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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
Listen to the Intro
Buffettology summary
Mary Buffett
The Previously Unexplained Techniques That Have Made Warren Buffett The World's Most Famous Investor
20 mins
Table of Contents
Buffettology
summarized in 6 key ideas
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Key idea 1 of 6
You should invest in a businesslike manner.
Warren Buffett’s great mentor was a man named Benjamin Graham. Graham was a British-born American famous for a book called Security Analysis – it’s something of a sacred tome for generations of investors.
One of Graham’s central ideas was that investing is most intelligent when it is most businesslike. This idea shaped the young Warren Buffett’s philosophy, becoming an essential part of his investment strategy. What exactly does businesslike mean, though?
Essentially, it means thinking of the stock you’re going to buy as a business, and not as a speculative lottery ticket. As buying a company’s stock is about owning a part of that business, this isn’t such a big leap to make.
If you were thinking of buying a business, what would you look for? If you were wise, you’d want one that could give you high, predictable annual profits, with a minimal amount of risk.
Imagine you were going to buy your local drugstore. First, you’d dig through its books to see if the business was consistently profitable, and whether or not that might change. You’d look to see if a big competitor was on the horizon, or whether its products would still be in demand for a while. If everything still looked good, you’d enquire about the price.
Then, you’d compare the asking price with the store’s annual earnings to see what kind of return you’d get. Let’s say that the store’s price was $100,000 and its annual earnings $20,000 on average. That would be a 20 percent yearly return on your money. Next, you’d shop around and see whether or not a 20 percent return was the best you could find. If it was, then, and only then, should you make a purchase. You should think about your stock picks in exactly the same careful way as you’d approach buying this drugstore.
Investing like this also means thinking long-term, like a good businessperson. Unlike many on Wall Street, Warren Buffett prefers to hold a stock for a long time. Many speculators would rather make, say, a quick 35 percent return, rather than an annual, compounding 20 percent over a few decades. But by selling their stock early, they’d incur capital gains tax, which would reduce their 35 percent return to just 25 percent. Then, they’d have to reinvest, risking poorer investments as they move their money around.
Investing the Warren Buffett way means high, predictable returns over the long term. And, most of the time, the Warren Buffett way wins.
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What is Buffettology about?
Buffettology (1997) gives an insider’s perspective on Warren Buffett’s investment techniques, revealing certain strategies for the very first time. From learning when to purchase a stock to pinpointing the most profitable businesses, Buffettology offers detailed tips and methods from the most famous investor in the world.
Who should read Buffettology?
- Budding Buffettologists
- Investors and speculators of any kind
- Anyone interested in getting their finances in order
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