Several short trips have sabotaged my efforts at updating the blog. At the end of April I ventured to Omaha NE. The trip served a dual purpose, to attend my daughter's Army ROTC annual awards banquet and to make my first appearance at the Berkshire Hathaway annual meeting. For those of you unfamiliar, Berkshire Hathaway's Chairman is Warren Buffett. Buffett, as you know, is concerned the greatest investor in the world. His 50 plus year track record of allocating capital to various private and publicly traded companies is unmatched and most likely never will be replicated. Now before we put Mr. Buffett on too big of a pedestal, his record in terms of compounded annual returns, while outstanding is not a one time outlier. There are a handful of other "Superinvestors" with track records nearly as good. They include, Walter Schloss, Bill Ruane, and Tom Knapp. What makes this an interesting group is that these four investment managers did not come to be by pure randomness. All four (including Buffett) took an investment class back in the 50's taught by the legendary Ben Graham. Graham is considered the pioneer of "value investing" and the first to apply strict quantitative analysis in selecting securities. He is the author of what most consider two of the greatest books ever written on investing. The "Intelligent Investor" is considered the bible for value investors and Buffett considers it the greatest book ever written on the subject. The book is still in print is currently being updated for the next edition. It still sells thousands of copies a year. Any investor who is buying and selling securities for themselves or others that has not read and internalized this book should not be buying and selling securities. Graham's other classic is called "Security Analysis" which is a much more academically based step by step explanation of Graham's methodologies. It is not for the weak kneed! The point of all this is that the greatest investors of the last 50 years have achieved these track records essentially following the same methodologies, with slight individual variations, that have been public knowledge for about 60 years.
I won't rehash the highlights of the meeting. If you are interested, simply google some variation of Berkshire annual meeting and you will find a full recap. The bigger "message" and takeaway from any interaction with Buffett, his meeting, his writings or video archives on the internet is the very simple "guidelines" or investment principles that guide his decision making and how radically different they are from what Wall Street or the media inundates investors on a daily basis. A few examples:
1. Buffett pays no attention to the stock market.
2. Price is the most important factor in purchasing or selling a security.
Most investor mistakes result from some kind of deviation from the the two principles above. To value investors, the market is irrelevant. It's only purpose is to provide a quote for you to act on. Whether the market is up, down, or sideways, tomorrow, next year, or 5 years from now does not matter. It is simply noise to tempt the investor to make a mistake. Price is the bedrock of value investing. The entire desire of the value investor is to seek out assets trading or being quoted at below their intrinsic value. Of course, one must have an idea of what constitutes a security's intrinsic value. My guess is that if you asked the average investor what any stock he or she owns is worth, they have zero idea. In fact, many popular stock trading methods are based on purchasing something with the hopes of selling it at a higher prices with no regard to underlying value.
