I have nothing but utmost respect for Warren Buffett, the only man who became the world’s wealthiest by picking stocks.
My fondness for Buffett has its roots in a chance email forwarded by a friend in 2006, which contained link to one of his letters to shareholders. Till then, I had known Buffett as a successful investor, but never bothered to read the philosophy that made him an investing great.
Anyways, as soon as I finished reading this letter my friend sent me, I was hooked! The hook was so strong that I printed every single one of Buffett’s annual letters to shareholders of Berkshire Hathaway (and also his Partnership letters) and read them page by page.
In his recent interview with Safal Niveshak, Prof. Sanjay Bakshi termed these letters as “the most valuable source for learning about finance and investing in the whole world.”
He also added that since these are available for “free”, investors don’t give much importance to them, like I did, i.e., not give them much importance when I read them for the first time.
So while I was hooked on to the “beautiful words” of investing wisdom Buffett shared through his letters, most of my reading was casual.
I never sat with a pen and paper to make proper notes on what I read in these letters. This was, I believe, a mistake on my part because note-taking makes the entire exercise of reading something brilliant more worthwhile.
I’ve made notes from most investing books I’ve read over the past few years, but never did it for Buffett’s “free” letters…which I’ve started doing off late.
Anyways, I’ve read most of Buffett’s letters several times over the past few years, and for me, these remain the single greatest education I’ve ever received in investing and in life.
So I highly recommend it for anyone who hasn’t done so.
Buffett isn’t what I thought he was
In digging deeper into his letters over the years, I have come to realize that the phenomenon called “Warren Buffett” isn’t as simple as he seems to be.
In fact, the business and investment philosophy that he has built over the years is far more complex than it seems. It’s only that he has made them utterly simple for his investors and readers.
So the fact that many investors think (or are made to believe by investment advisors) that they can invest like Warren Buffett is plain myth and nothing else.
You or I can never become the “next Warren Buffett” by copying his techniques or those of Graham and Dodd. It’s next to impossible.
Buffett’s investment philosophy is NOT about earnings power, good quality business, high return on equity, great management, or cheap valuations. These are just some of the “hygiene factors” that Buffett looks for in stocks.
His real philosophy is about how an investor must conduct himself while dealing with the ever-so-eccentric Mr. Market, the imaginary man brought to life by Buffett’s mentor Benjamin Graham.
So you can’t copy Buffett kind of returns by simply copying his hygiene factors for picking stocks. A “Buffett screen” can only take you so far in your stock picking.
There’s a long road to cover after that, if you are to ever come close to achieving a “satisfactory” (inflation-beating) rate of return from your stock investments over the next 15-20 years.
As Prof. Bakshi said, “As far as applying Buffett principles over here is concerned, I think those principles…make a lot of sense. These are universal principles. But you have to adapt them to local conditions. You cannot blindly copy-paste!”
The great thing is that you can always learn to paint your own canvas borrowing colours from the best investment artist the world has ever seen.
And know this – he is offering all his colours for free to you!
In order to bring Buffett’s learning to you (in my own, original way :-)), I’m starting a long-long series on reviewing each and every letter he has written to his partners and shareholders over the last 55 years…
…right from 1957 (when he started writing letters to partners of Buffett Partnerships) till 2011 (when he wrote a letter to shareholders of Berkshire Hathaway).
This will be a weekly series called “Wit, Wisdom, Warren”. I will post review of a letter every Friday.
This entire initiative will provide a greater benefit to you if and only if you read in advance the letter that I’m going to review in the forthcoming week, and then share your own learning in the Comments to that post carrying my review of that letter.
Simply put, if I’m going to review his letter for 2010 in next Friday’s post (and I will duly inform about this in advance), I would expect you to also read the 2010 letter, make your own notes, and then participate in the discussion on that post.
This would make the entire initiative much more meaningful for you and me.
We start next Friday with Buffett’s 1957 letter to his partners, which you can read here.
So take out your pencil, eraser, and notebook…get comfortable in your creaky chair…and pay attention. This is going to be a long class of sharing the wit and wisdom of Warren Buffett.
Don’t expect me to tell you 10 or 20 ways to get rich like Warren Buffett, for there is just one and only one way to get rich like Warren Buffett – turn the clock back to 1930, and tell the genie that appears before your birth to make you Warren Buffett. 🙂
Anyways, I am already imagining this exercise as an amazing journey of seeing the world of stock market investing through the glasses of the phenomenon you know as Warren Buffett.
I hope you will walk with me throughout this journey. Whatsay?