Book Review: Inside the Investments of Warren Buffett

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Book Review: Inside the Investments of Warren Buffett

Writing books about Warren Buffett is a bit of a cottage industry, and one that is getting scarce for new ideas.  This book takes a new approach because the author takes 20 companies that Buffett bought, and analyzes them himself using principles derived from things Buffett has written.

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Inside the Investments of Warren Buffett Twenty Cases

That brings me to my first critique of the book.  You are getting the author’s point of view for analysis, which is somewhat similar to Buffett’s, but is usually not Buffett’s view.  In a minority of cases he references something Buffett wrote at the time.  He did not interview Buffett for this book, which is normal for most books about Buffett.

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Buffett didn’t typically do simple analyses, though by the end, he could simplify them to make it understandable to average people.  I’m not saying Buffett’s math wasn’t simple; I am saying that he took great account of qualitative aspects of a business — honest & competent management, owner earnings (free cash flow), moats (sustainable competitive advantages), ability to reinvest excess earnings profitably, etc.  The author takes account of many of these things much of the time, but my view is that Buffett did more still.  Also, Buffett spent more time on margin of safety issues than the author did.

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My second critique is that the book is a lot shorter than it looks.  Many of the pages are filled with the financials of the companies being analyzed, and only a tiny portion of the data there is referenced by any analysis in the book.  The book of 260 pages is more like 200 in total length.  For some readers that will be a plus, for others a minus.

The book does well in picking a range of investments by Buffett in terms of success.  Some of his less successful decisions are here — Berkshire Hathaway itself, US Air, Salomon Brothers, Gen Re, and IBM.  It also looks at investments where Buffett bought it all, and where Buffett bought part of a company.  Additionally, it covers investments initiated over a long time, ranging from the partnership years to the present.

My third critique is that in addition to the financial data, there is occasionally more padding in the book than needed — an interview of Buffett by Matt Rose of BNSF stands out, though many of the descriptions of the businesses involved could have been tighter.

On the whole, it is a good book, giving the opinions of another value investor on twenty asset purchase decisions by Buffett.  Those familiar with Buffett will probably want to pass by the book; better to read Buffett himself.  Newer investors could benefit from the author’s viewpoint, as it gives a consistent way to build a value investing philosophy in a single book.

Quibbles

Already mentioned.

Summary / Who Would Benefit from this Book

Those more experienced with Buffett’s own writings could ignore this book.  Those who are newer to value investing could benefit.  If you want to buy it, you can buy it here: Inside the Investments of Warren Buffett: Twenty Cases.

Full disclosure: The publisher asked me if I wanted a free copy and I assented.

If you enter Amazon through my site, and you buy anything, including books, I get a small commission. This is my main source of blog revenue. I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip. Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book. Also, I never use the data that the PR flacks send out.)

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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