Warren Buffett Invests Like a Girl by The Motley Fool

Author:The Motley Fool
Language: eng
Format: mobi, epub
Publisher: HarperCollins
Published: 2013-02-16T18:13:35+00:00

Chapter 14

Question the Masters

Not everyone is lucky enough to study under a certified guru, and their eventual mentor, in graduate school, but Warren Buffett did just that when he went to Columbia, home to Ben Graham and David Dodd, the powerful twosome who’d literally written the book on value investing. Buffett was quickly thrust into a world that was heaven to him. Analyzing companies, reading everything he could get his hands on, and having the chance to sit in classrooms and have discussions and debates with Graham was like coming home for Buffett.

He soaked up everything he could while he was there, and made connections with Graham and other like-minded students that would carry on long past the closing school bell. From Graham, he built the core of his investing philosophy: Always buy with a margin of safety. As we talked about earlier, in the chapter on risk, Buffett considers these three words—“margin of safety”—to be the “cornerstone of successful investing.”1

Buffett also learned the basics of value investing from Graham. He learned about calculating intrinsic value, figuring out how much a company was currently worth, and how much it should be worth in the future. He learned about the vagaries of the market, especially the character Graham loved to talk about, Mr. Market, and all his associated capriciousness.

Buffett, it’s safe to say, idolized Ben Graham and most likely continues to idolize him to this very day. Buffett wouldn’t have become the investor he is today without Graham’s foundation.

And yet, Buffett, as he began his investing career and started learning more about business and what makes companies successful, slowly started shifting his orientation. He was still solidly in the value camp (although he’s actually argued in his shareholder letters that the value-versus-growth distinction is a meaningless one, as you need both in order for a company to turn into a winning investment), but he began looking at more qualitative factors, as opposed to the strictly quantitative ones Graham focused on.

You see, for Graham, it was all about the numbers. It didn’t even matter much what the company did, or who was on its executive team, or what its future prospects held. While he firmly believed in the fact that buying a stock was buying a piece of an actual, living and breathing company, he was also more concerned with tallying up a company’s assets and liabilities and seeing what the whole shebang was worth, and then seeing what it was trading for in the market.

This was the “cigar butt” school of investing we covered earlier. The goal was to stumble across a cigar that had just one more puff in it, and take advantage of that. Buffett, however, was destined to become something more than a mere cigar butt aficionado. He was to see that just because something’s exceedingly cheap, that doesn’t by default make it good.

The first person to open Buffett’s eyes to this was Charlie Munger. Munger took more nebulous factors into consideration when he invested. While he also

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