Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett the World's Most Famous Investor

Product Information

Graham was an absolute pioneer in the field of value investing, and Warren Buffett soaked up all of his knowledge and started applying this strategy himself. At least, until Buffett's brilliant business partner Charlie Munger convinced him that it is more important to buy a good business than a cheap business.

I had also read by then a couple of other books from Mary Buffett (The Oracle’s ex-daughter in law, his son’s Peter ex-wife). She wrote several. This one will remind you, that when buying great businesses, it’s all about having a durable competitive advantage, a long product life ahead, with little change, little disruption probability, little capex requirement, so in other words tons of free cash flow. If you can buy this business when the price is fair or even better, when it’s cheap, then you never need to sell. But the book reveals even more tactics which hardly any other book about his strategy seems to cover: the importance of OPM, Other People's Money. Without some predictability of future earnings, any calculation of a future value is mere speculation, and speculation is an invitation to folly." Buffettology I have to say, Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay.Timeless investing strategies for any economy—in this step-by-step guide, you will learn the formula Warren Buffet used to succeed. Companies that have consumer monopolies have the economic power to pull themselves out of most bad news situations. Keith Ashworth-Lord: Very rarely. I mean, our portfolio turnover currently, if you exclude where we've had to sell things, say, for meeting redemptions or whatever, it's currently 7.5%, and that's high by historic standards. So no, we don't chop and change the fund. Like Buffett, our ideal holding period is forever. Kyle Caldwell, collectives editor at interactive investor: Hello and welcome to our latest Insider Interview . Today in the studio I have with me Keith Ashworth-Lord, fund manager of the CFP SDL UK Buffettology fund. Keith, thanks for coming in today. To be able to determine your rate of return, earnings and profitability should not only be above-average, but also predictable .

HMRC believes that from April 2013 rebates of annual charges (such as loyalty bonuses) paid on funds held in nominee accounts, such as our Fund & Share Account, should be subject to income tax. Loyalty bonuses paid on funds in ISAs and SIPPs are unaffected, and they remain tax-free. In a Forbes article, which the book quotes, Charlie Munger summarized Berkshire Hathaway's strategy as follows: If you are looking for some ground-breaking Buffett investment revelation in this book, you'll be disappointed. But if you follow Warren Buffett, then you know that very little of his investment philosophy is truly ground-breaking, but that's the point. It's simple, but difficult to apply. Keith Ashworth-Lord, fund manager of the CFP SDL UK Buffettology fund: Thanks for inviting me, Kyle.

Asset Class Breakdown

The main author – Mary Buffett is the former spouse of one of Warren Buffett’s sons. Nothing like making a little bread off the ex-father-in-law’s name…

But more important than the return on sales is the return on equity. We look very closely at that. We want to see a high return on equity, both average equity and also marginal equity, the latest incrementals. The average for the fund is currently 28.1% return on equity, so we really are high. And then the other thing that we're very keen on is cash conversion. We like companies that convert at least 80% of their accounting earnings into free cash measured over a five-year moving average. And again, we have that within the fund. To figure this out, you'll need to estimate how much a company should realistically be worth five years from now, and such an estimate is only possible if a company has consistent earnings. Keith Ashworth-Lord: Yes, it's a very disciplined process. We start off looking for businesses with an economic moat, which effectively means they've got barriers to entry and they've got pricing power. And the way we go about it is we analyse the growth potential of the companies in their markets, the growth potential of the markets themselves.T or F Mutual fund managers are short-term motivated because they market their products to an investment public that is extremely short-sighted. Any administrative or dealing enquiries about the Fund should be directed to the ACD’s appointed registrar on 0330 123 3739 (UK) or +44 (0)20 3975 1021 (international). In some cases the ongoing savings are provided by our loyalty bonus. Loyalty bonuses are tax-free in an ISA or SIPP. However, they may be It is not difficult to see why, because retained earnings is the money that a company can reinvest into the company for future growth, and the return on equity determines to a large extend the extra income that will be generated from these investments. So the higher the retained earnings and the higher the return on equity, the faster the intrinsic value of a company will grow over time.

Kyle Caldwell: Could you give a couple of examples of companies that you already hold that you've been topping up? If you are a beginner that’s a great book but if you have read quite a bit already on value investing like I did, then that’s the usual stuff that you already know. Nevertheless, this book had some impact on me. Since it was written in 1999, already 18 years ago, it made me realize that on the topic of value investing, everything has already been written many times over and since many years already. Learn how to approach investing the way Buffett does, based on the authors' firsthand knowledge of the secrets that have made Buffett the world's second wealthiest man And the one that we've got a good opportunity with, at long last, was Fevertree Drinks (LSE:FEVR). And that, you would have thought, should have gone into Buffettology, given the size of it. The reason we put it into Free Spirit and not Buffettology, was that Buffettology already owns Diageo (LSE:DGE), which is its sort of premium-brand business, and it also owns Barr (A G) (LSE:BAG), in a more sort-of general area so, we thought, well, Fever-Tree will go more naturally into Free Spirit. It doesn't have that exposure. So that's why it went in there. But in terms of Buffettology, as I say, the only thing that we've really done is and it's been very limited, is just top up one or two. We haven't put any new names, as they call it, into the portfolio.Warren Buffett does not calculate the intrinsic value and then buys at half that price. Instead, he calculates the Expected Annual Compounding Rate of Return , compares it with other available investments, and buys the best one. Notice that Buffett and Munger prefer companies which do not pay a dividend. This is because dividends lower retained earnings and therefore limit future growth. A company should only pay a dividend, according to the authors, if it has no better way of allocating the money, for example if a company has grown to the size of Apple (AAPL) and therefore has limited room for growth left. Excellent businesses are often industry leaders and tend to have low debt levels, large cash flows, a strong brand name, low maintenance & running costs, high quality products & services, an increasing book value, strong earnings, shareholder-friendly management, and a consumer monopoly. If loyalty bonuses are taxable then the value of our ongoing saving to you could be reduced, depending on the rate of tax you pay. The below table gives an indication of how this may affect you.