Customer Reviews

Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage

5 star:		(23)
4 star:		(17)
3 star:		(10)
2 star:		(6)
1 star:		(9)

 

 

If you have an underlined copy of Security Analysis (Ben Graham's 700 page treatise on value investing) sitting on your desk or you are a professional money manager you may or may not find this book interesting. But if you are a beginner to intermediate investor who is interested in getting a quick basic course in how to read financial statements from a Warren Buffett perspective it is the perfect book.

I'm a professional with $500 million under management and I got a couple of good ideas out of it. But at this stage of my career getting a couple of good ideas on how to make more money is just fine with me. It only takes a couple of great ideas to get rich and even fewer to stay rich. Their book the New Buffettology, which was published in 2002, is aimed more at the professional investor and many people in the investment business use it. But I would say this book is for that beginning to intermediate group that really are a little in the dark about what to look for in a company's financial statements. And it focuses on what to look for if you are like Buffett and looking for a company with a Durable Competitive Advantage. Also it is a quick and easy read - unlike Graham's Security Analysis which most people buy but never read - try reading 700 pages on how to read a financial statement and see how far you get before you nod off with boredom. Quick and easy can be a good thing for great many investors.

Am I glad I bought it? Yes. Would I recommend it to my friends that aren't professionals? Yes. Would I recommend it to professionals? Yes, but don't expect to get more than a few good ideas out of it.

This book may be helpful for those seeking a general understanding of financial statements and what Mr. Buffett considers in his review, but be aware of several points:

1. The book is written in remedial business language that leaves out a lot of important details that an active investor should know. It is clearly not intended for anyone with a decent understanding of accounting or finance;

2. The book contains errors - in two separate tabular displays, the balance sheet presented is not even balanced;

3. I wish I had a count of the number of times they wrote "durable competitive advantage." I get it - a durable advantage is important; and

4. Entire paragraphs are repeated verbatim in some sections. The book is horribly redundant - the authors clearly ran out of things to say.

In my opinion, the authors rushed to release this book and profit from the market downturn. Anything with Warren Buffett's name on it is apparently a hot selling item currently, and while this book certainly has some useful bits of investing advice, I would be surprised if Mr. Buffett himself actually read or approved the content of the book. The vast majority of the book is very general, basic information, and the only reason the book is getting attention is because the authors are lucky enough to have worked with Warren Buffett and are able to use his name in their title.

Overall, if you know nothing about investing or financial statements, this is probably a good book for you; however, if you have a business background and are somewhat versed in accounting and finance, you will find this to basic and redundant. It is a quick read and a cheap price, so I am not entirely negative on it, but certainly wish I would have flipped through a hard copy before ordering on Amazon. Lesson learned. I would give it two stars, but knocked to one for the errors and redundancy.

Mary Buffett's fortuitous choice of a surname and gravy-training of her ex-father-in-law are her only qualifications for writing this dreadful excuse for a book.

The book is loaded with inaccuracies, the primary being this: she attempts to educate the reader by referring throughout the book to a fictional balance sheet, listing current assets, depreciation et al.

Here's the thing: her balance sheet DOESN'T BALANCE! The assets don't equal the liabilities plus the shareholder's equity. Anyone with even a rudimentary knowledge of accounting knows that that can't be.

Another gem is when she says that smart investors invest in companies with a natural near-monopoly, that essentially have a market to themselves. She then lists some companies that allegedly fit that criterion. The first two companies she lists are...wait for it...

Coke and Pepsi.
The classic textbook example of two rival companies that produce an almost identical product, and Mary Buffett lists each as her example of a company that has a market to itself.

The writing style is annoyingly redundant, patronizing and just flat-out wrong. It's amazing that it took two "writers" to put together such a rotten book. You're better off buying nothing.

Mary Buffett trades on her former daughter-in-law status vs. Warren Buffett to write books about his methods and insights. Readers have to take her word for the accuracy and inclusiveness of her material - having read "Snowball" and other sources I suspect Mary's assertions are not as accurate or inclusive as one would wish, but they're better than nothing.

The book's primary assertion is that Buffett looks for a sustainable competitive via financial statement data; he is especially focused on finding those with a low-cost advantage.

Buffett purportedly begins by looking at a firms income statement, seeking high gross margins. Good examples include coca-Cola @ 60%, Moody's @ 73%, Burlington Northern @ 61%, and Wrigley's @ 51%; G.M. (21%), Goodyear (20%), and United Airlines (14%) provide unattractive examples. Sustained high gross margins (eg. ten years), not just one year, are required.

Buffett then moves to Selling, General and Administrative Expenses. Coke spends an average of 59% gross profit in this area, G.M. 28-83%, Ford 89-789%. As for R&D, Coke and Moody's have none, Depreciation - Coca-Cola 6% of gross, Wrigley's 7%, P&G 8%, vs. G.M. 22-57%. Interest Expense at P&G runs about 8% of operating income, 7% at Wrigley, vs. 49% at Goodyear. Wells Fargo pays out 30%, relatively high, but also the lowest of the top five banks (industry average = 70%).

Buffett is not interested in extraordinary income - eg. asset sales. Net Earnings/total revenues should be on an upward trend over the past ten years - Coke = 21%, Moody's 41%, SouthWest Airlines 7%, and G.M. 3%

Buffett prefers stock buybacks to dividend payouts due to the better tax treatment.

Finally, Buffett does not follow the crowd - buy in a bear market, sell in a bull (P/E/ ratio > 50).

The book goes on to examine cash flow and balance sheet issues, but there the treatment is less precise and useful.

I bought this book looking for distilled secrets; what the great man thinks about financial statements, and how he reads them. The right book for that subject is The Essays Of Warren Buffet. The wrong book is this one. Perhaps as a primer on financial statements it might be okay, but if you have any working knowledge of the elements of cash flow, income and balance sheet statements and their ratios -- skip this book! To add insult to time wasting, the book is written as if the reader were an idiot: "Warren says..." or "Warren thinks..." Techniques of Financial Analysis, by Helfert, is a far, far better book.

Although I've never read one, I imagine that this book is something like a 'Dummies Guide' to understanding a company's quarterly or annual report. The authors take a hypothetical financial statement similar to those one regularly gets as a shareholder in a publicly traded company and then explain in simple terms what those numbers signify.
This is done by taking each line item and describing what the number contains, why it is important, and how Mr. Buffett supposedly uses it to help him to identify a "Durable Competitive Advantage."
The 'DCA' concept is remarkably simple and the authors do a good job of both conveying it to the reader, and pointing out its differences from mere value investing.
Actually, the concept is so simple that the authors struggle to stretch their text out to book length, for this could as easily have been contained in a pamphlet. Instead the publisher has chosen to use wide spacing, margins and generous amounts of blank space to length to the book. I don't begrudge them this as a book is admittedly more impressive than a pamphlet.
Although one really won't be able to read this book and then go out and do an informed analysis of any given company, the beauty of the book is that it does an excellent job of explaining the ledger-type relationships of the various checks and balances that are contained in a financial statement.
This is a good first step for the novice to intermediate investor.

This book is okay for very rookie beginners, and it has some things that the intermediate investor should know, but I really don't think it accurately depicts what Mr. Buffett looks for in companies. She mentions that he looks for durable competitive advantages, which is true, but she makes no mention of his disgust of GAAP reports. She makes no mention of owner earnings or Free Cash Flow, which is what Buffett is famous for. I didn't buy this book, nor did I read the whole thing, but I scanned it last night at a book store and basically what this book is is a very Freshman course on reading financial statements with the name "Warren Buffett" attached to it. It is merely a book meant to sell a lot of copies just because his name is on it.

Warren Buffet's performance over the course of his career has been simply incredible. At this late stage in the game, much is made of his unique prowess in extracting deals the ordinary investor could not possibly get.

But what is frequently overlooked is that the man, with partner Charlie, spent decades doing a tough slog through fundamentals to research companies, industries and markets thoroughly to discover value. Finding value, they committed capital and waited, sometimes for years and years, for the payoff. The payoff nearly always came.

As Mr. Buffett himself will tell you, however, this tough slog is nothing that any other ordinary investor cannot do. It takes discipline and patience. Buffett will direct you to Security Analysis and The Intelligent Investor by Graham. But this book will help too. Being able to read and interpret financial statements is your starting point in analyzing a firm, in the way that a doctor starts by taking your height, weight, temperature and blood pressure. It's fundamental - you cannot do solid fundamental analysis without the ability to sit down with financial statements and build a model in your mind of the company and its financial situation.

For anyone hoping to emulate some measure of Buffett's success, this book should sit alongside the ones by Graham.

As a person who is avidly interested in financial news and information, this book was already appealing to me. Is it for you? This is when the potential reader needs to be honest. I think this book is highly informative and Warren Buffett always provides some nugget or gem that I hadn't thought about before. That makes his books worth reading...for me.

However, I'm not sure those who are already financially savvy or professional investors will find it equally worth reading. I'd STRONGLY suggest that anyone who wants to understand financial statements and get an insider's perspective on how to interpret them, a look beyond all those very confusing numbers that are sent out by companies....read this book.


Of course, many people are terrified of investing - or even thinking about investing - during a shaky or scary economic cycle. I'd recommend reading this book, anyway, even if your comfort level is very, very low when it comes to investing. Think about what the Buffett point of view and how he finds viable companies with excellent potential.

I've become more comfortable with investing simply by reading Buffett's works. I could definitely improve and I'm in awe of Buffett's talents but I'm grateful that he takes time to share with the rest of us.

The title of the book really does indicate what is inside but NOT the style and wisdom of Buffett himself - that, too, is what sets this book apart, makes it more than just a "how to interpret financial statements" guidebook. Also, if you are a fan of Benjamin Graham, you'll want to read this.

This book is dreadful. The writing style is very amateurish, it reads as though it were written by a 7th grader. It also offers very little real information. If you already have rudimentary knowledge of how to read financial statements you won't find any useful information here. If you don't know how to read financial statements this is not the place to learn. I haven't read any of the authors other books about Warren Buffett, of which there are many, but after reading this book I am convinced that the authors have no insight whatsoever into Warren Buffet's investing strategy and are just using his name to sell as many books as possible. If you want to read this book, get it from the library. At least then you won't feel like you wasted your money.