examined in the book The Warren Buffett Way, written by Robert G. Hagstrom.
The tenets also appear in Hagstrom’s other book The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy.
- Great Investors Debate – Should You Be Investing In Family-Controlled Businesses?
- That Time Warren Buffett Nearly Became An Early-Stage Biotech Investor
- The Secret Investing Psychology Of Charlie Munger
This book is also one of Charlie Munger’s book recommendations, see here.
Here’s what Robert Hagstrom wrote:
With The Warren Buffett Way, I hoped to describe and codify Warren Buffett’s style of investing, so that others might benefit from understanding his approach. In that earlier book I outlined the fundamental investment tools, or tenets, by which Buffett evaluates possible purchases. These tenets are summarized in Chapter 1, page 8.
The underlying principles haven’t changed much since The Warren Buffett Way was published, in 1994 (“That’s why they call them principles,” Buffett once said), but many readers have asked for clarification about applying the tenets in today’s market.
In summary, the process of focus investing involves these actions:
- Using the tenets of the Warren Buffett Way, choose a few (ten to fifteen) outstanding companies that have achieved above-average returns in the past and that you believe have a high probability of continuing their past strong performance into the future.
- Allocate your investment funds proportionately, placing the biggest bets on the highest-probability events.
- As long as things don’t deteriorate, leave the portfolio largely intact for at least five years (longer is better), and teach yourself to ride through the bumps of price volatility with equanimity.
To learn more about each of the tenets, check out the books mentioned above.
[EDIT] Jae here. I’ve added links to articles where I’ve written on some of the questions mentioned in the checklist above.
- The Investor Trait and How Buffett Would Find, Analyze and Value Stocks
- Fundamental Business Valuation Process
- Tips on Reading into Management Behavior
- How to Properly Interpret ROA and ROE to Measure Management Effectiveness
- What is Owner Earnings?
- How to Value Stocks series
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Article by Hurricane Capital, Old School Value