August 31, 2009
I recently finished reading this book. I found it often incredibly interesting. There certainly were sections of the book, which I did not enjoy or found boring. Yet, overall, I learned a great deal from the book. Mostly, I was given another side of Warren, which I was not that familiar with. One of my favorite quotes is one from Bruce Springsteen (at least I think it was his quote.) "Trust the art, not the artist." With that, I certainly admire Buffett's investing techniques, views on hard work, honesty and being yourself.
I often keep notes such as this as a future reference. These notes are hardly all inclusive. These are notes that I would like to remember. A reader of the book or these notes may find them to be unimportant to them. Or perhaps, someone would read the book, and find an entirely different set of notes to be important, whereas I did not include such notes.
The following are select passages and notes I took during my first reading of The Snowball.
1. Munger and Buffett both regarded rationality and honesty as the highest virtues. Quickened pulses and self-delusion are the major causes of mistakes.
2. In the spring of 1942, while toying with a Cities Services Preferred, he learned what the book claims is one of the most important lessons in his life.
a. Do not overly fixate on what you paid for a stock.
b. Do not rush unthinkingly to grab a small profit.
c. When investing someone else's money, and if you make a mistake, they will get upset at you.
3. Know what the deal is in advance before you agree to do it.
4. His dad always supported him. Yet, his dad would be disappointed in him if Warren didn't give 100%.
5. Ben Graham - In 1932 his firms' investment capital went from $2.5m to $375K. There was an influx of capital from Graham's partner's father in 1935 of $50k. By December 1935, Graham earned all the losses back.
6. Stocks often trade at odds with their intrinsic value. One could figure everything out correctly, but in the eyes of the market, you could still be considered wrong over a short period of time. You must build in a margin of safety.
7. Mr. Market is your servant, not your master.
8. Buffett would go to the library and read newspapers from 1929. "I couldn't get enough of it. I read everything - not just business and stock market stories. History is interesting, and there is something about history in a newspaper, just seeing a place, the stories, event the ads, everything. It takes you into a different world, told by somebody who was an eyewitness, and you are really living in that time."
9. He would eat a ham sandwich for breakfast, with a Pepsi-Cola.
10. Warren would borrow ideas from any useful source. "He called that riding coattails and did not care whether the idea was glamorous or mundane."
11. He with an agreement with the investors, which has not needed to be changed much as they evolved. He gave them a summary of the ground rules, explaining what he could and could not do. There were some things he wasn't sure if he could do or not, and he explained that as well. He explained how he would judge himself. "If you don't feel this way, you shouldn't join, because I don't want you unhappy while I'm happy or visa versa."
12. "Be fearful when others are greedy and greedy when others are fearful."
13. Warren's idea of a proper suit was one "that you could bury a ninety-year-old banker from a small town in western Nebraska in." Warren was never too concerned of dressing in style. Susie was never able to change that.
14. Buffett likes people that drive old cars and live modestly.
15. Buffett likes being in business with a person that would count sheets of toilet paper, and would never screw his partner in a deal.
16. "Buffett, Munger and Guerin understood how to invert every financial situation." If someone offered them trading stamps, they upended the situation and thought about owning the trading stamp company.
17. Schroeder claims Buffett's bias against technology investments was based on no margin of safety.
18. Buffett described owning a company that you would own if stranded on a desert island for 10 years. Buffett discussed Dow Jones as his choice. Yet, he never owned that company.
19. I enjoyed the many references to Henry Brandt. Henry's son, Jon is with The Sequoia Fund. Schroeder discusses Jonathan as a 6 year old, winning in chess, until he was "Buffetted" by Warren.
20. Schroeder claims Buffett wanted to own businesses with a sustainable competitive advantage and could outwit the natural cycle of capital creation and destruction as long as possible.
21. "Buffett is not a simple person, but he has simple tastes." Anonymous Forbes Columnist 1969.
22. "He would have been happy in a two-room garage apartment; the money was just his scorecard."
23. "You know, clothing holds its value better than jewelry."
24. "Our basic rule has always been that we won't deal with duty heads." Charles Munger (Fool did not allow for actual quote.)
25. Various excerpts from page 470 (hardcover). "By mid-1979, the stock market was sunk in gloom, and orders for stocks, Buffett said, were placed "with an eyedropper." "Investors piled into gold, diamonds, art, real estate, rare coins, mining stocks, feedlot cattle, and oil; "cash is trash" was the watchword of the day." "In Forbes, Buffett wrote the opposite: It was time for investors to buy stocks. "The future is never clear," he wrote, "you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long=term values." Schroeder claims he borrowed some money from banks and started to invest again. "Personally, I have never used more than 25% borrowed money in my life." Warren Buffett.
26. "The method was the same: estimate an investment's intrinsic value, handicap its risk, buy using margin of safety, concentrate, stay in circle of competence, let it roll as compounding did the work." Schroeder explaining compounding. She mentioned that these ideas were simple to understand, but that most people could not execute them.
27. Schroeder explained, predicting the company's prospects many years from now weren't a precise science. She mentioned that Buffett applied a margin of safety to his estimates. He would simply guess at the number, an educated guess at that. He did not use complicated formulas and spreadsheets.
28. "I was at my best giving financial advice when I was twenty-one years old and people weren't listening to me. I could have gotten up there and said the most brilliant things and not very much attention would have been paid to me. And now I can say the dumbest things in the world and a fair number of people will think there's some great hidden meaning to it or something." Warren Buffett
If you read this far, thank you very much. As always, constructive criticism welcome.
August 31, 2009