrepreneurship. It will make the reader want to read the adjacent books referenced within which would be smart to round out these principles.

My first book on investments. It makes sense. :)

I love this book, nice book by Robert Hagstrom...

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From the simple math needed, to the psychology, its a great investment book for beginners and pros.

Imagine your life savings invested in only 10 or 15 companies, and you hold those same stocks for many years. To a lot of people that sounds like a risky proposition.

The premise of this book is that such a portfolio – “focus investing” – is a sensible approach, provided you give careful attention to the companies you hold, assign probabilities to your investing assumptions, and stay invested for at least 5 years.

In other words, you too can be like Warren Buffet, consistently beating the market.

To be clear, you will experience years when your portfolio’s return is negative or below that of a benchmark index like the S&P 500.

In any given year, stock prices are a distraction at best, and often a red herring.

The game of guessing short term stock prices is the losing game of “speculation” and not the winning game of long term “investing”.

If stock prices are not your guiding light, what should you use instead to measure performance?
You should regard stocks as what they are: part ownership in an underlying business. The economics of the business drives its future cash flows, and the managers of the business, if they are honest and capable, channel those cash flows to their best use (reinvesting or returning to shareholders).

Your “look-through” earnings, independent of the share price, are the Earnings Per Share times the number of shares you own. Your goal should be to maximize your portion of the earnings over a long time horizon.

As your share of the company’s earnings grows, the share price will eventually reflect that growth.

This sounds all well and good. However, what makes you think you can pick a winning portfolio of 10 or 15 companies that will outperform the broader market? Isn’t that the job of a slew of very smart fund managers, and hasn’t it been shown that they consistently fail? Yes and Yes.

The reason is that fund managers chase short term returns and fund rankings and consequently churn their portfolios to the detriment of their investors.

By closely following companies, reading their annual reports, assessing management behavior, and waiting for the “fat pitch”, you can, claims Hagstrom, consistently beat the market and the pros.

The next step, however, is to assign probabilities to your investment assumptions and use the “Kelly” formula to decide how much of your nest egg to invest: 2(p)-1. For example, you invest zero dollars with a 50% probability, and 10% of your funds with an 55% probability of success.

To me this sounds like a daunting task. Not because the math is too advanced, but because I don’t think a company’s future earnings, with so many myriad factors weighing on it, lends itself to that level of precision.

How would you course correct? Let’s say the earnings don’t pan out. Was it because your probability assessment of 55%, or because reality fell into the 45% you anticipated.

Notwithstanding, I think Hagstrom is probably right. With sufficient diligence, patience, self-awareness of cognitive bias, and tolerance for volatility, you probably can outperform the market over 10 years.

For the rest of us, index investing retains its appeal.

A must read for investors and buffett munger fans. A classic.

Good primer to the basic tenets of Buffet's streak of long-term investing - Focus Investing. It's a decent refresher of some of his basic thoughts around diversification, patience, owner's mentality, risk, ... I enjoyed the chapter on the investors of Buffetville (in reference to those of Grahamville) and that on complex systems and linking investment research into academic research. I liked Hagstrom's Warren Buffett Way better.

A must read for all investors. Especially if you are a value investor. Hagstrom covers the areas and discusses how Buffett looks at investing. Loved the book. It s worth it for your library

The book presents the concept of a concentrated portfolio (which holds shares only a few companies). I think this is an interesting alternative to the mainstream ways to invest in stocks. It is interesting to read Psychology of Investing written by John R. Nofsinger. I would like to draw attention to some "breakthrough" discoveries of behavioral economics in this book. The author probably never met with the Austrian School of Economics which puts similar arguments over a hundred years. I would recommend to read Human Action: A Treatise on Economics written by Ludwig von Mises.

//polish
Książka przedstawia koncepcję portfelu skoncentrowanego(który posiada akcje tylko kilku-kilkunastu firm). Myślę że jest to ciekawa alternatywa dla mainstreamowych sposobów inwestowania w akcje. Warto połączyć czytanie tej książki z Psychologia inwestowania napisaną przez John R. Nofsinger. Chciałbym zwrócić uwagę na niektóre "przełomowe" odkrycia ekonomii behawioralnej zawarte w tej książce. Autor chyba nigdy nie spotkał się z Austriacką Szkołą Ekonomii która stawia podobne tezy od ponad stu lat. Polecam przeczytać Ludzkie dzialanie: Traktat o ekonomii napisane przez Ludwig von Mises.

Exceptional.

Robert Hagstrom explains why Warren Buffett advises knowledgeable value investors to hold a small number of stocks.