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Warren Buffett Portfolio---An Investment Gem
on January 18, 2001
Hagstrom's second book is outstanding, especially for anyone looking to develop and define a rational investment style and process for managing their own money. As a professional money manager, I have read many books on investing, and like to refer the better ones to my clients. This one would be at the top of my recommended list, because it is clearly written, logical in its approach (Hagstrom backs up the tenets of his "focused portfolio" approach to investing with good empirical data), and provides a consistent and rational framework for people to invest their money. Hagstrom advocates that investors own relatively few stocks (maybe 10-15), and concentrate their holdings in companies that have a high probability of enjoying financial success over the long term. He points out the risks of this approach (fewer stocks in a portfolio can result in higher than average portfolio volatility in the short run, which can be disconcerting to some investors), but also highlights the success that Buffett and other practicioners of a long term, focused approach have had historically. Hagstrom includes interesting discussions of the math underlying his strategy, and the psychological factors that predispose a person to embrace or reject the principles of investing he recommends. The beauty of the book, and the focused portfolio approach to investing, is that it is logical, supported by solid mathematical principles, makes sense intuitively, is relatively easy to apply, skews the odds of outstanding absolute and relative total returns in the investor's favor, and provides a solid framework against which to invest in a world that is fraught with risk and dominated by a media culture that probably hurts more individual investors it helps (CNBC, internet sites, mutual fund advertising, etc). Hagstrom's approach is obviously not for everyone--despite its simplicity and logic, few professionals or individuals, in my experience, have the patience or discipline to concentrate their investments and stay with them over a period of years. But for those people looking for an approach that cuts through all the clutter in the investment world, this book is worth a read. For what it is worth, the best book on Buffett himself is Lowenstein's "The Making of an American Capitalist;" other must read or own books for do-it-yourself investors would include "Investment Policy" by Ellis, "Against the Gods" by Bernstein, "The Gorilla Game" (for technology stock investing) by Moore, "Classics" and "Classics II " by Ellis, and "When Genius Failed" by Lowenstein.