Customer Reviews

The Essential Buffett: Timeless Principles for the New Economy

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The definitive book on Warren Buffett has yet to be written. Perhaps only Mr. Buffett can do so, and he has no incentive in this direction. Interestingly, the more Mr. Buffett's performance weakens versus the market, the more books come out focusing on his methods. Mr. Buffett writes about his thinking in his annual reports of Berkshire Hathaway, speaks about it at his annual meetings, and occasionally shares ideas with reporters. Conclusions about his methods then are a distillation of these sources, much like the CIA used to interpret what the Soviet's thought by reviewing Pravda. The results are probably about as accurate. My main complaint about this book is that Mr. Buffett does not and probably will not invest in the new economy. And for good reasons. It doesn't fit his investing standards. So a book that takes the principles and applies them in that direction is misleading at best, and I suggest you decide what you want to call it at worst.

If you want to read a good book about Mr. Buffett, I suggest that you read How to Think Like Benjamin Grapham and Invest Like Warren Buffett. That volume covers much of the same ground as here, but does so better. It also is more accurate in characterizing Mr. Buffett's philosophy, as I understand it. You can read my review of that book.

If you have read Mr. Hagstrom's book, The Warren Buffett Way, you probably don't need to read this one as well. Let me summarize some of the key points so you can decide. Here are the principles in the book, as I have paraphrased them:

(1) Think about a stock investment like you are buying the whole business.

(2) Give yourself a large margin of safety when you buy, picking a time when a stock is depressed well below its economic value.

(3) Hold few stocks and think about their current and future fundamentals constantly to see if your assumptions are holding.

(4) Avoid speculation at all costs.

The tenets of The Warren Buffett Way are repeated here:

Business Tenets

(a) "Is the business simple and understandable?"

(b) "Does the business have a consistent operating history?"

(c) "Does the business have favorable long-term prospects?"

Management Tenets

(a) "Is the management rational?"

(b) "Is management candid with shareholders?"

(c) "Does management resist the institutional imperative?"

Financial Tenets

(a) "Focus on return on equity, not earnings per share."

(b) "Calculate owner earnings." This is essentially free cash flow.

(c) "Look for companies with high profit margins."

The reported reason Mr. Buffett does not buy technology stocks is because he feels the long-term prospects are too murky. He is probably right in most circumstances. Technology companies are usually about as successful as their new products. How can you know how good they will be versus the competition 10 years from now?

The fundamental premise of a book like this is also questionable in another way. If you want to get Warren Buffett's results, you can simply own Berkshire Hathaway stock while Mr. Buffett is alive.

For most people, indexed mutual funds are a better choice. I suggest that you read John Bogle's Common Sense on Mutual Funds to learn the argument for that approach. If 90 percent of the pros cannot beat the market, can you expect to do better?

After you read this book, also think about where modeling of a famous person's behavior might not capture what you want to learn. For example, can an actor distill her or his approach into a few principles and tenets? Yes, but that distillation wouldn't allow you to duplicate the results.

Take your money seriously, and keep focusing on how to keep it safe as your first investment priority. Avoiding losses is a key Buffett principle that has served him and his investors well.

Instead of calling this book "The Essential Buffett", Hagstrom should have called it "The Rehashed Buffett". I have read both of the author's previous books about Buffett, and they stand well on their own. This book, though, is just a cash grab. It is "essentially" just highlights from the other two books recycled into this "new" book.

If you haven't read the first two books should you read this one? I don't know... but if you have read the first two, don't bother with this patch job.

Hagstrom has presented Buffett's philosophy that is understandable and correct. I intend to learn from Buffett's principles and to use them to my advantage, to make my billions.

Robert Hagstorm re-states the great principles included in his outstanding book "The Warren Buffet Way", adding references to the new economy just in the last chapter with a few recommendations.

I am a true believer in the doctrine taught in the three books by Hagstorm, and they opened a whole new field to me. But his first book remains the best. I put it in practice with excellent personal results so far.

Have to agree with Mr. Mitchell's review elsewhere in these pages that the premise reveals the fatal flaw of this book. Hagstrom's first book remains his best shot. These are simply not the principles used by intelligent investors in the tradition of Graham and Buffett, which are well extended to contemporary conditions in the "How To Think" book by Cunningham, which shows there IS NO "New Economy"--it is B.S--and also very good is the latter's Essays on Warren Buffett.

The essence of Buffet's investment approach is laid out in a simple to read format. It is useful for new investors, and for experienced investors who have short-term approach to their portfolio management.

This is not a detailed how-to book that would show you what stock to pick. But the general approach is sound and rational, and which one can easily remember when making investments. Buffet believes that when buying a stock, you must approach it as if you are buying it as a business owner, not just a share owner. That that comes across as common sense but few investor approach buying stock with this mindset, and as a result we do not do sufficient investigation in something that we would put our hard-earned money in. The few key pointers I learn from this book are:

1.Buy stock like you are buying as a business owner
2.Choose a business that you understand
3.Make sure the company has good track record as well as good future earnings and prospects
4.Make sure the company has superior management that can resist the institutional imperative of making decisions for short-term gains only
5. Focus on return on equity and not earnings per share
6. Buy the stock at an attractive price - this gives you the important margin of safety in your purchase
7. Do "focus investing" on few good companies, rather than spreading your resources over many companies that you do not know well and do not have the time to track. Less is definately more!

Happy reading!

This book is great for any young person, People we need to educate our children on investing. America is powerful. Full of ideas. Warren book is excellant. I have a web site about investing. I must say Warren theory in investing is the best I have ever seen.

Great Book

I found The Essential Buffett to be a terrific source of information on the approach, principles and practices of this investment genius. Coverage of how Buffett's principles can be applied to the technology sector could not have been more timely, and the distillations of Buffett's thinking that appear throughout the book are a great value add.

Hagstrom's The Essential Buffett is key to understanding successful investing strategies. However this very helpful book is not just about why Buffett makes his choices, but, how Buffett's thought process in deciding to pick a stock has come to be. Besides the genius of Buffett, the reader learns about stock market guru's Ben Graham, Philip Fisher and Berkshire Hathaway's vice-Chairman Charlie Munger. Hagstrom's examples of the companies Buffett has been with like: Net Jet, See's, Coca-Cola, Citigroup... teaches young investors Buffett's investment ideaology. Because Hagstrom uses assumptions and multiple mathematical examples to prove HIS own application of Buffett's investing style to tech stocks, The Essential Buffett is not a five star book.

Before I read the Essential Buffet I knew very little about Warren Buffett. I knew he was one of, if not the richest man in the world. I knew he made his fortune from the stock market, but that was basically all.
I began the book with the hope of learning what set him apart from the thousands of other investors that don't even come close to his successes.
The book begins with a general summery of what is to come. Then it gets into the details. You learn how his childhood shaped his decision making. Then it talks about his greatest influences Graham and Fischer. Then it talks about how he selects stocks.
All of the skills you learn not only teach you why he was successful but also how you can be. The author uses simple analagies to explain complex ideas, which makes it an easier read.
I recomend the book to those who are interested in the stock market, owning or managing a business or just in economics in general.