How to be Warren Buffett in India

By SHEFALI ANAND

It's pilgrimage weekend for thousands of stock investors who follow veteran investor Warren Buffett.
This Saturday, thousands of fans will gather to hear the "Oracle of Omaha" (Mr. Buffett is based in Omaha, Nebraska) at the annual shareholder meeting of his company, Berkshire Hathaway Inc.

Shefali Anand

For the uninitiated, Mr. Buffett is considered one of the most successful investors of modern times. One class A-share of Bekshire costs $117,000 today, 1600% more than what it cost 20 years ago.
Mr. Buffett follows "value investing" which basically involves buying companies or stocks at a price lower than what he considers to be their intrinsic value.
In the simplest terms, value investing is like buying a T-shirt from, say, Bandra's Linking Road or Delhi's Sarojini Nagar market for 200 rupees, rather than paying 1,000 rupees for a T-shirt of similar quality from a big store. Value investors wouldn't go to a big brand store, unless it is giving heavy discounts!
The opposite of value investing is "growth" investing, which involves buying something that is expensive in the hope that it will become more expensive in the future. Consider apartments in Delhi's Shanti Niketan neighborhood or Mumbai's Worli, which cost an exorbitant $1 million or more. Still, a "growth investor" might buy them because he believes that in a few years time, the apartment would fetch an even higher price.
I decided to look at how investors practice value investing, and perhaps Mr. Buffett's principles, in India.
There are less than two dozen mutual funds in India which follow value investing. A large number of money managers lean towards growth investing, though there are shades of it. Indian stocks have risen so rapidly over the last decade that few are cheap. It's easier to find deals in a bear market, when lots of stocks have fallen significantly.

Associated Press

File photo of investor Warren Buffett gesturing during an interview prior to a special Berkshire Hathaway shareholders meeting in Omaha, Neb., Jan. 20, 2010.

I spoke to three value managers in India, including a disciple of Mr. Buffett, to see how they look for value. The number one challenge for each of them is: how to determine the worth of a company? Only then you can know if it's selling at a bargain.
Over the years, Mr. Buffett has shared some of the investing metrics that he uses but he has not laid out a specific template that everyone can blindly follow. So, investors have spent years coming up with formulas that they believe will help them find hidden gems.
In India, typically value managers look for "relative value," meaning a stock which appears cheap compared to something else, such as its peers or the Bombay Stock Exchange's Sensitive Index. This is in contrast to "absolute value," in which the stock is cheap compared to its intrinsic value.
"It's very difficult to be style pure in an excessively growth market," says Anoop Bhaskar, manager of the UTI Master Value fund. One reason is that money managers are expected to beat a benchmark index like the Sensex. In the U.S., some veteran absolute value managers hold cash if they don't finds cheap enough stocks. But when the market goes up a lot, those cash holdings can make them fall behind the market significantly. "A pure value fund in India can underperform for such a long time that investors and distributors just might give up on it," says Mr. Bhaskar.
Here are key takeaways from my conversations with India's value managers:
Anoop Bhaskar, fund manager of the UTI Master Value fund
Mr. Bhaskar, who manages 4.5 billion rupees ($100 million) in this fund, typically starts by looking at various sectors and zeroes in on the ones which other investors seem to be ignoring. Then he finds companies within the sector which are cheaper than peers.
Last year, many investors were avoiding stocks of information technology companies because they rely on business from the U.S. which was in severe economic turmoil. Mr. Bhaskar found that several of these companies were trading at price-to-earnings ratios (stock price divided by earnings per share) lower than their price-to-earnings ratios in previous years. He bought.
Unlike many analysts in India, who estimate future profits of a company to determine a company's worth today, Mr. Bhaskar looks for stocks which are cheap based on past earnings and values, over three- to five-year periods at least.
Often he finds small company stocks that trade cheap on an absolute basis, say with a price-to-earning ratio of 8 or less. (For comparison, Sensex's price-to-earnings ratio is around 21 now.) Mr. Bhaskar ends up buying a lot of small stocks for this reason – nearly 40% of his fund is invested in them. These helped the fund earn a whopping 114% return last year. For the last five years through April 28, the fund returned 20% annualized as compared to a 22.5% annualized return of the Sensex, according to ICRA Online Ltd.
But small stocks can be very volatile and hard to sell during bad markets, so this fund could be hurt sharply during downturns.
Lately, as small stocks have gained in value, Mr. Bhaskar has been moving into more large company stocks which carry lower risk. Also, they are easier to sell in a downturn to raise cash. So, he's been buying Maruti Suzuki Ltd., which appears cheap to him compared to automobile stocks.
See his current holdings here.
Sankaran Naren, manager, ICICI Prudential Discovery Fund
Mr. Naren manages 8.75 billion rupees ($200 million) in the ICICI Prudential Discovery fund, using many the same investing principles as Mr. Bhaskar: relative value, looking for sectors and looking at past earnings to determine value.
"We don't know if people have the ability to predict long into the future," he says.
In 2007, he says the hottest theme was infrastructure stocks. In comparison, not too many people were buying pharmaceutical stocks. So, he bought. Today, he finds telecom to be a relatively cheap sector as these stocks have been beaten down due to mobile price wars. "The sector today is facing existential issues," he says, but adds that it won't be a problem for the leader. Bharti Airtel Ltd. is his fund's biggest holding.
Like other value investors, Mr. Naren lays emphasis on different financial metrics for different types of industries.
When analyzing so-called "cyclical industries," Mr. Narain pays more attention to price-to-book ratio. Book value of a company is the value of its net assets or shareholder equity (total assets minus total liabilities) and represents what a company is worth after it gets rid of all its debt.
Cyclical companies are those whose fortunes are tied to economic or business cycles. Examples would be automobile and airline companies which do well when the economy is booming and vice versa. In comparison, consumer goods and pharmaceutical companies are "non-cyclical" because people will continue to buy toothpaste and drugs no matter what the economy is doing.
Since the earnings of cyclical companies can be very volatile, Mr. Naren finds it better to judge them by their asset values, thus price-to-book. Ideally, a value stock would be trading at a price below book value, but if not, at least at a low ratio like 2 or less.
Another metric Mr. Naren looks for is a high "return on equity" or "return on net worth," which is the company's net income divided by shareholder equity, and healthy "free cash flow," which is calculated by adding depreciation to net income and subtracting changes in capital expenditure and working capital, according to Investopedia.com.
Mr. Naren looks for the inter-relationship of the various metrics above to make his investment. For instance, a stock would not be cheap if it had a high return on equity but also a high price-to-book ratio.
The Discovery fund has gained 26% annualized over the past five years, according to ICRA. See his fund holdings here.
Nitin Bajaj, co-manager, Fidelity Value Fund
Fidelity India Value fund is a relatively young fund with 1.9 billion rupees ($43 million) in assets, according to ICRA data. Manager Nitin Bajaj has been an assistant manager with Fidelity in Europe since 2007.
He dismisses the idea that it's tough to find absolute value stocks in India. To select his investments, Mr. Bajaj uses Mr. Buffett's tenets: first, understand the business and then the specific company's competitive advantage and how it can maintain this edge and grow in the future.
He prefers historical price-to-earnings ratios because he believes that the "future of an industry or business is very similar to its past," he says.
For companies whose earnings are regulated by the government, such as power, or refining or cement companies, Mr. Bajaj looks at "replacement cost," which is the cost of rebuilding plants. In India, he says it costs $100 per ton to build a cement plant, so if a cement company is selling for less than that, it could be a buy. He uses other metrics for other businesses.
To buy, Mr. Bajaj looks for a "margin of safety," a term made famous by Mr. Buffett's guru, Benjamin Graham. This is the gap between the stock price and its intrinsic worth. So, if a stock worth 100 rupees is trading at 70 rupees, the margin of safety is 30%. Mr. Bajaj says a 30% discount is the minimum he needs to buy a stock.
Like some value investors, Mr. Bajaj is attracted to companies which pay dividend yields of 6% or more annually and are likely to increase them. There aren't many such companies in India, so he buys such stocks in countries like Korea and Brazil. His fund can invest up to 10% abroad.
Not all of Mr. Bajaj's fund holdings are value buys: as of February 2010, at least one third of the Fidelity India Value Fund investments were present also in the Fidelity India Growth Fund. See his fund holdings here.
Mr. Bajaj says this is partly due to the pressure to beat a benchmark index – in this case the BSE 200 index -- something which is applicable to money managers around the world. Also, he prefers to have some large companies in his portfolio because they are the easiest to sell in case investors need to pull money out of the fund. His fund investments are here.
Since individual investors don't have these pressures, Mr. Bajaj says they "have a huge competitive advantage" to practice value investing.
Are you such an investor? If yes, share with us how you find value and let me know if you'd be open to sharing it with other readers to get a healthy discussion going. After all, don't we all love a good bargain?

Warren Buffett: Buying Berkshire Hathaway Was $200 Billion Blunder

Warren Buffett says Berkshire Hathaway is the "dumbest" stock he ever bought.

He calls his 1964 decision to buy the textile company a $200 billion dollar blunder, sparked by a spiteful urge to retaliate against the CEO who tried to "chisel" Buffett out of an eighth of a point on a tender deal.

Buffett tells the story in response to a question from CNBC's Becky Quick for a Squawk Box series on the biggest self-admitted mistakes by some of the world's most successful investors.

COMPLETE CNBC INTERVIEW VIDEO AND TRANSCRIPT

Buffett tells Becky that his holding company (presumably with a different name) would be "worth twice as much as it is now" — another $200 billion — if he had bought a good insurance company instead of dumping so much money into the dying textile business.

Here's his story, as it appeared this morning in edited form on Squawk Box:

BUFFETT:  The— the dumbest stock I ever bought— was— drum roll here— Berkshire Hathaway.  And— that may require a bit of explanation.  It was early in— 1962, and I was running a small partnership, about seven million.  They call it a hedge fund now.

And here was this cheap stock, cheap by working capital standards or so.  But it was a stock in a— in a textile company that had been going downhill for years.  So it was a huge company originally, and they kept closing one mill after another.  And every time they would close a mill, they would— take the proceeds and they would buy in their stock.  And I figured they were gonna close, they only had a few mills left, but that they would close another one.  I'd buy the stock.  I'd tender it to them and make a small profit.

So I started buying the stock.  And in 1964, we had quite a bit of stock.  And I went back and visited the management,  Mr. (Seabury) Stanton.  And he looked at me and he said, ‘Mr. Buffett.  We've just sold some mills.  We got some excess money.  We're gonna have a tender offer.  And at what price will you tender your stock?’

And I said, ‘11.50.’  And he said, ‘Do you promise me that you'll tender it 11.50?’  And I said, ‘Mr. Stanton, you have my word that if you do it here in the near future, that I will sell my stock to— at 11.50.’  I went back to Omaha.  And a few weeks later, I opened the mail—

BECKY:  Oh, you have this?

BUFFETT:   And here it is:  a tender offer from Berkshire Hathaway— that's from 1964.  And if you look carefully, you'll see the price is—

BECKY:  11 and—

BUFFETT:   —11 and three-eighths.  He chiseled me for an eighth.  And if that letter had come through with 11 and a half, I would have tendered my stock.  But this made me mad.  So I went out and started buying the stock, and I bought control of the company, and fired Mr. Stanton.  (LAUGHTER)

Now, that sounds like a great little morality table— tale at this point.  But the truth is I had now committed a major amount of money to a terrible business.  And Berkshire Hathaway became the base for everything pretty much that I've done since.  So in 1967, when a good insurance company came along, I bought it for Berkshire Hathaway.  I really should— should have bought it for a new entity.

Because Berkshire Hathaway was carrying this anchor, all these textile assets.  So initially, it was all textile assets that weren't any good.  And then, gradually, we built more things on to it.  But always, we were carrying this anchor.  And for 20 years, I fought the textile business before I gave up.  As instead of putting that money into the textile business originally, we just started out with the insurance company, Berkshire would be worth twice as much as it is now.  So—

BECKY:  Twice as much?

BUFFETT:  Yeah.  This is $200 billion.  You can— you can figure that— comes about.  Because the genius here thought he could run a textile business. (LAUGHTER)

BECKY:  Why $200 billion?

BUFFETT:  Well, because if you look at taking that same money that I put into the textile business and just putting it into the insurance business, and starting from there, we would have had a company that— because all of this money was a drag.  I mean, we had to— a net worth of $20 million.  And Berkshire Hathaway was earning nothing, year after year after year after year.  And— so there you have it, the story of— a $200 billion— incidentally, if you come back in ten years, I may have one that's even worse.  (LAUGHTER)

Current Berkshire stock prices:

Class B: [BRK.B  81.80    -0.13  (-0.16%)   ]

Class A: [BRK.A  122775.00    -112.00  (-0.09%)   ]

Warren Buffett’s Biggest Mistake

Warren Buffett recently said the worst mistake he ever made was buying New England textile business “Berkshire Hathaway” in 1962.
Perhaps that was his worst mistake, but we think something else is Warren Buffett’s biggest mistake.
He started his career as a hedge fund manager by charging his clients a 25% performance fee above a 6% threshold. The arrangement helped him accumulate 24% of his hedge fund’s assets in 13 years. Later, he stopped the fee schedule and began to work virtually for free for his clients. If one considers that portfolio size actually drags on performance, Warren Buffett may have essentially paid out of pocket to manage other people’s money.
But that’s not the biggest mistake he ever made. He essentially prevented $100 Billion of his own net worth from being donated to the public.
Warren Buffet was a hedge fund manager with over 32% annual returns and 19% annual alpha between 1957 and 1968. He generated that alpha by working hard. He was due his fair share for that. Meanwhile, Warren Buffett’s investors weren’t penniless either; they were millionaires who owed most of their wealth to Buffett.
A hedge fund manager is technically a laborer. Economic calculations show that the historical average share of labor in economic output is about one-third. The remaining two-thirds belongs to the capitalists. So, it would be quite normal for a hedge fund manager to demand one third of the profits for his labor. Since the market wasn’t so competitive in the early 60′s, Buffett may have been able to demand more than a third, considering his investors probably had no better alternative.
Insider Monkey, your source for free insider trading data, calculated Warren Buffett’s hypothetical earnings if he were to have charged a 25% performance fee above a 6% threshold. We also assumed a high-water mark, i.e., Warren Buffett would not start collecting performance fees until he recoups his losses from previous years. For example, in 1958 the Dow Jones returned 38.5% and Buffett’s hedge fund returned 40.9%. After excluding the 6 percentage points (the threshold) of the 40.9% return, we are left with 34.9% of return that is subject to the performance fee. Twenty-five percent of the 34.9% goes to Warren Buffett for his services, which is 8.725 percentage points. So Buffett’s clients would have gotten a net return of 32.175%. This is what Buffett meant when he was criticizing hedge fund managers for charging fees when the markets are rising. Buffett had an average alpha of 19% between 1957 and 1968. This means that he owed 21.9 percentage points of the 40.9% return to the overall rise in the market. In one sense, he was criticizing what he did 50 years ago.
What was good about Buffett’s performance scheme is that he didn’t charge any performance fees if his performance fell below the 6% threshold. So, had Buffett returned -10% in a year, he wouldn’t have charged any performance fees that year, and he wouldn’t have charged any performance fees the next year until he recouped all of the previous year’s losses.

Based on the compensation scheme described above, Buffett would have ended up owning 78.75% of Berkshire’s stock -  3 times more than what he owns right now. We assumed that Buffett owned 24% of Berkshire at the beginning of 1977. That means Buffett would have been more than 3 times as rich as he is today. If only he hadn’t worked for free for the past 33 years…
On the other hand, if you think Warren Buffett gave most of his wealth to poor people, you are mistaken. As you can see from the above calculations, Warren Buffett and his unbelievable alpha gave 70% of his wealth to other extremely rich people – Berkshire Hathaway shareholders.
Warren Buffett supports the notion that the extremely wealthy (people like he) should donate most of their wealth to serve the greater good. But by working for free for nearly 33 years, he saved his wealthy clients nearly $100 Billion, the same $100 Billion that he could have donated as part of his master (and truly genius) plan.  That’s Warren Buffett’s biggest mistake ever.

Warren Buffett’s biggest mistake and the psychology of decision making

When Warren Buffett speaks it appears as though an old sage is speaking. And yet he is so fond of talking about his fallibility. During his first India visit this week, he said in an interview with ET, “I have made plenty of mistakes. Over the last 60 years, sometimes I have misread the future. [And] that’s gonna happen to me again in the future”. Interestingly his biggest mistake didn’t happen because he misread the future. It happened because he got mad at the person on the other side and ended up buying instead of selling. How did that happen? And what were its implications for Buffett? Let's see in brief below.

Berkshire Hathaway (BH) was formed in 1954 in New Bedford, New England from the merger of two textile mills each of which traces its origin to 19^th century. By the time Buffett’s buddy Dan Cowin from Graham-circle suggested him the idea of buying BH, it was making losses for over a decade. However, BH was interesting to Buffett because it was selling cheap. According to its accountants it was worth $22 million as a business or $19.46 per share. And yet, you could buy a share for just $7.50. BH’s President Seabury Stanton knew this as well and whenever he would close a mill and sell its assets, he would issue a tender to buy-back shares. So Buffett devised a strategy to buy BH on a low tide and sell whenever Stanton issues a tender for stock purchase at some profit. The point is Buffett started buying BH not for keeping it forever but for selling it.

In his usual style, Buffett drove up to New Bedford one day to see the place for himself. When Buffett was reluctantly ushered into Stanton’s palatially furnished, ballroom-size office, he saw that there was no place anywhere near Stanton’s desk to sit. The seventy one year old six-feet two niches Stanton was used to summoning people to stand before him while he sat behind his desk. The two men seated themselves at the uncomfortable rectangular glass conference table in a corner and Stanton asked Buffett at which price would he sell when the next tender comes up. Buffett said, “I‘d sell at $11.50 a share if it’s in the reasonably near future”. However, when Buffett actually received the tender letter back in Omaha a few weeks later, Stanton had quoted $11 3/8. Buffett felt Stanton cheated him for 12.5 cents less per share. He got furious and decided he would buy a controlling stake of BH and fire Stanton. And that’s what he ended up doing.

Unfortunately, what Buffett got at the end of the heroic act was a lousy business. This is how Buffett remembers what happened next in his 2010 letter to shareholders, “The dumbest thing I could have done was to pursue “opportunities” to improve and expand the existing textile operation – so for years that’s exactly what I did. And then, in a final burst of brilliance, I went out and bought another textile company. Aaaaaaargh! Eventually I came to my senses, heading first into insurance and then into other industries.” No wonder when MBA students at University of Georgia asked him about his mistakes, he said, “Number one is Berkshire Hathaway”

Elephant-Rider model we looked at earlier tells us that our decisions are mostly governed by the Elephant side of our thinking. And the Elephant is emotional. And when emotion takes over, the tiny Rider which is the rational side of our thinking has no chance of influencing the decision. This Warren Buffett story illustrates how weak the Rider is even if you have the best Rider in the world.

Source: The Snowball, by Alice Shroeder (Chapter 27, Folly).

Image source: www.rationalwalk.com/?p=5052

Warren Buffett's Worst Trade and Biggest Mistake

Investors always remember their worst trade or biggest mistake. Warren Buffett is no different. However, Buffett's biggest mistake might surprise you. In an interview with CNBC, the Oracle of Omaha admitted that the worst trade of his career was buying Berkshire Hathaway (BRK.A). Imagine that. But if you dig deeper into his account of the story, you'll see that while his worst trade might have been buying Berkshire Hathaway, his biggest mistake was letting emotion get the better of him.

Embedded below is the video where Buffett talks about his worst trade in Berkshire Hathaway (email readers will have to come to the site to watch the video):

So I started buying the stock (Berkshire). And in 1964, we had quite a bit of stock. And I went back and visited the management, Mr. (Seabury) Stanton. And he looked at me and he said, 'Mr. Buffett. We've just sold some mills. We got some excess money. We're gonna have a tender offer. And at what price will you tender your stock?' And I said, '11.50.' And he said, 'Do you promise me that you'll tender it 11.50?' And I said, 'Mr. Stanton, you have my word that if you do it here in the near future, that I will sell my stock at 11.50.'
I went back to Omaha. And a few weeks later, I opened the mail and here it is: a tender offer from Berkshire Hathaway- that's from 1964. And if you look carefully, you'll see the price is 11 and three-eighths. He chiseled me for an eighth. And if that letter had come through with 11 and a half, I would have tendered my stock. But this made me mad. So I went out and started buying the stock, and I bought control of the company, and fired Mr. Stanton. Now, that sounds like a great little morality tale at this point. But the truth is I had now committed a major amount of money to a terrible business.

So out of anger from being ripped off, Buffett made what at the time was perhaps an irrational decision in buying control of a fledgling textile company. While he eventually bought a good insurance company for Berkshire and altered his fate, things could have turned out much differently.
This just goes to show that when it comes to financial markets, you have to take emotion out of the equation. Human emotion and irrationality often lead to market folly as investors are driven by the typical fear and greed. Buffett's story, though, illustrates that other emotions not named fear or greed can take hold of an investor and lead to knee jerk reactions. Lucky for Buffett though, his emotional mistake didn't cost him dearly; he was able to turn a negative situation into a positive one.
The stock market is a game of mistakes. You make them, you pay for them, you learn from them, and you try not to make them again. Those who minimize the losses associated with their mistake(s) live to invest another day. Even the best investors in the world make mistakes and Buffett is a prime example.
So what was Buffett's biggest mistake? It wasn't necessarily buying Berkshire Hathaway; that was his worst trade. Instead, his biggest mistake was letting emotion get the better of him. And in the aftermath of Buffett's revelation, we can't help but wonder what would have happened to Buffett if he had received the full 11.50 offer and tendered his Berkshire Hathaway shares.

Warren Buffett’s Biggest Mistake

Much has been written about the success of Warren Buffett, but little on his failures. I think a great deal can be learned by analyzing the failures of successful people. By studying these failures hopefully we can avoid them ourselves.
The Deal
Buffett purchased preferred shares in US Airways (LCC: 7.94 -0.30 -3.64%) in the early 1990′s, and later remarked that this was one of his biggest mistakes. Now before getting to far into this it is worthwhile to comment that Buffett did in fact end up making a profit on his holdings of US Airways but Buffett certainly cannot claim credit for this. In his own words:
“Two changes at the company coincided with its remarkable rebound: 1) Charlie and I left the board of directors and 2) Stephen Wolf became CEO. Fortunately for our egos, the second event was the key…” Warren Buffett, Bershire Hathaway Letter 1997.
A few years after purchasing Buffett had pretty much written off the investment and had tried to sell out of the stock numerous times at a substantial discount. The investment had essentially become out of control and Buffett wanted out. Luckily he wasn’t able to sell until sometime later when the company had started to rise again.
What Went Wrong?
So what did Buffett do so wrong? Lets look at the principals that Buffett uses for analyzing an investment:
“Charlie and I look for companies that have a) a business we understand; b) favorable long term economics c)able and trust worthy management d) a sensible price tag.” Berkshire Letter to Shareholders 2007
Understandable Business
Looking from the outside the airline business is fairly easy to understand. Money is made by moving customers and packages from one location to another. But behind the scenes the airline business is a huge gamble with 183 airlines having gone bankrupt since 1978. So much of the business is frozen in the assets in the business that any turn in the economy can destroy it over night.
Sustainable Competitive Advantage
Part of the reason that so many airlines have gone out of business is that consumer’s are essentially unable to determine the difference between one airline and another. The planes are all the same make and model, you leave from the same airports, the pilots are all trained by the same schools and military, the food is very similar and they show the same movies. For the consumer in most cases it comes down to a question of price- who can get me there cheaper. Did US Airways have a way to keep their costs under any better control than their competition? No, unfortunately they shared several of the same unions as other airlines and were being charged the same airport fees as others also. It is difficult then to see the sustainable competitive advantage that US Airways had.
Able & Trustworthy Managers
Within a year of purchasing the preferred shares in United Airways the CEO Ed Colodny had been replaced and the stock price had gone into a deep dive. While Buffett still remarks that he has the utmost respect for Colodny he obviously could not get the job done and was on his way out as Buffett was coming in. In terms of Able then US Airways appears to fail this criteria.
Bargain Price
A bargain is only a bargain if you get something of value. While the preferred divided Buffett was to receive was an appealing 9.25% he was unable to collect that for 2 years. Several other ratios were also appealing; if the market teaches value investors anything its that sometimes things appear cheap because they, in fact, garbage.
Analysis Conclusion
Buffett failed to enforce his own rules of selection and got wrapped up in a bad decision. As he put it:

“I liked and admired Ed Colodny, the company’s then-CEO, and I still do. But my analysis of USAir’s business was both superficial and wrong. I was so beguiled by the company’s long history of profitable operations, and by the protection that ownership of a senior security seemingly offered me, that I overlooked the crucial point: USAir’s revenues would increasingly feel the effects of an unregulated, fiercely-competitive market whereas its cost structure was a holdover from the days when regulation protected profits. These costs, if left unchecked, portended disaster, however reassuring the airline’s past record might be.”
- 1996 Letter to Shareholders, Warren Buffett

What Can We All Learn From This?
Buffett has a good system, when he settles on an investment choice he writes down the reasons that he feels it is a good investment. If he can’t persuade himself to buy based entirely on what he writes down on the paper then he walks. This would have been one of those times he should have looked more carefully at the paper.
We can all learn from this mistake; do your homework and, most importantly, stick to your principals. If you have rules for investments make sure you are sticking to them. What went wrong here then is that Buffett stopped using his rules and veered off the track- don’t make the same mistake in your investing.

Warren Buffett's biggest mistake was to let his wife walk out on him

New York, September 26 (ANI): Billionaire investor Warren Buffett feels that letting his late wife Susie walk out the door of their Omaha home was the biggest mistake he had ever made.
 He revealed his feelings while discussing his personal life with Alice Schroeder, the author of a biography about him, entitled 'The Snowball'.
 
 The 78-year-old admitted that he gave Susie plenty of reasons to leave, one of which was Katharine Graham, publisher of The Washington Post and Newsweek.
 The investment genius told the author that Graham, a 59-year-old widow at the time he was 46, was smitten with him.
 He revealed that they often holed up at Graham's Martha's Vineyard mansion.
 Schroeder writes in the book that Graham would not hide her flirtation, and toss her house key to Buffett at parties.
 "(Susie) made it plain to several friends that she was furious and humiliated," but sent Graham a letter granting her permission to date her husband, the author writes.
 "Kay showed the letter to people as though it let her off the hook," the New York Daily News quoted Schroeder as adding.
 Buffett revealed that Susie began a romance with her tennis coach John McCabe, and in 1977, informed him that she was buying a small apartment in San Fransisco.
 Meanwhile, expecting that Warren would fall apart without a woman to look after him, Susie arranged for attractive blond Astrid Menks to cook and clean for him.
 Susie never divorced Warren, and after her death in 2004, the latter married Menks.
 Buffett told Schroeder that Susie's departure could have been prevented.
 "It was definitely 95 per cent my fault. ... I just wasn't attuned enough to her, and she'd always been perfectly attuned to me. She kept me together for a lot of years. ... It shouldn't have happened," he told the author. (ANI)

Buffett's Biggest Mistake

It doesn't happen often, but it does happen. Once in a blue moon, even the great Warren Buffett makes a mistake.
In his latest annual letter to his Berkshire Hathaway (NYSE: BRK-A  ) shareholders, Buffett lamented "some dumb things" he did in 2008. He apologized for his ill-timed investment in ConocoPhillips (NYSE: COP  ) , as well as a smaller stake in two Irish banks, which he dubbed "unforced errors."
And those were far from the first flubs Buffett has made during his illustrious investing career. His purchases of shares in Pier One and US Airways were poor investments, and he compounded his ill-fated acquisition of Dexter Shoes by using Berkshire shares instead of cash as currency. In fact, Berkshire itself was a poor investment -- Buffett greatly underestimated the capital requirements and competitive pressures endemic to the textile industry.
The greatest mistake of all
But when prompted for his greatest investing miss in an interview last year, Buffett didn't mention any of those gaffes. In fact, Buffett's biggest mistake wasn't a bad investment at all -- it was a good investment that could have been great.
"There have been a few things where I've started to buy them and then they've moved up," Buffett said. But instead of adding to his position in these great businesses, Buffett "stopped at a tiny fraction of where we should have gone."
Buffett specifically cited his failure to purchase additional shares of Fannie Mae in the early '80s and Wal-Mart (NYSE: WMT  ) in the mid '90s. "Both of those deals would have made us as much as $10 billion, and I managed to absolutely minimize the profits," he said.
The Oracle was similarly wistful about Costco (Nasdaq: COST  ) : "We own a little at Berkshire, but we should have owned a lot," Buffett lamented. He blamed his failure to buy more shares on "temporary insanity."
Don't be insane -- swing the bat!
Buffett often likens investing to a game of baseball, where every potential investment is a new pitch, and there are no called strikes. Patient investors can sit back and wait for the perfect pitch, ready to deposit that 2-0 fastball into the centerfield bleachers. But before you step in the batter's box, you must first identify what your perfect pitch looks like.
Buffett likes to swing at easily understandable businesses "whose earnings are virtually certain to be materially higher five, ten, and twenty years from now." After taking too shallow a cut on companies like Costco, he learned that "over time, you will find only a few companies that meet these standards -- so when you see one that qualifies, you should buy a meaningful amount of stock."
Finding your perfect pitch
With the stocks of many great companies trading at significant discounts to intrinsic value, experienced gurus like Buffett are swinging for the fences right now. But many individual investors are standing with their bat on their shoulder, letting these perfect pitches float on by. Look at these three great opportunities available today:

Company	Average P/E Ratio, Last 5 Years	Current P/E Ratio
PepsiCo (NYSE: PEP  )	24.2	16.3
Target (NYSE: TGT  )	17.7	12.3
Yum! Brands (NYSE: YUM  )	23.1	15.2

Data from Capital IQ, a division of Standard & Poor's.

Each of these companies is an easily understandable business whose strong brands mean their earnings are very likely to be materially higher five, 10, and 20 years from now. But while their future growth prospects remain strong, their share prices are the cheapest they've been in years. In such a volatile market, there's a chance these companies could fall farther, but I believe they're much closer to the bottom than the top.
Ready to swing?
If you'd like a little help identifying some additional companies that are very likely to be bigger and better five, ten, and twenty years from now, please consider taking a free 30-day trial of our Motley Fool Stock Advisor service. Just click here to get started.
Rich Greifner is convinced that this is the year for his beloved Chicago Cubs. Rich owns a Mark Grace rookie card, but none of the stocks mentioned in this article. The Motley Fool owns shares of Berkshire Hathaway. Berkshire, Costco are selections of both Motley Fool Stock Advisor and Inside Value. Wal-Mart is an Inside Value recommendation. PepsiCo is an Income Investor pick. The Fool has a disclosure policy.

Buffett's Biggest Mistakes

Warren Buffett is widely regarded as one of the most successful investors of all time. Yet, as Buffett is willing to admit, even the best investors make mistakes. Buffett's legendary annual letters to his Berkshire Hathaway shareholders tell the tales of his biggest investing mistakes. There is much to be learned from Buffett's decades of investing experience, so I have selected three of Buffett's biggest mistakes to analyze. (Learn about Buffett's investing life in Warren Buffett: The Road To Riches.)
ConocoPhillipsMistake: Buying at the wrong price
In 2008, Buffett bought a large stake in the stock of ConocoPhillips as a play on future energy prices. I think many might agree that an increase in oil prices is likely over the long term, and that ConocoPhillips will likely benefit . However, this turned out to be a bad investment, because Buffett bought in at too high of a price, resulting in a multibillion dollar loss to Berkshire. The difference between a great company and a great investment is the price at which you buy stock and this time around Buffett was "dead wrong". Since crude oil prices were well over $100 a barrel at the time, oil company stocks were way up.
Lesson Learned
It's easy to get swept up in the excitement of big rallies and buy in at a prices that you should not have - in retrospect. Investors who control their emotions can perform a more objective analysis. A more detached investor might have recognized that the price of crude oil has always exhibited tremendous volatility and that oil companies have long been subject to boom and bust cycles.
Buffett says: "When investing, pessimism is your friend, euphoria the enemy."
U.S. AirMistake: Confusing revenue growth with a successful business
Buffett bought preferred stock in U.S. Air in 1989 - no doubt attracted by the high revenue growth it had achieved up until that point. The investment quickly turned sour on Buffett, as the U.S. Air did not achieve enough revenues to pay the dividends due on his stock. With luck on his side, Buffett was later able to unload his shares at a profit. Despite this good fortune, Buffett realizes that this investment return was guided by lady luck and the burst of optimism for the industry. (You may not believe it, Buffett is jealous of the small-time investor. Read about it in Why Warren Buffett Envies You.)
Lesson Learned
As Buffett points out in his 2007 letter to Berkshire shareholders, sometimes businesses look good in terms of revenue growth, but require large capital investments all along the way to enable this growth. This is the case with airlines, which generally require additional aircraft to significantly expand revenues. The trouble with these capital intensive business models is that by the time they achieve a large base of earnings, they are heavily laden with debt. This can leave little left for shareholders, and makes the company highly vulnerable to bankruptcy if business declines.    
Buffett says: "Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it."
Dexter ShoesMistake: Investing in a company without a sustainable competitive advantage
In 1993, Buffett bought a shoe company called Dexter Shoes. Buffett's investment in Dexter Shoes turned into a disaster because he saw a durable competitive advantage in Dexter that quickly disappeared. According to Buffett, "What I had assessed as durable competitive advantage vanished within a few years." Buffett claims that this investment was the worst he has ever made, resulting in a loss to shareholders of $3.5 billion.
Lesson Learned
Companies can only earn high profits when they have some sort of a sustainable competitive advantage over other firms in their business area. Wal-mart has incredibly low prices. Honda has high quality vehicles. As long as these companies can deliver on these things better than anyone else, they can maintain high profit margins. If not, the high profits attract many competitors that will slowly eat away at the business and take all the profits for themselves.
Buffett says: "A truly great business must have an enduring "moat" that protects excellent returns on invested capital."

The Bottom Line
While making mistakes with money is always painful, paying a few "school fees" now and then doesn't have to be a total loss. If you analyze your mistakes and learn from them, you might very well make the money back next time. All investors, even Warren Buffett, must acknowledge that mistakes will be made along the way. (We've seen his mistakes, but his triumphs are even more impressive. Check out Warren Buffett's Best Buys.)

52 Must Read Quotes from Legendary Investor – Warren Buffett

Warren Buffett is without question the most successful investor of our time (and possibly of all time).  His savvy deal making abilities coupled with his creative and cheerful personality allowed him to achieve success like no other.
While searching the web for the comments he’s made through the years, I found many insightful comments that truly show off Mr. Buffett’s knowledge so I want to share 52 of these with you below!  Let me know what you think!

1. A public-opinion poll is no substitute for thought.
2. Chains of habit are too light to be felt until they are too heavy to be broken.
3. I always knew I was going to be rich. I don’t think I ever doubted it for a minute.
4. I am quite serious when I say that I do not believe there are, on the whole earth besides, so many intensified bores as in these United States. No man can form an adequate idea of the real meaning of the word, without coming here.
5. I buy expensive suits. They just look cheap on me.

6. I don’t have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It’s like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don’t do that though. I don’t use very many of those claim checks. There’s nothing material I want very much. And I’m going to give virtually all of those claim checks to charity when my wife and I die.
7. I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
8. I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
9. If a business does well, the stock eventually follows.
10. If past history was all there was to the game, the richest people would be librarians.
11. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.
12. In the business world, the rear view mirror is always clearer than the windshield.
13. Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.
14. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
15. It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.
16. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
17. I’ve reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term ‘thinking outside the box.’
18. Let blockheads read what blockheads wrote.
19. Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
20. Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men.’ If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases
21. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.
22. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
23. Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.
24. Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
25. Only when the tide goes out do you discover who’s been swimming naked.
26. Our favorite holding period is forever.

27. Price is what you pay. Value is what you get.
28. Risk comes from not knowing what you’re doing.
29. Risk is a part of God’s game, alike for men and nations.
30. Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
31. Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway.
32. The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.
33. The investor of today does not profit from yesterday’s growth.
34. The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.
35. The only time to buy these is on a day with no “y” in it.
36. The smarter the journalists are, the better off society is. For to a degree, people read the press to inform themselves-and the better the teacher, the better the student body.
37. There are all kinds of businesses that Charlie and I don’t understand, but that doesn’t cause us to stay up at night. It just means we go on to the next one, and that’s what the individual investor should do.
38. There seems to be some perverse human characteristic that likes to make easy things difficult.
39. Time is the friend of the wonderful company, the enemy of the mediocre.
40. Value is what you get.
41. We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.’
42. We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.
43. We enjoy the process far more than the proceeds.
44. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
45. We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.
46. When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
47. Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
48. Why not invest your assets in the companies you really like? As Mae West said, “Too much of a good thing can be wonderful”.
49. Wide diversification is only required when investors do not understand what they are doing.
50. You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.
51. You only have to do a very few things right in your life so long as you don’t do too many things wrong.
52. Your premium brand had better be delivering something special, or it’s not going to get the business

His savvy deal making abilities coupled with his creative and cheerful personality allowed him to achieve stock market success like no other.  So it’s really no luck that he’s named the wealthiest man of 2008 and hope that you’ve learned something from these quotes.  Which one is your favorite?

Personally, I really like #30 – Never lose money!

Complete list of articles at Warren Buffett Secrets

Warren Buffett

Introduction to Warren Buffett -The starting page for Warren Buffett’s investment secrets.
Warren Buffet biography - A short look at the world’s most successful stock investor.
Charlie Munger biography - A short look at the life and investment philosophy of the man considered by Warren Buffett a friend and investment genius
Warren Buffett's investment principles - A summary of intelligent investment principles explained over the years by the Sage of Omaha.
Five things we like about Warren Buffett - A few things that we think contribute to his investment success and his reputation for integrity and character.
Warren Buffett's Annual Letter to Shareholders, 2003 Our analysis and summary
Warren Buffett and brand names - One of the things that makes a good company is its brand names. This explains why having a good brand name is so important.
Warren Buffett and understanding a company - Buying shares in a company is just buying a part of a business. You need to understand the business before you invest.
Warren Buffett on debt - Why successful investors like buying into companies with financial strength and little debt.
Dealing with inflation - The ability of a company to raise prices to maintain profitability is what distinguishes a non-commodity company from a commodity one.
Sticking to what you know - Company managers should focus on a company’s core activities and not wander off onto strange paths.
Share buybacks - A company can add value to its shares by buying some of them back, but only for the right reasons.
Return on equity - The ability of a company to earn and increase high returns on its capital is considered by Warren Buffett essential to a share investment in that company.
Price/earnings ratio - Determining the right ratio of price to earnings of a company can influence the decision to invest or not.
Retained earnings - If a company cannot earn more for shareholders on retained earnings than owners can, it should distribute the profits instead.
Book value - Different intelligent investors have different opinions about the importance of book value to an investment decision.
Company growth - It is not so much the growth in earnings of a company that is important, it is how they grow, and in what areas.
Sound management - Successful investors invest in companies whose management is sound and honest.
Owner earnings - Warren Buffett looks beyond the balance sheet and concentrates on true owner earnings.
The compounding factor
Bringing it all together - A summary of the tests that Warren Buffett is said to apply to a company when considering investment.
The right price to pay

Berkshire Hathaway

Berkshire Hathaway holdings - new  - One of our most requested topics, here is the list of known substantial holdings of Berkshire Hathaway.
A History of Berkshire Hathaway, part 1 - the first part of our in-depth look at Buffett's company
A History of Berkshire Hathaway, part 2   -  Investment becomes the primary area of interest fr Berkshire Hathaway
The Berkeshire Hathaway approach to charitiesExploring an innovative new approach that allows shareholders to nominate the charity to whom a donation should be made

Benjamin Graham

Introduction to Benjamin Graham - A short look at the doyen of security analysts.
Biography of Ben Graham - the life of Buffett's mentor
Benjamin Graham's Investment Philosophy - A summary of the lessons given by the man, among whose disciples include some of our most successful investors.
Mr Market - Benjamin Graham’s parable that explains how investors should rely on their own judgment, after careful analysis, and ignore the vagaries of the stock market.
The Margin of Safety - Considered by many successful investors as the key to investment gains. Investors should only buy stock at intrinsic value but with an inbuilt safety margin.

Case studies

We look at several companies to determine, for our own purposes, whether they are worth further analysis. Also, we look at companies Warren Buffett has chosen to invest in.
The Incredible Rose Blumkin - new - Rose Blumkin, Warren Buffett, and Nebraska Furniture Mart.
A History of GEICO- new - The story of the company that at various times atracted the attention of both Warren Buffett and Benjamin Graham
Coca-cola
Boeing

Book reviews

The essential Warren Buffett library Our editor's pick of the best books.
The interpretation of Financial Statements, by Benjamin Graham
Buffett, by Roger Lowenstein
The New Buffettology, by Mary Buffett and David Clark
The Intelligent Investor, by Benjamin Graham
Investing: the Last Liberal Art - new - by Robert Hagstrom
Value Investing - by Janet Lowe
Review of The Snowball - Warren Buffett and the Business of Life by Alice Schroeder

Other articles

Texas Instruments BA-35 Financial Calculator - A look at a calculator that can help immensely in working out the intrinsic value of a company.

Warren Buffett book reviews and other reviews Reviews

new Review of The Snowball - Warren Buffett and the Business of Life - "There have been many books written about Buffett and I have read most of them. They generally gloss over his life but try to extract his investment principles by deduction from some of the trades that he has made. This book is different..."
The essential Buffett library - Our editor's pick of the five books that belong on every investor's shelf
Investing - the Last Liberal Art   - new - by Robert Hagstrom - "Influenced, as he acknowledges, by Charlie Munger's investment philosophy, Robert Hagstrom's book takes up on Munger's approach. Investing: the Last Liberal Art, by the author of The Warren Buffett Way, is an extraordinary achievement, a book that goes far beyond being a simple primer of investment approaches..."
The intelligent Investor by Benjamin Graham - "If you don’t have this book in your library, then you should not even be contemplating an investment in shares directly, or even indirectly, though a mutual fund. It is surely not a co-incidence, as Warren Buffett graphically illustrates in his Appendix to this book, that some of the world’s most successful investors learned at the feet of Benjamin Graham..." Read Review
Buffett, by Roger Lowenstein -  "Most books about Warren Buffett give us a brief picture of Warren’s life, but concentrate on analyzing his known investments and then putting together the author’s perceptions of why he bough the shares and why he sold them. This well written and interesting book concentrates on the life of Wall Street’s most successful investor, focussing on the man, rather than the system..." Read Review
The New Buffettology, by Mary Buffet and David Clark - "The authors look at the companies Buffett has invested in over the years and what he has said about investment principles and use this to draw up a series of tests and principles that they claim he puts in place when selecting investments. We cannot say with any certainty that these tests and principles totally and accurately reflect the way that Warren Buffett does business. We can however say that they make good and logical sense to us..." Read Review
The Interpretation of Financial Statements, by Benjamin Graham -  "This is a book that nobody seriously considering a stock investment should be without. Even non-stock investors with an indirect interest in the stock market through retirement and mutual funds can benefit from a reading of this book. It can help them understand what their fund managers are doing with their money..." read review

Value Investing, by Janet Lowe - new - "This book is a little gem for anybody who has difficulties in understanding the investment philosophy of Benjamin Graham. Lowe, who has written extensively on Graham, explains many of the investment terms and strategies given by Graham in his writings and relates them to current and up to date business situations. She explains to the reader what value investment is and its connection to both company growth and intrinsic value. ..." read review

Investment techniques

Value investment, put simply, means buying a stock, or indeed a business, at less than its intrinsic value. This method of investment was pioneered by Benjamin Graham, the father of securities analysis, and has been modified and enhanced by such legendary investors as Warren Buffett and Peter Lynch. Graham always took the position that value investment was the only real form of investment; anything else was speculation.
There are other investment theories such as modern portfolio theory (mixing unrelated stocks in a portfolio gives less volatility than the average volatility of the stocks); the efficient market theory, which assumes that the market price of a share accurately reflects the information available about that particular investment; and the random walk model.
This section will look at the value investment theories of Graham and others, and the investment approach of Buffett and Munger. It will also discuss, in time, other investment strategies.

case studies

We look at several companies to determine, for our own purposes, whether they are worth further analysis.
Coca-cola
Boeing - new

Warren Buffett's approach to investment

Introduction to Warren Buffett -The starting page for Warren Buffett’s investment secrets.
Warren Buffett's investment principles - A summary
Warren Buffett and brand names - An area of particular emphasis for Buffett
Warren Buffett and understanding a company - You need to comprehend a business before investing.
Warren Buffett on debt - Why successful investors like buying into companies with financial strength and little debt.
Dealing with inflation - The ability of a company to raise prices to maintain profitability is important
Sticking to what you know - Management should focus on their areas of strength.
Share buybacks - A company can add value to its shares by buying some of them back, but only for the right reasons.
Return on equity - The ability of a company to earn and increase high returns on its capital is considered by Warren Buffett essential to a share investment in that company.
Price/earnings ratio - Determining the right ratio of price to earnings of a company can influence the decision to invest or not.
Retained earnings - If a company cannot earn more for shareholders on retained earnings than owners can, it should distribute the profits.
Book value - Different intelligent investors have different opinions about the importance of book value to an investment decision.
Company growth - It is not so much the growth in earnings of a company that is important, it is how they grow, and in what areas.
Sound management - Successful investors invest in companies whose management is sound and honest.
Owner earnings - Warren Buffett looks beyond the balance sheet and concentrates on true owner earnings.
The compounding factor
Bringing it all together - A summary of the tests that Warren Buffett is said to apply to a company when considering investment.
The right price to pay

Benjamin Graham

Benjamin Graham's Investment Philosophy - A summary of the lessons given by the man, among whose disciples include some of our most successful investors.
Mr Market - Benjamin Graham’s parable that explains how investors should rely on their own judgment, after careful analysis, and ignore the vagaries of the stock market.
The Margin of Safety - Considered by many successful investors as the key to investment gains. Investors should only buy stock at intrinsic value but with an inbuilt safety margin.

Other approaches

Biographies

The life strategies of successful people can often be learned by looking at the way they have lived their lives. This is as true of successful business investors as it is of other famous men and women.
In this section, we intend to look briefly at the lives and careers of successful investors and direct readers to additional biographical resources.
Warren Buffett biography - The life of the Oracle of Omaha
Charlie Munger biography - A short look at the life and investment philosophy of the man considered by Warren Buffett a friend and investment genius
Benjamin Graham biography Warren Buffett's mentor, and one of the most influential investment philosophers of all time.
Rose Blumkin  - new -  the story of the founder of Nebraska Furniture Mart, the woman Warren Buffett called "Mrs B.".

Berkshire Hathaway

Introduction

Berkshire Hathaway, originally a textile company, has become the investment vehicle for Warren Buffett and his colleague, Charlie Munger. The story of how this Nebraska insurance company has become one of the world’s most successful investment stories through the investment wisdom and astute management of its managers is a fascinating one.
The company is the owner of several successful businesses, including GEICO Insurance, See’s Candy Shops and Blue Chip Stamps. Its acquisition policy of buying a good owner-operated business and getting the owners to stay has also proved successful; for example, the Nebraska Furniture Mart. The company has also very profitable ‘permanent holdings’ in such brand name companies as Coca Cola and The Washington Post.
Berkshire Hathaway does not pay dividends, although its management has foreshadowed that dividends may be paid in future years. The price of a share in the company in 1982 was $750. As at 20 January 2004, one share is worth $86,200.

Berkshire Hathaway articles at this site

List of Berkshire Hathaway holdings - new  -  one of our most requested topics, here is the list of known substantial holdings in companies that Berkshire Hathaway and Warren Buffett have found worthy of investment.
A History of Berkshire Hathaway, part 1 - the first part of our in-depth look at Buffett's company
A History of Berkshire Hathaway, part 2 - new -  Buffet shifts the direction of the company from textiles to the insurance business.
The Berkeshire Hathaway approach to charities - Exploring an innovative new approach that allows shareholders to nominate the charity to whom a donation should be made
see also: Warren Buffett

Further resources

Berkshire Hathaway company website

Benjamin Graham - Buffett's mentor

The source of Buffett's success

Warren Buffett has attributed much of his success to the investment philosophy of the legendary Wall St analysist Benjamin Graham.
In an introduction to Graham’s continuing best-seller, The Intelligent Investor, Buffett says that Graham, more than anyone except Warren’s father, influenced his life.
"It is difficult to think of possible candidates for even the runner up position in the field of security analysis."

Benjamin Graham Resources at Warren Buffett Secrets:

Biography of Benjamin Graham
Graham's Investment Philosophy
Mr Market
The Margin of Safety
Review of The Interpretation of Financial Statements
Review of The Intelligent Investor

Mini-biography of Graham

Benjamin Graham was a conservative in his financial teachings and introduced the concept of looking at share investment as buying a share in a business, rather than as a stand-alone investment. Graham also devised Mr Market, the concept of the stock market as a schizophrenic entity equally willing to sell you a commodity or buy one from you.
Read our full biography of Graham

The lessons of Benjamin Graham

According to Warren Buffett, the two essential things that you can learn from Graham's outlook are:
Ignoring market fluctuations in investment analysis (Mr Market)
Investing with a margin of safety
Graham’s investment tenets have been both followed and modified, not only by Buffett, but other legendary and successful investors like Walter Schloss of WJS Partners, Tom Knapp and Ed Anderson of Tweedy Browne Partners and Bill Ruane’s Sequoia Fund.

External resources

More on Benjamin Graham (PDF File)

Warren Schloss Resources

Schloss Archives at Columbia Business School

Tweedy Browne Resources

Tweedy, Browne Company

Sequoia Fund

Sequoia Fund, Inc