Top positive review
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Short, Sweet and Useful.
on December 14, 2011
I originally thought I would list some pros and cons regarding this book, but it occurred to me that depending on what you are looking for, aspects of this book may appeal to you--or maybe not so much. Using a get-to-the-point-quickly approach, here are some observations that hopefully will help you decide whether this book is right for you:
1. This book is short and sweet. Some readers (perhaps many) will get through this book in just one sitting. Depending on your available time, reading speed and familiarity with investing, I estimate this book might take, at most, two or three sittings. I don't read that fast, and I finished it in one evening. It is nominally 211 pages long, exclusive of the introduction and index. However, there are enough blank or partially blank pages, pages with tables that list the last 11 years of earnings for XYZ company (one year per line), and pages with very standard information about companies (name, address, phone number, website, year founded, etc.--again, one item per line) that an adjusted number of pages is closer to 150. Moreover, this is a physically small book, so its 150 pages of content would amount to something closer to 110 - 120 more normally-sized pages, at most. If you prefer a short, very easy to read book, this may be right for you.
2. Basically, the authors attempt to explain a simplified version of Warren Buffett's investing style, which they finish by page 46, and then they use the rest of the book to illustrate how Mr. Buffett's investing approach can be applied to 17 companies that Buffett has picked for Berkshire Hathaway. I think it is fair to say that some readers may find the discussions regarding the 17 companies somewhat repetitive, even though there are obviously some differences in what these companies do. (You don't have to buy this book to find out which companies Mr. Buffett has invested in, since that information is publicly available. The companies are: American Express, Bank of New York Mellon, Coca-Cola, ConocoPhillips, Costco, GlaxoSmithKline, Johnson & Johnson, Kraft, Moody's, Procter & Gamble, Sanofi, Torchmark, Union Pacific, U.S. Bancorp, Wal-Mart, Washington Post, and Wells Fargo.)
3. The co-authors of this book are Mary Buffett and David Clark. Ms. Buffett was married to one of Warren Buffett's sons for 12 years, and that experience is billed as a source of her unique insight into Warren Buffett's ways. The other co-author, Mr. Clark, has followed Mr. Buffett and Berkshire Hathaway for a long time and is the managing director of an investment partnership. It isn't clear how much each author contributed to the book. There is no indication that Warren Buffett has endorsed this book. There are no indications to the contrary, either. (If I was Ms. Buffett and I had received any quotable encouragement from Warren Buffett, I would have been sure to mention it somewhere in the book.) This is the eighth book written by these two authors, and they all address investing and have "Buffett" somewhere in the title.
4. The approach used by the co-authors can be simplified this way: Find a company with a durable competitive advantage (so that its future results may be somewhat predictable), figure out its average growth rate (regarding earnings per share) over the last 10 years, use this historical growth rate to project earnings forward 10 years, and then use this future earnings figure together with a conservative valuation (e.g., a price/earnings ratio) to estimate the company's future stock price. Then add in dividends and calculate an estimated annual investment return. The authors go so far as to literally guide you, step-by-step, in using a financial calculator to do the essential math.
5. To the extent that a company's future growth resembles its past growth, and to the extent a company's future price/earnings ratio resembles its historical ratios, this method can prove helpful. However, when the economic, business or competitive environments change, things can get tricky. That's when Warren Buffett will do much better than the average investor. His uncanny insight into business is not easily summarized in any book, short or long, because his insight is derived from many years of personal study and unique experience.
6. So can this book be useful for someone looking for a better understanding of what drives stock returns? Yes indeed. For someone reasonably familiar with Mr. Buffett's approach, however, this book does not plow a lot of new ground. (I expect the authors might differ from me on this point, but I'll stick with this assessment.) I wouldn't hesitate to give this book to one of my adult children--or anyone unfamiliar with the general Warren Buffett approach--as a useful primer with a number of specific examples.