Warren Buffett Watch: New Book Offers Detailed Analysis Of Buffett’s Investments by Steve Jordon, World-Herald
Investors can learn new things from Warren Buffett’s old investments, according to a new book.
One of his widely known principles is to make large investments in a few companies — a “concentrated” portfolio — rather than investing smaller amounts in a multitude of companies. The eternal problem: How to choose the right ones?
Corsair Capital was down by about 3.5% net for the third quarter, bringing its year-to-date return to 13.3% net. Corsair Select lost 9.1% net, bringing its year-to-date performance to 15.3% net. The HFRI – EHI was down 0.5% for the third quarter but is up 11.5% year to date, while the S&P 500 returned 0.6% Read More
Yefei Lu, a portfolio manager for Shareholder Value Management of Frankfurt, Germany, analyzes 20 of Berkshire’s investments, from the Sanborn Map Co. in 1958 to IBM in 2011, in a forthcoming book, “Inside the Investments of Warren Buffett” (277 pages, Columbia Business School, $35).
Among the lessons Lu draws is that Buffett relies on high-quality information, and he doesn’t mean just checking to see whether Coca-Cola tastes better than Pepsi.
Lu, with a bachelor’s degree in economics from Stanford University and an MBA from the London Business School, pulls material from annual Berkshire reports, biographies and other sources into a book fairly heavy on detailed analysis, with balance sheets and other financial tables to support his observations.
In a final chapter titled “What We Can Learn From Buffett,” Lu says Buffett, chief executive of Berkshire Hathaway Inc., seeks “an abundance of relevant objective data for the companies in question.”
For example, besides BNSF Railway’s own thorough public reports on its finances and operations, Warren Buffett could examine years of detailed information on the rail industry, comparing BNSF’s performance and reaching conclusions about whether to invest in rails and, if so, which to buy.
His research led to a belief that the cost advantages of railroads versus trucks would be long-lasting, Lu wrote, and that the long-term demand for capital investment in railroads would eventually decline, meaning greater profits.
Industries and companies that provide such information draw Buffett’s attention, Lu wrote.
“A likely result of this is Warren Buffett’s strategy of revisiting certain industries again and again,” the book says. “… On the whole, it also seems that the industries Buffett revisits — media, insurance and branded products — were the ones with ample objective industry information. By having great objective information, Buffett could confidently make the big bets that defined his concentrated approach to investing.”
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Inside the Investments of Warren Buffett – Description
Since the 1950s, Warren Buffett and his partners have backed some of the twentieth century’s most profitable, trend-setting companies, but how did they know they were making the right investments? Did Buffett take the lead on every decision, or was the key to act cooperatively? What did Buffet and his partners look for in an up-and-coming company, and is it possible for others to copy their approach?
A gift to Buffett followers who have long sought a pattern to the investor’s success, Inside the Investments of Warren Buffett presents the most detailed analysis to date of Buffet’s long-term investment portfolio. Yefei Lu, a private investor, starts with Buffett’s interest in the Sanborn Map Company in 1960 and tracks nineteen more of his major investments in companies such as See’s Candies, the Washington Post, GEICO, Coca-Cola, US Air, Wells Fargo, and IBM. With rare access to partnership letters, company documents, annual reports, third-party references, and other original sources, Lu pinpoints what is unique about Buffett’s timing, instinct, use of outside knowledge, and postinvestment actions, and he identifies what could work for all investors with companies big and small, global and domestic. His substantial chronology accounts for broader world events and fluctuations in the U.S. stock market, suggesting Buffett’s most important trait may be his open and alert worldview.
Inside the Investments of Warren Buffett – Review
By examining twenty of Warren Buffett’s investments over a fifty year period from 1960 through 2011, the author discusses Mr. Buffett’s likely analysis of each one and the lessons to be learned from them. This book should appeal to value investors and those wanting to benefit from Warren Buffett’s investment experience.
(M. Ali Khan, Abram Hutzler Professor of Political Economy, Johns Hopkins University)
About the Author
Yefei Lu is a portfolio manager at Shareholder Value Management AG, a value-investment company based in Frankfurt, Germany. Previously, he worked for a single-family investment office in Munich and for McKinsey & Company in Berlin. He holds an MBA from the London Business School and a Bachelor of Science in Economics from Stanford University.