Customer Reviews

The Four Filters Invention of Warren Buffett and Charlie Munger

5 star:		(33)
4 star:		(4)
3 star:		(1)
2 star:		(1)
1 star:		(7)

 

 

This book contains very little original thought and amounts to 40 or fewer normal sized pages of repetition and direct quotes. The author seemed to think that he could pass this off as a real book by enlarging the font size, absurdly expanding the margins and inserting numerous exhibits. This is a very poorly published book that has no business selling for $29. I am curious as to why only 2 of the prior reviews are negative, since this is such an obvious fraud.

[ Posted here per author's request. Originally published on http://stockvalues.org ]

"I am not a reader, I am a writer" - so goes the punchline to an old Russian joke about a reindeer herder who is applying to study philology at the Moscow State University. Well, I can certainly relate: reading is difficult for me, writing - a breeze. Given a choice, I substitute the reading of big tomes like Leo Tolstoy's mega drama War and Peace for its Cliffs Notes version.

It's not that I don't want to read Alice Schroeder's "The Snowball: Warren Buffett and the Business of Life" - I do, but the sheer weight of that book's 976 pages scares the daylights out of me. Why couldn't Alice just spend the time to digest her story into something more palatable to an average Joe, I thought. Bud Labitan must have read my thoughts, because a few days later I received an email from him telling me about his new book on Buffett and Munger.

I had no idea who Bud was, but was so impressed with his mind reading skills, that I told him that I would review his book, if he sent it to me. He did and about a week later the book was in my mailbox. Yesterday, I was stuck at my desk for most of the day and so, finally, got a chance to read it...

To fairly evaluate a book, one must first determine who its target audience is. So, my first challenge in reading Labitan's book was trying to figure out who it was written for. Was it intended for a novice or an expert? Is it a guide to a novel investment process, an introduction to value investing in general, or, perhaps, a personal historical overview - a biography of sorts?
The Four Filters Invention of Warren Buffett and Charlie Munger (Two Friends Transformed Behavioral Finance)
On the one hand, many terms used in the book are not first properly defined, on the other, the concepts presented are rather basic and examples pull numbers out of a virtual hat. Some personal stories from Buffet's and Munger's life are retold, but they were not selected for their heartwarming qualities and these retellings are so heavy in quotes that they fail to engage. In fact, the book relies on quotes so much (there are 124 of them, more than there are pages of content) that it makes you wonder if what you are reading is not, in fact, a report for a business class Bud took at Purdue.

In addition to quotes, the book is also heavy in name dropping. The two names most overused in the book are that of Benjamin Graham of the "used cigar butt" investing fame and Philip Fisher, a pioneer growth investor, who emphasized quality. Names of Phil Carret, John Burr Williams, Lou Simpson, Jack Byrne and Charles Mizrahi, among others, get heavy use, as well. The one name that doesn't get enough mention is that of Rose Blumkin. Mrs. B. (born Rose Gorelick outside Minsk, Russia in 1893) started Nebraska Furniture Mart in 1937, sold a majority share to Buffet in 1983 and was still involved in day-to-day operations until shortly before her death at the age of 104 - she is a legend!

Along with names of important people, the book prominently features names of businesses whose stock Buffett's Berkshire Hathaway owned over the years. Of course, GEICO, Coca Cola, Gillette and Kraft Foods make the requisite list. But in the end, the book simply boils down to rehashing and restating Buffett's investment philosophy of buying "at sensible prices of businesses that have good underlying economics and are run by honest and able people" ad nauseum.

If you savor every written word and are looking for a well written, properly edited and nicely formatted volume - this self-published booklet is not it. If you are interested in a comprehensive biography of Buffett and Munger - look elsewhere. If you are looking for "an amazing Behavioral Finance Formula" advertised on the book's back cover - you will not find it here. But, if you, like Bud, think that the main purpose of a glossary is to add pages, even if it is of terms never used in the book - this is the book for you!

Despite all this, I did find some value in the book. Labitan, obviously, spent time studying Buffett and Munger and was able to pull many relevant quotes from Berkshire Hathaway Annual Stockholder Reports as well as from several other sources. The book is no substitute for Cliff Notes on Alice Schroeder's Snowball, but it is short and if skimmed to skip the many repetitions and ignore the few available details that are incomprehensible anyway, can provide a quick introduction to the subject of value investing as practiced by Buffett and Munger.

Now, Alice, can I have a Snowflake?

A relatively expensive, self-published cut-and-paste job of 147 pages of which nearly half are either: slabs of Buffett's/Munger's/Other's direct words, a glossary, blank pages, white space or footnotes. A so-called intrinsic valuation of Kraft is poorly discussed.

I bought this book in the Kindle version for two reasons. Since 1992 I've read just about everything written by or about Munger and Buffet and also because the reviews were so glowing.

How cool - some excellant new insights into these two great thinkers. What a complete waste of time and what completely misleading reviews. I thought it was poorly written, redundent from chapter to chapter and the only things that were of any value were the original quotes taken from the great men themselves.

It's hard for me to believe that Warren approved this book and allowed the use of his copywritten materials for such a completely frivolous and obvious attempt to cash in on the extreme interest in all things Berkshire. Save your money. If you read the first couple of pages, you've got the entire content. I suffered through the whole book in a few hours expecting it to pick up at any time. It did - when it ended.

How about for folks that are new to Berkshire? Again, you must be kidding. The Warren Buffet way is a much, much better 'intro' if you're not interested in getting into the more detailed and longer ones (Of Permanent Value is great, but can't be read in a single day).

I should have known this one was a rip from the extemely poor graphic of the book cover and really thin description. My own fault for falling for a complete dud.

I've never had such a bad book from Amazon on any subject before. I'd return it if I could. Thankfully it was just the $10 for the Kindle version.

This book is certainly not worth the $30 I paid for it. It's poorly written, disorganized and mostly trivial in the sense that it tries to present as original material reviews and commentaries on Buffet and Munger that can be found elsewhere better framed and parsed. Timothy Vick's book, Picking Stocks Like Warren Buffet, is quintessential and it comes with a greater margin of safety since it's much cheaper. Mary Buffet has two excellent books out on her ex-father-in-law which are very much worth reading. Anyone's first source, though, should be the Berkshire Hathaway website where the master's annual letters to shareholders are a virtual fountain of investing philosophy and information. My one star review of this book is even too generous.

First of all, I expect to recieve very little from a book in order to consider it worthwhile. Even one insight or having something pointed out that I have not thought of before would allow me to consider a book worth reading. Even it if was an interesting read, I would not consider my time/money wasted. What a dissapointment "The Four Filters" is.

One of the reviewers mentioned that the first thing you have to consider is who the audieance is - agreed. I have been investing for 25 years and pretty much have studied most of the value investing classics. I am not Warren Buffet by any strech of the imagination, but consider myself somewhat informed and open to new ideas. I have to assume that some of the postive reviews may come from individuals that are wowed by the name dropping and ridiculously simple ideas presented in this book. The book appears to be written after quickly reviewing some of the classic books written by, or pertaining to, some very formidable investors. Like something a college student might have punched out in a weekend. It is presented in a haphazard way with no apparaent direction, and no elaboration on the works presented by others. A unorganized smorgasboard of others ideas.

In my opinion, the ideas presented in this book do not provide value to a beginner or a seasoned investors. No doubt that many of the general ideas presented are rock solid, and the individuals that are referenced are the Deans of investing. However, the presentation is confusing and there are many books that discuss the same thing that are vastly superior. Not recommended.

What follows initially appeared in a monthly newsletter in November 2008 at www.rudolphfinancialconsulting.com. The author has asked me to post it here.

Behavioral finance and its role in investment policy is a fascinating topic, primarily because it is still so early in its evolution. The committee that awards the Nobel Prize advanced its cause a few years ago when it awarded its prestigious prize to Kahneman and Tversky, providing much needed exposure to ideas that had not reached many in the investment community. Bud Labitan has attempted to take a step forward by combining behavioral finance with the investment style of Warren Buffett and Charlie Munger, who have a strong track record of returns while running Berkshire Hathaway. His book is called The Four Filters Invention of Warren Buffett and Charlie Munger: Two Friends Transformed Behavioral Finance. While it is not a groundbreaking book as it relies too much on previously published material, the book makes you think. Behavioral finance has spent 2 decades telling us why we don't make good decisions and aren't good investors. Labitan tells us that behavioral finance can move beyond this to help develop investment strategies, and uses value investing as practiced by Warren Buffett as his example.

When writing to shareholders in his famous annual letters, Buffett has often described his investment philosophy in simple terms. Labitan has taken one of these descriptions and calls it the Four Filters Invention. An investment must 1) be understandable, 2) have competitive advantages into the future, 3) be managed by competent and honest people, and 4) be available at a reasonable price. It sounds pretty simple, but it's not.

Is this a methodology that can provide excess returns for investors, or does it rely on Buffett's skills? It is proactive, but perhaps not in the way that Labitan expects. It proactively filters out companies that don't meet the criteria rather than filtering in those that do. Buffett and Munger start with all companies. Then they draw a circle of competence around their knowledge. Which companies and industries do they understand? Eliminate those where you can't picture their industry into the future. This is step one. Step 2 extends this to say you need to recognize if a company has a competitive advantage into the future, often referred to by Buffett as a moat. This eliminates even more companies. For the personal investor step 3 is the toughest, as most never actually meet or are exposed to management. You have to rely on articles and impressions, but can often get a good feel for the CEO's style by reading their annual report. Make sure to find out how their incentive compensation works. And don't forget Mr. Market. He knocks on the door every day, sometimes offering more and sometimes less than the intrinsic value you have calculated in advance. Insist on a large margin of safety. It is a combination of these 4 characteristics that provide candidates for a portfolio. Few can afford to say it doesn't matter what they already own and the marginal impact on a portfolio. This often ultimately determines what company and stock is purchased.

With a famous biography of Warren Buffett recently published, it is likely that efforts to define and explain his investment style mathematically will "Snowball". Labitan has beaten the crowd, but the best part of the book is the title. It does not stand up to the Robert Hagstrom books or Poor Charlie's Almanack.

This seemed to be a republishing of a paper written for some sort of class. No new information, no keen insight, nothing helpful.

I donate most of the books I'm done with to charity. This one got thrown out. No need for anyone to waste their time reading it.


Schroeder, Lowenstein, Hagstrom and Cunningham are all superior sources.

This book focuses on the four filters Warren Buffett and Charlie Munger use when selecting a stock to purchase, namely:

1). Know the business
2). Durable competitive advantage
3). Able and trustworthy management
4). Margin of safety

And then it expands upon them.

The book quotes Buffett extensively and we read as Buffett rewords each of these filters in various speeches. This rewording was interesting to me because it helps better define what each of these four filters mean.

Mr. Labitan also twists these filters into new and interesting ways to think about them.

Most business book writers do not have a formal business education. However, I could recognize that Mr. Labitan did have a formal business education with his references to SWOT Analysis, Barriers to Entry, and his formulas in the book. In addition, we also learn about a 4-step SOAP process that is taught to medical doctors.

The book also discusses several things about Charlie Munger's Latticework, including several ways to identify a durable competitive advantage

Mr. Labitan suggests that we should read the annual reports of not only the companies we are interested in, but also those of their competitors.

The book also contains checklists of several other famous investors, including Phil Caret and Phil Fisher.

Whenever I read a book, I add some plastic flags to the edge of the paper whenever I read an important item that I would like to refer back again at a later date. Bud's book had a lot of flags.

Overall, I really enjoyed the book because it focuses on a very similar and successful way I go about selecting stocks for purchase. Reading Bud Labitan's book is like sharpening the saw - all the pertinent ideas about investment methods are relearned. He knows what he is doing.

Mr. Labitan also reviews Kraft (KFT) and provides us with his Intrinsic Value estimate.

I recommend buying this book and the audio CD. You can purchase the book at:
http://www.amazon.com/gp/product/0615241298

The Four Filters Invention is an excellent book. The four filters are: an easy to understand business, honest, competant management, a sustainable competitive advantage, and a margin of safety. The book teaches you how to evaluate each of the filters. Evaluating even one filter is difficult, so the book recommends other books if you wish to learn more. For someone who wants to understand the essence of the Warren Buffet method, you can't do better than the four filters of investing. Learning to invest like Warren Buffet is not for everyone, but it is probably the best way to invest. If you enjoy analyzing stocks, this is a great book to read. If you don't like to analyze stocks, I would recommend books on Modern Portfolio Theory, for example, The Four Pillars of Investing, by William Bernstein. I like to do both, so I got a lot out of this book, and also the Four Pillars of Investing. - Mark Sheingold "