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Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage Hardcover – Deckle Edge, October 14, 2008
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About the Author
For over twenty years, David Clark has been considered the world’s leading authority on the subject of Warren Buffett’s investment methods. His international bestselling investment books, Buffettology, The Buffettology Workbook, The New Buffettology, The Tao of Warren Buffett, Warren Buffett and the Interpretation of Financial Statements, The Management Secrets of Warren Buffett, Warren Buffett and The Art of Stock Arbitrage, and The Warren Buffett Stock Portfolio, have been translated into over hundred different foreign languages and are considered “investment classics” the world over. He holds a B.S. degree in finance and a law degree from the University of California, Hastings College of the Law. He is also the principal adviser to Keith Ashford Lord of the top ranked UK Buffettology Fund in the United Kingdom. He is presently writing Berkshire Hathaway: Fortress of Capital, a corporate biography. When not consumed with matters of finance, he is engaged in the second great passion of his life, which is trial law and maintains an active national practice.
You may have noticed that some of our books are identified as "deckle edge" in the title. Deckle edge books are bound with pages that are made to resemble handmade paper by applying a frayed texture to the edges. Deckle edge is an ornamental feature designed to set certain titles apart from books with machine-cut pages. See a larger image.
Top Customer Reviews
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.
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.
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.
Most Recent Customer Reviews
This book is a good beginners book. Although it is very straight to the point, I feel it is very repetitive and leaves out essential information. Read morePublished 3 months ago by Erica Garcia
I made the mistake of thinking this was actually written by Warren Buffett, who is well known for his simple style in explaining complicated topics. It is not. Read morePublished 4 months ago by Nir
Simplistic to the point of being insulting (they even have a chapter devoted to "proving" that the lower price you pay, the higher your yield), redundant and annoying in... Read morePublished 5 months ago by Jaroslav Tuček