The Warren Buffett Way

As a direct follow-up to The Intelligent Investor, I wanted to learn about how value investing evolved in the years after Graham. The book goes through a tour of some adapted fundamentals of value investing, then on to the specific applications through detailed case studies of Berkshire’s holdings. It then finishes with the psychology of value investing which doesn’t go into too much depth but gives a good broad overview of some important research. Overall, the book is easy to read but does require some prior knowledge to get the most out of it. If you’re interested in finance, this will present a different perspective from the speculative norm on Wall Street. The book also provides valuable insight and case studies on business management, specifically on running sustainable organizations that have executives who put shareholders first.

The most important point I took away from the book can be summarized as Charlie Munger’s influence on Buffett. In The Intelligent Investor’s chapter on margin of safety, Graham notes that there are no good or bad stocks, just cheap or expensive ones. Before Munger, Buffett often bought “cigar butt” stocks: mediocre companies that were underpriced by a good margin of safety, directly following Graham. After Munger, he would focus more on the great companies and buy at acceptable – maybe not optimal – prices. I think this is the main improvement on Graham’s methodology that Buffett has made, but it makes great sense since great companies are easier to hold for a very long amount of time. It’s also a good philosophy to apply elsewhere, to look not only at the great quality to price ratio but also demand a high quality to begin with.