A f t e r w o r d
2 0 1
Granted, I had spent the entire day in class analyzing stocks, which
I knew were partial ownership interests in businesses, but I had not
made this most important analytical connection. When I studied Value
Line reports I saw accounting numbers and f inancial ratios. When I
read the Berkshire Hathaway report I saw businesses, with products and
customers. I saw economics and cash earnings. I saw competitors and
capital expenditures. Perhaps I should have seen
all that when I analyzed
the Value Line reports, but for whatever reason, it did not resonate in
the same way. As I continued to read the Berkshire report, the entire
world of investing, which was still somewhat mysterious to me, began
to open. That night, in one epiphanic moment, Warren Buffett revealed
the inner nature of investing.
The
next morning, I was bursting with a newly discovered passion
for investing, and when the training class was completed, I quickly re-
turned to Philadelphia with a single-minded purpose: I was going to in-
vest my clients’ money in the same fashion as did Warren Buffett.
I knew I needed to know more, so I started building a f ile of
background information. First I obtained all the back copies of Berk-
shire Hathaway annual reports. Then I ordered the annual reports of
all the publicly traded companies Buffett had invested with. Then I
collected all the magazine and newspaper articles on Warren Buffett I
could f ind.
When the f ile was as complete as I could get it, I dove in.
My goal
was to f irst become an expert on Warren Buffett and then share those
insights with my clients.
Over the ensuing years, I built a respectable investment business. By
following Buffett’s teachings and stock picks, I achieved for my clients
more investment success than failure. Most of my clients intellectually
bought into the approach of thinking about stocks as businesses and try-
ing to buy the best businesses at a discount. The few clients who did not
stick around left not because the Buffett approach was unsound, but be-
cause being contrarian was too much of an emotional challenge. And
a few left simply because they did not have enough patience to see the
process succeed. They were impatient for activity, and the constant itch
to do something—anything—drove them off the track. Looking back,
I don’t believe I dealt with anyone who openly
disagreed with the logic
of Buffett’s investment approach, yet there were several who could not
get the psychology right.
2 0 2
A F T E R W O R D
All the while, I continued to collect Buffett data. Annual reports,
magazine articles, interviews—anything having to do with Warren
Buffett and Berkshire Hathaway, I read, analyzed, and f iled. I was like a
kid following a ballplayer. He was my hero, and each day I tried to
swing the bat like Warren.
As the years passed, I had a growing and
powerful urge to become a
full-time portfolio manager. At the time, investment brokers were com-
pensated on their purchases and sales; it was largely a commission-based
system. As a broker, I was getting the “buy” part of the equation right,
but Buffett’s emphasis on holding stocks for the long-term made the
“sell” part of the equation more difficult. Today, most financial service
businesses allow investment brokers and financial advisors to manage
money for their clients for a fee instead of a commission—if they choose.
Eventually I met several portfolio managers
who were compensated for
performance regardless of whether they did a lot of buying or selling.
This arrangement appeared to me to be the perfect environment in
which to apply Buffett’s teachings.
Initially, I gained some portfolio management experience at a local
bank trust department in Philadelphia, and along the way obtained the
obligatory Chartered Financial Analyst designation. Later, I joined a
small investment counseling firm where I managed client portfolios for a
fee. Our objective was to help our clients achieve a reasonable rate of re-
turn within an acceptable level of risk. Most had already achieved their
financial goals, and now they wanted to preserve their wealth. Because of
this, many of the portfolios in our firm were balanced between stocks
and bonds.
It was here that I began to put my thoughts about Buffett down
on paper, to share with our clients the
wisdom of his investment ap-
proach. After all, Buffett, who had been investing for forty years, had
built up a pretty nice nest egg; learning more about how he did it cer-
tainly couldn’t hurt. These collected writings ultimately became the
basis for
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