The shelves are full of books that are aimed at helping you learn how to invest like Warren Buffett does. I generally find those books to be a waste of time. If you want to invest like Warren Buffett, why not simply buy Berkshire Hathaway's stock? Well, this book takes the positive side of that perspective. In the process, you can learn much more about how Mr. Buffett has invested for himself and others at Berkshire Hathaway. Where most books about Mr. Buffett's work are overly simple and general, this one captures many fine subtleties. The book's main weakness is that Mr. Miles is not open to seeing the vulnerabilities for the future in Mr. Buffett's approach.
This book had an interesting genesis. It started as posts by Mr. Miles on the Motley Fool bulletin boards. I suspect that we will see more examples of this kind of authorship in the future, and think that it is a good idea. Authors get feedback on-line about their ideas, and can create a market for the book at the same time. Very nicely done!
The book contains literally 101 arguments in favor of buying and holding Berkshire Hathaway stock. I suspect that there was a target number set, because some of the arguments repeat each other. The appendix is very valuable in providing more fundamental perspectives on buying stocks for a new investor.
Space limits me from praising or critiquing each concept, so I will just focus on a few points. In doing this, though, you should realize that there is a lot of very solid and valuable material here.
First, just for the record, let me note that there are CEOs whose stocks have outperformed Mr. Buffett's record in the last 10 years. These are concentrated in the high technology and service business areas. I suspect that there will be more and more of these in years to come. My studies of the most successful CEOs show that these success rates are improving. Where Mr. Buffett was once near the top of the list, he increasingly is falling in the rankings. This is primarily due to his focus on avoiding technology investments. Those have been and will be the driving force of economic growth, and it's tougher to grow fast if you stick to the sidelines. As Mr. Miles points out, this avoidance does have advantages -- your stock is not as volatile on the downside (as we have seen in the last year or so).
Second, you will find it helpful to compare this book to John Bogle's excellent book, Common Sense About Mutual Funds, which makes the case for indexed fund investing. In many ways, Mr. Buffett outdoes the index funds -- by having lower management fees, less stock turnover, and fewer taxes incurred.
Third, Mr. Miles is in denial about that fact that Mr. Buffett is a man in his 70s. You will not be able to invest with Mr. Buffett after he is no longer active as CEO of Berkshire Hathaway. While no one knows when that will happen, and no one wishes it to happen, it will happen regardless. Mr. Miles treats this like it could be the best thing that ever happened to the company. I would have liked to have seen more discussion about the downside risk. Avoiding risk and losses, after all, is what Mr. Buffett's approach is all about. I know of no investment vehicle that did as well after its founder retired.
Even if you have no interest in buying Berkshire Hathaway stock, you can learn a lot about good investing from seeing what Mr. Buffett does, as expressed here.
As to buying Berkshire Hathaway, for most people this would be a good move as an alternative to some of the funds they would otherwise put into mutual funds that are actively managed. But I would argue that no one should have more than 10 percent of their financial assets here. A lot of Mr. Buffett's big winners in the past (like Gillette and Coca-Cola) are having real problems. He is also fueling the company's growth with exotic insurance products. The world is full of people who found the market could turn on them in specialized financial services.
If you do want to buy this stock, wait until the current bear market on Wall Street is over. The stock will probably be cheaper then. But feel free to follow and learn about Berkshire Hathaway in the meantime.
A good thing to do is to think about who is going to be the next Warren Buffett and is younger, and invest some there as well. Who are your candidates? I have mine.
Achieve your financial goals, whatever they may be!
on 15 November 2009
Many people misunderstand Berkshire Hathaway. The author argues that investing in Berkshire Hathaway is similar to investing in a mutual fund but paying virtually no management fees and having the best capital allocator, Warren Buffett, at the helm. For those who do not have the time to analyze individual stocks on their own, Berkshire Hathaway is a good place for the investment dollars. However, investors should keep in mind that as Berkshire Hathaway gets larger and larger, it becomes harder and harder to deliver above average investment returns. Because all the investments under the umbrella of Berkshire Hathaway are producing cash, Mr. Buffett has to find new places for these investment dollars. Investing in small-cap companies is simply not economical. Individual investors do not have this restriction.
- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market