Principles and Practical Methods Used by the World’s Greatest Investor
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How to Build Wealth Like Warren Buffett
Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Buffett CEO Assessment Quiz . . . . . . . . . . . . . . . . . . . . 5
Probing Questions to Assist You in Defining
Your Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Creating Your Own Investment Philosophies . . . . . . . . . . 10
Lou Simpson’s Five Investment Principles . . . . . . . . . . . . . 14
Phil Fisher’s Timeless Investment Philosophies,
Principles, and Questions . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Intriguing Statistics and Strategies . . . . . . . . . . . . . . . . . . . 18
Commonly Referred to Sayings of Warren Buffett . . . . . . .21
Notables and Quotables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Appendix A —
Berkshire’s Corporate Performance vs. the S&P 500 . . . . . . 28
Appendix B —
Berkshire Hathaway’s Publicly Traded Common
Stock Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Appendix C —
Berkshire Hathaway’s Acquisition Criteria . . . . . . . . . . . . . 31
Appendix D —
Berkshire Hathaway’s Subsidiary List . . . . . . . . . . . . . . . . . 32
Suggested Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
How to Build Wealth Like Warren Buffett 3
Introduction
Welcome to Robert Miles’ How to Build Wealth Like Warren Buffett: Principles and Practical Methods Used by the World’s Greatest Investor .
This audio/video pro- gram and the accompanying guidebook have been created to aid you in learning
more about the wise and abundant world of Warren Buffett, along with gaining a greater understanding of exactly what your investment principles and strategies are.
Warren’s uncompromising work ethic, combined with his shrewd investment strategies, have made him one of the richest and most respected men the world over.
Acclaimed author and Buffett expert Robert Miles brings to light Warren Buffett, the man, along with his simple yet highly effective business and investing principles.
You will be both inspired and motivated as Robert recounts the story of how Warren Buffett single-handedly became a self-made billionaire solely by investing in stocks and businesses that he believed in.
You will learn how a simple $100 investment that he made in 1957 grew into the billions that have made him the world’s second richest individual to date.
At a time when “get rich quick” money-making schemes are on the rise, it is both inspiring and re f reshing to gain the insights of a man who accumulated his wealth with good old-fashioned, long-term and time-proven value investment strategies.
To achieve the maximum benefits from this program, listen to each audio session at least twice, ideally three times.
Listening to the audio session several times allows it to sink into your subconscious mind as you make more and m o re discoveries each time that you listen.
Be sure to keep a paper and pen nearby as you are listening, and be pre p a red to stop the program when you
hear an idea or strategy that particularly appeals to you.
Think about that idea in connection with your situation, your work, your life-style, then pre p a re a
plan to act upon it in the days ahead.
Take the time to study the inform a t i o n p rovided in this Reference Guide and work through the various probing quest i o n n a i res within it.
Statistics about Mr. Buffett’s publicly traded investment firm Berkshire Hathaway [NYSE:BRKA] have been provided in the Appendix so that you may review in greater detail how he invests, and what he invests in.
You may wish to study them in order to clarify your own investment principles and strategies
through research and comparison.
How to Build Wealth Like Warren Buffett
Should you wish to take action on any of the insights that you have gained, we suggest that whenever possible you give yourself a deadline, and be committed to following through on that deadline.
Without implementing any of the action steps that you have mapped out for yourself, this program simply becomes an exercise in listening.
In order to gain the full benefits that this valuable program has to offer you, make the decision here and now to work through this program, act upon your insights and strategies, and achieve the kind of results in your life that you’ve never thought possible.
How to Build Wealth Like Warren Buffett 5
The Buffett CEO Assessment Quiz
Do You Have What It Takes to Report to Warren Buffett?
Take the following assessment quiz based on the book The Warren Buffett CEO:
Secrets from the Berkshire Hathaway Managers by Robert P. Miles and find out if
you have what it takes to report to “the best boss in the world,” Warren Buffett.
Circle your answer.
1. When do you plan to retire?
A.) I want a life after work and plan to retire before age 50.
B.) I like traditional mandatory retirement and want to spend time with my
family, so I will work to age 65.
C.) Like the Supreme Court Justices, I want a job for life.
2. If you had to choose between receiving $100 million and your business,
which would you choose?
A.) I would take the money and run.
B.) I love my business like a child and it isn’t for sale at any price.
C.) Given the choice I would take both. Give me a fair price for my business
and let me continue to run it the same way I have always run it.
3. How concentrated is your personal portfolio?
A.) I would never have all of my net worth in one company but would
broadly diversify across a wide range of equities.
B.) Some of my portfolio is in high-risk special situations but most is in
solid blue chip companies.
C.) I see no reason to diversify and have all of my net worth in one company.
How to Build Wealth Like Warren Buffett
4.Who are your heroes?
A.) I tend to look at sports, Hollywood, and media celebrities.
B.) Other business CEOs who have made it big.
C.) My boss and/or my mother and/or my father.
5. What type of industry do you prefer to work in?
A.) I prefer the new economy with the latest in technological innovations.
B.) My preference is a multinational conglomerate with several cutting-edge
divisions.
C.) Give me a boring old economy-style business that has a durable competi-
tive advantage and predictable profits.
6. What is your attitude toward corporate culture and synergy?
A.) I would love to merge my business and division into a larger enterprise.
There would be immediate benefits to eliminating duplication and creat-
ing buying cooperatives.
B.) Whenever you combine two businesses together you will find synergies.
C.) Best to leave good profitable businesses alone. Merge with no synergy
expectations.
7. What is the best use of corporate profits?
A.) Return profits to shareholders in the form of dividends.
B.) Expand the business with additional locations and/or buying competi-
tors.
C.) Assign the responsibility to one person to allocate capital in the best pos-
sible way.
How to Build Wealth Like Warren Buffett 7
8. If you had all or a substantial amount of your net worth in one publicly
traded stock:
A.) You would check on the price of the stock daily or even several times a
day.
B.) You would diversify and not have all of your net worth in one stock.
C.) You would occasionally check on the stock price, maybe once a week.
The price doesn’t really matter because you don’t intend to sell it anyway.
9. Best way to become a Buffett CEO:
A.) Do a good job for a competitor and be recruited after a nationwide
search.
B.) Belong to the right golf club and mingle in the right social circles.
C.) Be fortunate enough to be born into it or work most of your life for the
business and be promoted into it based on merit and loyalty.
10. Your business was founded:
A.) Recently, with a fabulous business model that takes advantage of new
technologies.
B.) Founded 30 years ago with a strong management team in place.
C.) Founded before 1967 and before Warren Buffett started managing
Berkshire Hathaway.
Answer Key:
“C” is the correct answer for every question.
How Did You Do?
1–5 correct answers: Keep your day job.
6–8 correct answers: Buffett CEO potential.
9–10 correct answers: Call Warren Buffett today.
How to Build Wealth Like Warren Buffett
Probing Questions to Assist You in Defining
Your Investment Strategies
Robert states that all investing starts with self-analysis.
He maintains that it is important to do the self-discovery to determine what kind of investor you are.
Read through the list below and fill out an in-depth description of yourself in relation to investing.
• Your investment expectations are:
• The time frame that you have to invest is:
• On a scale from 1 to 10 (with 10 high), your risk tolerance is:
• Your current life situation is (single, married, a parent, or retired):
• Do you need income or capital growth, maybe low taxes?
• Are you a risk taker? Conservative? An ethical investor? Contrarian? Just start-
ing?
• How much do you have to invest? Do you have a lump sum, an inheritance, a
little or a lot to lose?
• What is your personality in relation to investing? Do you get up early and run,
read all financial-related info and fly off to work, or do you sleep in, like to
spend time with your family, casually observe business, and prefer to look at
your investments annually?
• The most important thing to ask yourself is if you are a passive or an active
investor:
Creating Your Own Investment Philosophies
Robert suggests that you create an investment strategy and stick to it
through up times and down times in the market. Several Warren Buffett
modeled investing philosophies that he outlines are:
a. PUT THEM IN WRITING: There’s something about writing that helps crys-
tallize your thinking and acts as a guidepost during major market swings from
the inevitable greed to fear and vice versa. Mr. Market (a term used by Ben
Graham to define the market swings from greed to fear and back again) can only
be tamed with written beliefs. Investment principles help you with the right tem-
perament as well. Like teaching, in order to write you need to first comprehend.
And there’s no better teacher than experience.
b. READ ABOUT DEVELOPING A PHILOSOPHY: Second best is reading
about other successful investors, which is why there’s great interest in Warren
Buffett and Berkshire Hathaway. Phil Fisher’s book Common Stocks and
Uncommon Profits has an excellent section on developing an investment philoso-
phy.
c. MAKE IT PERSONAL: You can mimic someone else’s philosophy or develop
your own. Your best philosophy is the one you develop for yourself. While it is
wise to read and study other philosophies, it is generally not a good idea to copy
another’s beliefs word for word. The problem with imitation is that the imitator
doesn’t truly understand what he is copying. Original thought is always recom-
mended.
d. ORIGINS OF A PHILOSOPHY: First you have to have an interest in invest-
ing. It usually starts at a young age, and either you have more of an interest in
saving and investing or you have a more common interest in spending and con-
suming. Rarely do you see a saver become a spender or a consumer become an
investor. You can read all you want about investment philosophies, but nothing
beats real life experiences. It takes time, experience, and mistakes — a lot of
them to develop an investment philosophy.
Investing is an evolution. It’s a process that with a philosophy can bring great
financial rewards and peaceful sleep.
An investing philosophy requires certain principles in order to achieve success.
Investing is and always has been a combination of science and art, but also an
act of faith because it’s about the future, and by definition the future is
unknown. Faith is merely the belief in a positive future outcome. Worry and fear
are the opposite. Worry is faith in a negative future outcome. How many times
have you heard that past investment returns are no guarantee of future results?
So any investment belief system needs a philosophy. And many diverse invest-
ment philosophies can lead to similar results. But in my case you choose to
study the origins of successful investors to find out what you can learn about
their principles.
e. DECLINING MARKETS: Certain experiences shape the investor and his/her
philosophies. And nothing better can happen to an investor than to buy a stock
that declines. This decline will test your investment beliefs about this stock more
than any stock price increase. Rising markets will spawn more investment
geniuses than we have ever seen. Your measure as an investor is how your
philosophies hold up during turbulent times.
f. BACK TESTING DOESN’T WORK: Unfortunately the investment world is
full of Monday morning quarterbacks. Back testing just about any investment
philosophy isn’t a true test. Just about any fifth grader can look at the past and
weave a brilliant investment scenario. Warren suggests that unfortunately most
of us invest looking backwards or “like driving a car with the rearview mirror.”
Remember to invest looking in front of you, out the windshield.
g. MISTAKES: Explain your mistakes and how you have learned from them.
Detail how your investment mistakes have made you a better investor. Explain
how you have grown and evolved as an investor. It’s the admission of mistakes
and how you have picked yourself up from them that is the measure of the
investor, not your successes. Ninety-eight percent of us are ready to tell the
world about all of our genius moves in buying pieces of a business. It’s the rare
individual who talks about decisions that we thought were signs of genius but
were far from it. Great investors do post mortems. Explain how you thoroughly
analyzed your decision to buy a company and later changed your mind and sold
it. Tell about your get-rich-quick schemes that no one else has ever heard of or
tried. The best investment philosophy is born out of your mistakes. It becomes a
sign that you have learned from experience.
h. INDEPENDENT THOUGHT: A proper investment philosophy must prove
your ability to move against the grain and to think independently. All great
investors both professional and individual have a common characteristic of con-
trarian opinion. As soon as someone tells me they believe in a guru, even if they
say the guru is Mr. Buffett, they immediately red flag themselves as group
thinkers. Independent thinkers make no mention of gurus in their investment
philosophy.
i. PAT I E N C E : No investment belief can be proven in the short term. Phil Fisher
asked his clients to give him at least three years to prove himself. Too many of
us are unfit for investment decision making because of our short - t e rm nature .
If Fisher wanted three years from his clients for proper evaluation, he also gave
his investees (the stocks he owned) three years to prove their merit as well. Few
of us can demonstrate stock fidelity. Unfortunately most of us, including the
p rofessionals, simply rent stocks instead of owning them indefinitely like
Wa rren Buffett does.
j. COMPARISONS: All philosophies should be compared against those of others
who have a well-developed and written set of them. The best comparison is
against those who have used their beliefs to beat the market over long periods of
time. Your results should be compared to how much value you have added to
the S&P index over time. If your investment beliefs don’t add value then you
should reconsider your written philosophy.
k. EXCEPTIONS: Fisher proved there are exceptions to every rule and he did
admit to acting against his written investment principles. He had a three-year
rule. He asked his clients to give him the same amount of time to prove his
investment talents and he believed in treating his investees the same.
Occasionally, not just once, he broke his three-year rule and sold a company
before three years.
l. MARKET TIMING AND EFFICIENT MARKET THEORISTS: Some invest-
ment beliefs work well in the short term and are even taught at major universi-
ties. Look at all the major media sponsors of investing games that involve short-
term trading. Even The Wall Street Journal is guilty of sponsoring professionals
against the dartboard over a ridiculous short-term period. Like most financial
pundits and opinion makers, these games promote that which runs contrary to
my written investment philosophies.
Your written investment philosophy should speak to these two issues. Do you
believe in market timing? If not, do you have a minimum holding period like
Fisher (three years) or like Buffett (ten years)? Secondly, do your beliefs address
efficient markets? Do you believe opportunities exist because Mr. Market doesn’t
properly value a stock that you have researched and understand its intrinsic
value? What do your principles say about an anticipation of a declining market?
Do you sell or stay the course?
m. DO A FEW THINGS WELL: Nobody can be good at everything and no
investor can properly follow more than a few stocks. Warren Buffett’s mentor
Ben Graham called this your “circle of competence.” Phil Fisher calls this “doing
a few things well.” Make sure your principles define your competence.
n. THE MOST IMPORTANT THING: Whatever your investment philosophy,
whatever your beliefs, have a written set of investment principles. And remem-
ber what Mr. Buffett says about principles. They are principles because they
don’t change with the latest fad.
Based on the suggestions above, take some time to write out your investment
philosophies in the space provided below.
Lou Simpson’s Five Investment Principles
1. Think independently. “We try to be skeptical of conventional wisdom,” he
says, “and try to avoid the waves of irrational behavior and emotion that peri-
odically engulf Wall Street. We don’t ignore unpopular companies. On the
contrary, such situations often present the greatest opportunities.”
2. Invest in high-return businesses that are run for the shareholders. “Over the
long run,” he explains, “appreciation in share prices is most directly related to
the return the company earns on its shareholders’ investment. Cash flow,
which is more difficult to manipulate than reported earnings, is a useful addi-
tional yardstick. We ask the following questions in evaluating management:
Does management have a substantial stake in the stock of the company? Is
management straightforward in dealings with the owners? Is management
willing to divest unprofitable operations? Does management use excess cash
to repurchase shares? The last may be the most important. Managers who run
a profitable business often use excess cash to expand into less profitable
endeavors. Repurchase of shares is in many cases a much more advantageous
use of surplus resources.”
3. Pay only a reasonable price, even for an excellent business. “We try to be dis-
ciplined in the price we pay for ownership even in a demonstrably superior
business. Even the world’s greatest business is not a good investment,” he con-
cludes, “if the price is too high. The ratio of price to earnings and its inverse,
the earnings yield, are useful gauges in valuing a company, as is the ratio of
price to free cash flow. A helpful comparison is the earnings yield of a com-
pany versus the return on a risk-free long-term United States Government
obligation.”
4. Invest for the long-term. “Attempting to guess short-term swings in individual
stocks, the stock market, or the economy,” he argues, “is not likely to produce
consistently good results. Short-term developments are too unpredictable. On
the other hand, shares of quality companies run for the shareholders stand an
excellent chance of providing above-average returns to investors over the long
term. Furthermore, moving in and out of stocks frequently has two major dis-
advantages that will substantially diminish results: transaction costs and
taxes. Capital will grow more rapidly if earnings compound with as few inter-
ruptions for commissions and tax bites as possible.”
5. Do not diversify excessively. “An investor is not likely to obtain superior
results by buying a broad cross-section of the market,” he believes. “The more
diversification, the more performance is likely to be average, at best. We con-
centrate our holdings in a few companies that meet our investment criteria.
Good investment ideas — that is, companies that meet our criteria — are dif-
ficult to find. When we think we have found one, we make a large commit-
ment. The five largest holdings at GEICO account for more than 50% of the
stock portfolio.”
Source: The Warren Buffett CEO by Robert P. Miles
Phil Fisher’s Timeless Investment
Philosophies, Principles and Questions
Phil Fisher’s Eight Investment Philosophies
1. Buy companies that have disciplined plans for achieving dramatic long-range
growth in profits and that have inherent qualities making it difficult for new-
comers to share in that growth.
2. Buy companies when they are out of favor.
3. Hold a stock until either (a) there has been a fundamental change in its
nature (i.e., weak management changes) or (b) it has grown to a point where
it no longer will be growing faster than the economy as a whole.
4. De-emphasize the importance of dividends.
5. Making some mistakes is an inherent cost of investing. Taking small profits in
good investments and letting losses grow in bad ones is a sign of abominable
investment judgment.
6. There are a relatively small number of truly outstanding companies. Funds
should be concentrated in the most desirable opportunities. Any holding of
over twenty different stocks is a sign of financial incompetence.
7. Neither accept blindly whatever may be the dominant opinion in the financial
community at the moment nor reject the prevailing view just to be contrary
for the sake of being contrary.
8. Success greatly depends on a combination of hard work, intelligence, and
honesty.
Phil Fisher’s 15 Questions to Ask Yourself When Buying a Business
1. Does the company have products or services with sufficient market potential
to make possible a sizable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products
or processes that will still further increase total sales potentials when the
growth potentials of currently attractive product lines have largely been
exploited?
3. How effective are the company’s research and development efforts in relation
to its size?
4. Does the company have an above average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting methods?
11. Are there other aspects of the business, somewhat peculiar to the industry
involved, that will give the investor important clues as to how outstanding
the company may be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regards to
profits?
13. In the foreseeable future, will the growth of the company require sufficient
equity financing so that the large number of shares then outstanding will
largely cancel the existing benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things
are going well but “clam up” when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?
Source: Common Stocks and Uncommon Profits by Phillip Fisher
Intriguing Statistics and Strategies
Buffett’s conglomerate Berkshire Hathaway, publicly traded on the NYSE under
the symbol BRKA, is now the 25th largest employer with over 140,000 employ-
ees. It is the largest private employer in the state of Georgia. His NetJets sub-
sidiary can be considered the sixth largest private airline, based on number of
corporate jets under management. All of this and no large headquarter staff, no
options, no funny accounting, no yachts, no Rolls Royces, no mansions or typi-
cal trappings of wealth.
Warren has the longest CEO tenure of 37 years and counting. To give you a per-
spective of Warren’s investment record, consider in the last century the DJIA
went from 66 to 11,000. The NASDAQ born in 1971 went from 100 to 2000.
Beginning in 1965 when Warren bought control of Berkshire Hathaway, it has
added one zero to its stock price every decade — from 7 to 70 to 700 to 7,000 to
70,000. Now it’s the highest price of any stock on any stock exchange in the
world and he’s proud of it, following his passion and doing exactly what he was
born to do. No retirement plans, except, he jokes, five to ten years after his
death. Asking him to name a replacement and retire would be like asking
Picasso to stop painting. Berkshire is his masterpiece. He owns outright over
100 wholly owned businesses — from Dairy Queen to World Book Encyclopedia
to GEICO auto insurance. He also owns over $30 billion in stocks, including
Coca-Cola, American Express and Gillette.
___________ || ___________
The three qualities most admired by Warren Buffett are intellect, character, and
temperament.
___________ || ___________
1. Concentrate your investments in world-class companies managed by strong
management.
2. Limit yourself to companies you truly understand; 5–10 is good, more than 20
is asking for trouble.
3. Select the very best and concentrate your investment.
___________ || ___________
Robert sites just some of the traits that he values in Warren Buffett:
• Integrity
• Maintaining an excellent reputation
• Intelligence
• Discipline
• Respect
• Humility
• Humor
• Denial of instant gratification
• Rewarding others where due
• Frugality
• Choosing the right partner
• Maintaining good health
• Remaining debtless
• Simple-living
• Giving your children enough without providing too much
• Disregarding old age
___________ || ___________
obert illustrates the many categories of investor types as being:
• Faddists [want to know what the latest trend is]
• Fortune tellers [do what their psychic suggests, charts, or read tea leaves]
• Delegators [turning their investments over to someone else]
• Validators [have to look over every decision that is made and approve it]
• Technicians [follow the technical indicators]
• Contrarians [do the opposite of the crowd]
• Guru followers [believe someone wiser than them can guide them to financial
heaven]
• Mountain climbers [like to get up above and look down at the macro econom-
ics of what is going on in the markets, they concern themselves with what
interest rates are doing and whether it is a bear or bull market]
• Random walkers [whatever is known about a stock is already reflected in the
price]
• Lemmings [follow the crowd]
• Valuers [dig into the business to discover what it is really worth to determine if
they would like to be an owner]
Commonly Referred to Sayings of
Warren Buffett
• The critical investment factor is determining the intrinsic value of a business
and paying a fair or bargain price.
• Never invest in a business you cannot understand.
• Risk can be greatly reduced by concentrating on only a few holdings.
• Stop trying to predict the direction of the stock market, the economy, interest
rates, or elections.
• Buy companies with strong histories of profitability and with a dominant busi-
ness franchise.
• You are neither right nor wrong because the crowd disagrees with you. You are
right because your data and reasoning are right.
• Be fearful when others are greedy and greedy only when others are fearful.
• Unless you can watch your stock holding decline by 50% without becoming
panic-stricken, you should not be in the stock market.
• It is optimism that is the enemy of the rational buyer.
• As far as you are concerned, the stock market does not exist. Ignore it.
• The ability to say “no” is a tremendous advantage for an investor.
• Much success can be attributed to inactivity. Most investors cannot resist the
temptation to constantly buy and sell.
• Lethargy, bordering on sloth, should remain the cornerstone of an
investment style.
• An investor should act as though he had a lifetime decision card with just
twenty punches on it.
• Wild swings in share prices have more to do with the “lemming-like”
behavior of institutional investors than with the aggregate re t u rns of the com-
pany they own.
• As a group, lemmings have a rotten image, but no individual lemming has ever
received bad press.
• An investor needs to do very few things right as long as he or she avoids
big mistakes.
“Turn-arounds” seldom turn.
• Is management rational?
• Is management candid with the shareholders?
• Does management resist the institutional imperative?
• Do not take yearly results too seriously. Instead, focus on four- or
five-year averages.
• Focus on return on equity, not earnings per share.
• Calculate “owner earnings” to get a true reflection of value.
• Look for companies with high profit margins.
• Growth and value investing are joined at the hip.
• The advice “you never go broke taking a profit” is foolish.
• It is more important to say “no” to an opportunity than to say “yes.”
• Always invest for the long term.
• Does the business have favorable long-term prospects?
• It is not necessary to do extraordinary things to get extraordinary results.
• Remember that the stock market is manic-depressive.
• Buy a business, don’t rent stocks.
• Does the business have a consistent operating history?
• Wide diversification is only required when investors do not understand what
they are doing.
• An investor should ordinarily hold a small piece of an outstanding business
with the same tenacity that an owner would exhibit if he owned all of that
business.
(Extracted from various books on Buffett including Buffett: The Making of
an American Capitalist; Warren Buffett Speaks; Buffettology; The Warren
Buffett Way; Of Permanent Value; and Thoughts of Chairman Buffett: Thirty
Years of Unconventional Wisdom from the Sage of Omaha)
Notables and Quotables
English philosopher James Allen said, “Circumstances define you and you
attract not what you want but rather what you are.”
R e g a rding the diff e rence between being rich and being wealthy, Stephen Swid
w rote, “Being rich is having money. Being wealthy is having time.”
Proverbs states, “He that maketh haste to be rich shall not be innocent.”
There are no ethical shortcuts to accumulating wealth like Warren Buffett has.
There are no specific, latest, or hot stock picks. Quoting from Money magazine
in 1987, “There is no reason in the world you should expect some broker to be
able to tell you whether you can make money on index futures or options or
some stock in two months. If he knew how to do that, he wouldn’t be talking to
investors. He’d have retired long ago.”
A lady stood up at Berkshire’s annual meeting and said, “Mr. Buffett I only have
one b share.” And he interrupted her and said, “That’s okay lady, between you
and me we own half the company, what is your question?”
Warren writes, “Sometimes traditional wisdom can be long on tradition and
short on wisdom.” His principles are long on wisdom and short on tradition.
Think independently and get no satisfaction with following the crowd. In fact, to
build Buffett wealth you must operate differently from everyone else. As Warren
is most often quoted, “Be fearful when others are greedy and greedy when oth-
ers are fearful.”
Ralph Waldo Emerson said, “Man was born to be rich, or grow rich by use of his
faculties, by the union of thought with nature. Property is an intellectual pro-
duction. The game requires coolness, right reasoning, promptness, and patience
in the players.”
Active investors need to read, research, and understand before you act. You need
to be an intelligent investor not an emotional one. Professor Graham said, “In
the short run the stock market is a voting machine, but in the long run it is a
weighing machine.” Meaning short-term stock movements are determined by
popularity or lack of it, but in the long run it’s all about the earning or weight of
the business you own.
One of Warren Buffett’s famous quotes is, “Price is what you pay, value is what
you get.”
When he was asked how he learned so much about stocks, Warren said that he
“went to the library and started with the A’s and read every public company’s
annual report.” Ask yourself how often you follow financial news and whether or
not you enjoy being an active investor or if you prefer to be a passive investor.
How do you define risk? Many think that you can reduce risk by diversifying
and buying two of everything. Warren calls this the “Noah’s ark investor.” If you
buy two of everything you soon end up with a zoo for a portfolio. Risk as
defined by Warren is “not knowing what you are doing.” According to Peter
Lynch, most people diversify, or “diworsify,” out of ignorance. If you know how
to value businesses and buy them at attractive prices then you want to buy more
of what you own, not more of something else less attractive.
Fisher wrote, “Sustained success requires skill and consistent application of
sound principles.”
Warren’s management style can be summarized in four words, “Hire well man-
age little.”
“Warren Buffett is a value investor and a values manager.” — Robert Miles
Famous economist John Maynard Keynes stated, “One’s knowledge and experi-
ence are definitely limited and there are seldom more than two or three enter-
prises at any given time in which I personally feel myself entitled to put
full confidence.”
Charlie Munger said, “In the United States, a person or institution with almost
all wealth invested, long term, in just three fine domestic corporations
is securely rich.”
“Your goal as an investor should simply be to purchase, at a rational price, a
part interest in an easily understandable business whose earnings are virtually
certain to be materially higher five, ten and twenty years from now,” wrote
Warren Buffett in his 1996 letter to investors.
Fisher said, “Taking small profits in good investments, and letting losses grow in
bad ones is a sign of abominable investment judgment. A profit should never be
taken just for the satisfaction of taking it. Contrary to standard dogma, there are
a relatively small number of truly outstanding businesses.”
Warren Buffett states, “With each investment you make, you should have the
courage and the conviction to place at least ten percent of your net worth in
that stock.”
“There are two mistakes one can make along the road to truth — not going all
the way and not starting.” — Buddha
“Never do anything in business that you wouldn’t want published on the front
page of your local newspaper. It takes 20 years to build a reputation and five
minutes to destroy it. If you think about that, you might do things differently.”
— Warren Buffett
“A man of genius makes no mistakes. His errors are volitional and are the por-
tals of discovery.” — James Joyce
Pearl Bailey once said, “I have been poor and I have been rich. I prefer rich.”
“The higher you go up, the more mistakes you are allowed. Right at the top, if
you make enough of them, it’s considered to be your style,” said famed dancer
Fred Astaire.
Albert Einstein stated, “Anyone who has never made a mistake has never tried
anything new.”
“An investor needs to do very few things right as long as he or she avoids big
mistakes,” wrote Warren Buffett.
In his 1997 letter, Warren Buffett wrote about discipline, “Under these circum-
stances [unreasonable stock valuations], we try to exert a Ted Williams kind of
discipline. In his book The Science of Hitting, Ted explains that he carved the
strike zone into 77 cells, each the size of a baseball. Swinging only at balls in his
‘best’ cell, he knew, would allow him to bat 400; reaching for balls in his ‘worst’
spot, the low outside corner of the strike zone, would reduce him to 230. In
other words, waiting for the fat pitch would mean a trip to the Hall of Fame;
swinging indiscriminately would mean a ticket to the minors.”
“Only two times in a man’s life when he should not speculate: when he can’t
afford it, and when he can,” wrote Mark Twain.
James Allen said, “Circumstance does not make the man, it reveals him to him-
self. Men do not attract that which we want, but that which they are.”
“Character is power,” said John Howe. “It makes friends, draws patronage and
support, and opens the way to wealth, honor, and happiness.”
“Men of genius are admired, men of wealth are envied, men of power are feared;
but only men of character are trusted.” — Author unknown
Mahatma Gandhi stated, “There are seven sins in the world: pleasure without
conscience, knowledge without character, worship without sacrifice, science
without humanity, politics without principle, commerce without morality, and
wealth without work.”
“To live content with small means,” observed William Henry Channing, “to seek
elegance rather than luxury, and refinement rather than fashion; to be worthy,
not respectable, and wealthy, not rich; to study hard, think quietly, talk gently,
act frankly; to listen to stars and birds, to babes and sages, with open heart; to
bear all cheerfully, do all bravely, await occasions, hurry never. In a word, to let
the spiritual, unbidden, and unconscious grow up through the common. This is
to be my symphony.”
Robert Miles highly recommends that you read Warren Buffett’s letters to share-
holders online at www.berkshirehathaway.com.
Appendix A
Berkshire’s Corporate Performance vs. the S&P 500
Annual Percentage Change
in Per-Share in S&P 500
Book Value of with Dividends Relative
Berkshire Included Results
Year (1) (2) (1)-(2)
1965 23.8 10.0 13.8
1966 20.3 (11.7) 32.0
1967 11.0 30.9 (19.9)
1968 19.0 11.0 8.0
1969 16.2 (8.4) 24.6
1970 12.0 3.9 8.1
1971 16.4 14.6 1.8
1972 21.7 18.9 2.8
1973 4.7 (14.8) 19.5
1974 5.5 (26.4) 31.9
1975 21.9 37.2 (15.3)
1976 59.3 23.6 35.7
1977 31.9 (7.4) 39.3
1978 24.0 6.4 17.6
1979 35.7 18.2 17.5
1980 19.3 32.3 (13.0)
1981 31.4 (5.0) 36.4
1982 40.0 21.4 18.6
1983 32.3 22.4 9.9
1984 13.6 6.1 7.5
1985 48.2 31.6 16.6
1986 26.1 18.6 7.5
1987 19.5 5.1 14.4
1988 20.1 16.6 3.5
1989 44.4 31.7 12.7
1990 7.4 (3.1) 10.5
1991 39.6 30.5 9.1
1992 20.3 7.6 12.7
1993 14.3 10.1 4.2
1994 13.9 1.3 12.6
1995 43.1 37.6 5.5
1996 31.8 23.0 8.8
1997 34.1 33.4 .7
1998 48.3 28.6 19.7
1999 .5 21.0 (20.5)
2000 6.5 (9.1) 15.6
2001 (6.2) (11.9) 5.7
Average Annual Gain
1965-2001 22.6% 11.0% 11.6%
Overall Gain
1964-2001 194,936% 4,742% 190,194%
Notes:
The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax.
By ranking the previous chart by the last column you will notice that Warren
Buffett and Berkshire Hathaway perform best during bear or declining markets.
Source: www.berkshirehathaway.com
Berkshire Hathaway’s Publicly Traded Common Stock Portfolio
12/31/01
Shares Company Cost Market
(dollars in millions)
151,610,700 American Express Company $ 1,470 $ 5,410
200,000,000 The Coca-Cola Company 1,299 9,430
96,000,000 The Gillette Company 600 3,206
15,999,200 H&R Block, Inc. 255 715
24,000,000 Moody’s Corporation 499 957
1,727,765 The Washington Post Company 11 916
53,265,080 Wells Fargo & Company 306 2,315
Others 4,103 5,726
Total Common Stocks $8,543 $28,675
===== =====
Source: 101 Reasons to Own the World’s Greatest Investment:
Warren Buffett’s Berkshire Hathaway written by Robert P. Miles
and published by John Wiley and Sons.
Appendix C
Berkshire Hathaway’s Acquisition Criteria
We are eager to hear from principals or their representatives about businesses
that meet all of the following criteria:
1. Large purchases (at least $50 million of before-tax earnings).
2. Demonstrated consistent earning power (future projections are of no interest
to us, nor are “turnaround” situations).
3. Businesses earning good returns on equity while employing little or no debt.
4. Management in place (we can’t supply it).
5. Simple businesses (if there’s lots of technology, we won’t understand it),
6. An offering price (we don’t want to waste our time or that of the seller by talk-
ing, even preliminarily, about a transaction when price is unknown).
The larger the company, the greater will be our interest: We would like to make
an acquisition in the $5–20 billion range. We are not interested, however, in
receiving suggestions about purchases we might make in the general stock market.
We will not engage in unfriendly takeovers. We can promise complete confiden-
tiality and a very fast answer — customarily within five minutes — as to
whether we’re interested. We prefer to buy for cash, but will consider issuing
stock when we receive as much in intrinsic business value as we give.
Charlie and I frequently get approached about acquisitions that don’t come close
to meeting our tests: We’ve found that if you advertise an interest in buying col-
lies, a lot of people will call hoping to sell you their cocker spaniels. A line from
a country song expresses our feeling about new ventures, turnarounds, or auc-
tion-like sales: “When the phone don’t ring, you’ll know it’s me.”
Source: www.berkshirehathaway.com
Berkshire Hathaway’s Subsidiary Listing
Acme Building Brands Borsheim’s Jewelry
2821 West 7th Street 120 Regency Parkway
Fort Worth, TX 76107-2219 Omaha, NE 68114
(817) 390-2409 (402) 391-0400
www.brick.com www.borsheims.com
Ben Bridge Corporation The Buffalo News
2901 Third Avenue One News Plaza
Seattle, WA 98121 Buffalo, NY 14240
(206) 448-8800 (716) 849-3434
www.benbridge.com www.buffnews.com
Benjamin Moore CTB Inc.
51 Chestnut Ridge Road 410 North Higbee
Montvale, NJ 07645 Milford, IN 46542
(800) 344-0400 (574) 658-4191
www.benjaminmoore.com www.ctbinc.com
Berkshire Hathaway Credit Corp. Central States Indemnity Co.
1440 Kiewit Plaza 1212 No. 96 Street
Omaha, NE 68131 Omaha, NE 68114-2274
(402) 346-1400 (402) 397-1111
www.csi-omaha.com
Berkshire Hathaway Homestate Co.
9290 West Dodge Road CORT Business Services Corp.
Omaha, NE 68114 11250 Waples Mill Road
(402) 393-7255 Fairfax, VA 22030
www.bh-hc.com (703) 968-8500
www.cort1.com
Berkshire Hathaway Reinsurance
100 First Stamford Place Dairy Queen
Stamford, CT 06902-6745 7505 Metro Boulevard
(203) 363-5200 Edina, MN 55439
www.brkdirect.com (952) 830-0200
www.dairyqueen.com
Fechheimer Brothers Co. Helzberg’s Diamond Shops
4545 Malsbary Road 1825 Swift
Cincinnati, OH 45242 North Kansas City, MO 64116-3671
(513) 793-5400 (816) 842-7780
www.fechheimer.com www.helzberg.com
FlightSafety International Inc. Johns Manville Corporation
La Guardia Airport 717 17th Street
Flushing, NY 11371-1061 Denver, CO 80202
(718) 565-4100 (303) 978-2000
www.flightsafety.com www.jm.com
Fruit of the Loom Jordan’s Furniture
2 Fruit of the Loom Drive 100 Stockwell Drive
Bowling Green, KY 42103 Avon, MA 02322
(270) 393-8269 (508) 580-4600
www.fruit.com www.jordansfurniture.com
Garanimals Justin Brands Inc.
350 5th Avenue 610 West Daggett
New York, NY 10118 Fort Worth, TX 76104
(800) 759-4219 (800) 358-7846
www.garanimals.com www.justinbrands.com
GEICO Kansas Bankers Surety Company
One GEICO Plaza 1220 S.W. Executive Drive
Washington, DC 20076-0001 Topeka, KS 66615
(301) 986-3000 (785) 228-0000
www.geico.com
Larson-Juhl
General Cologne Re Corporation 3900 Steve Reynolds Boulevard
695 East Main Street Norcross, GA 30093
Stamford, CT 06904-2351 (770) 279-5200
(203) 328-5000 www.larsonjuhl.com
www.gcr.com
MidAmerican Energy Holdings
H. H. Brown Shoe Co., Inc. 666 Grand Avenue
124 West Putnam Avenue Des Moines, IA 50390
Greenwich, CT 06830 (515) 242-4300
(203) 661-2424 www.midamerican.com
www.hhbrown.com
www.dextershoe.com
MiTek Inc. Scott Fetzer Companies
14515 North Outer Forty Drive 28800 Clemens Road
Chesterfield, MO 63017-5746 Westlake, OH 44145-1197
(314) 434-1200 (440) 892-3000
www.mitekinc.com www.carefreecolorado.com
www.chpower.com
National Indemnity Co. www.kirby.com
3024 Harney Street www.quikut.com
Omaha, NE 68131 www.waynepumps.com www.world-
(402) 536-3000 book.com
www.nationalindemnity.com
See’s Candies, Inc.
Nebraska Furniture Mart 210 El Camino Real
700 South 72nd Street South San Francisco, CA 94080
Omaha, NE 68114 (650) 761-2490
(402) 397-6100 www.sees.com
www.nfm.com
Shaw Industries
NetJets 616 E. Walnut Avenue
581 Main Street Dalton, GA 30720
Woodbridge, NJ 07095 (706) 278-3812
(732) 326-3700 www.shawinc.com
www.netjets.com
Star Furniture
The Pampered Chef 16666 Barker Springs Road
One Pampered Chef Lane Houston, TX 77218
Addison, IL 60101-5630 (281) 492-6661
(800)266-5562 www.starfurniture.com
www.pamperedchef.com
United States Liability Insurance
Precision Steel Warehouse 190 South Warner Road
3500 North Wolf Road Wayne, PA 19087
Franklin Park, IL 60131 (610) 688-2535
(847) 455-7000 www.usli.com
www.precisionsteel.com
Wesco Financial Corp.
R. C. Willey Home Furnishings 301 East Colorado Boulevard
2301 South 300 West Pasadena, CA 91101-1901
Salt Lake City, UT 84115 (626) 585-6700
(801) 461-3900
www.shoprcwilley.com XTRA Corporation
200 Nyala Farms Road
Westport, CT 06880
(203) 221-1005
www.xtracorp.com
Suggested Reading:
101 Reasons to Own the World’s Greatest Investment:
Warren Buffett’s Berkshire Hathaway
by Robert P. Miles
The Warren Buffett CEO:
Secrets of the Berkshire Hathaway Managers
by Robert P. Miles
The Intelligent Investor
by Benjamin Graham
Of Permanent Value: The Story of Warren Buffett
by Andrew Kilpatrick
Buffett: The Making of an American Capitalist
by Roger Lowenstein
The Essays of Warren Buffett: Lessons for Corporate America
by Warren Buffett
Common Stocks and Uncommon Profits and Other Writings
by Philip A. Fisher
Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire
Charlie Munger
by Janet Lowe
Warren Buffett Speaks: Wit and Wisdom from the World’s Greatest Investor
by Janet Lowe
