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The War ren Buf fett Way.
This revised edition, ten years later, retains that basic goal: to ex-
amine Buffett’s more recent actions for the investment lessons they hold
and to consider whether changes in the f inancial climate have triggered
changes in his strategies.
P r e f a c e
x v i i
Some things became clear quickly. Buffett’s level of activity in the
stock market has dropped off signif icantly in recent years; he has bought
entire companies more often than he has bought shares. He has on oc-
casion moved more strongly into bonds—investment-grade corporate,
government, even high-yield—and then, when they became less attrac-
tive, moved out again.
Some of these newly acquired companies are profiled in the chapters
that follow, along with a discussion of how the characteristics of those
companies ref lect the tenets of the Warren Buffett Way. However, since
many of these companies were privately held before Buffett bought
them, the specifics of their f inancial data were not publicly available. I
cannot, therefore, discern with any confidence what Buffett might have
thought of those companies’ economic conditions, other than to say that
he clearly liked what he saw.
For this updated edition, I also took the opportunity to incorporate
some material that was not presented in the original book. I added a
chapter on Buffett’s style of portfolio management, a style he has labeled
“focus investing.” It is a cornerstone of his success, and I highly recom-
mend it. I also included a chapter on the psychology of money, the many
ways that emotion plays havoc with good decisions. To invest wisely, it
is necessary to become aware of all the temptations to behave foolishly.
It is necessary for two reasons: If you know how to recognize the emo-
tional potholes, you can avoid tripping into them. And you will be able
to recognize the missteps of others in time to profit from their mistakes.
Ten years is either a very long time, or not long at all, depending on
your circumstances and your personal view of the world. For investors,
what we can say is that during these ten years, context has changed but
the basics have not. That’s good, because in another ten years the con-
text can change back again, or change in an entirely different direction.
Those who remain grounded in basic principles can survive those up-
heavals far better than those who do not.
In the ten years since I wrote
The War ren Buf fett Way,
the noise
level in the stock market has continued to rise, sometimes to a deafening
screech. Television commentators, financial writers, analysts, and market
strategists are all overtalking each other to get investors’ attention. At the
same time, many investors are immersed in Internet chat rooms and mes-
sage boards exchanging questionable information and misleading tips.
x v i i i
P R E F A C E
Yet, despite all this available information, investors find it increasingly
difficult to earn a profit. Some are hard pressed even to continue. Stock
prices skyrocket with little reason, then plummet just as quickly. People
who have turned to investing for their children’s education and their
own retirement are constantly frightened. There appears to be neither
rhyme nor reason to the market, only folly.
Far above the market madness stand the wisdom and counsel of
Warren Buffett. In an environment that seems to favor the speculator
over the investor, Buffett’s investment advice has proven, time and
again, to be a safe harbor for millions of lost investors. Occasionally,
misaligned investors will yell out, “But it’s different this time”; and oc-
casionally they will be right. Politics spring surprises, markets react,
then economics reverberate in a slightly different tone. New companies
are constantly born while others mature. Industries evolve and adapt.
Change is constant, but the investment principles outlined in this book
have remained the same.
Here is a succinct and powerful lesson from the 1996 annual report:
“Your goal as an investor should be simply to purchase, at a rational
price, a part interest in an easily understood business whose earnings are
virtually certain to be materially higher, five, ten, and twenty years from
now. Over time, you will find only a few companies that meet those
standards—so when you see one that qualifies, you should buy a mean-
ingful amount of stock.”
Whatever level of funds you have available for investing, whatever
industry or company you are interested in, you cannot f ind a better
touchstone than that.
R
OBERT
G. H
AGSTROM
Villanova, Pennsylvania
September 2004
x i x
Introduction
M
y father, Philip A. Fisher, looked with great pride on Warren
Buffett’s adoption of some of his views and their long and
friendly relationship. If my father had been alive to write this
introduction, he would have jumped at the chance to share some of the
good feelings he experienced over the decades from his acquaintance
with one of the very few men whose investment star burned so brightly
as to make his dim by comparison. My father genuinely liked Warren
Buffett and was honored that Buffett embraced some of his ideas. My
father died at 96—exactly three months before I received an unex-
pected letter asking if I would write about my father and Warren Buf-
fett. This introduction has helped me to connect some dots and provide
some closure regarding my father and Mr. Buffett. For readers of
The
War ren Buf fett Way,
I hope I can provide a very personal look into an
important piece of investment history and some thoughts on how to
best use this wonderful book.
There is little I will say about Mr. Buffett since that is the subject of
this book and Robert Hagstrom covers that ground with grace and in-
sight. It’s well known that my father was an important inf luence on
Warren Buffett and, as Mr. Hagstrom writes, my father’s inf luence f ig-
ured more prominently in Buffett’s thinking in recent years. For his
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