According to a recent SEC filing, Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) sold another 1.35 million shares of Moody's (NYSE: MCO). Buffett has said that his favorite investing period is forever -- a statement he made back in 1998 when he bought around 14 million shares of Coca-Cola (NYSE: KO). But Buffett isn't afraid to sell. In the past year, Buffett has sold shares in ConocoPhillips (NYSE: COP), Procter & Gamble (NYSE: PG), and Kraft (NYSE: KFT). So what are the big misconceptions about the Oracle of Omaha? What are investors missing when it comes to understanding Buffett? Here are the views of four well-known authors.
Andrew Kilpatrick, author, Of Permanent Value: The Story of Warren Buffett
People miss two things about Buffett. First, he is in fact a genius and the rest of us mortals can't relate to that. If you tell people he can read and absorb a book in one sitting, people don't believe it because they can't do it. Secondly, people don't factor in his personal touch of encouragement and wit which breeds loyalty. People knock themselves silly to win his praise.
Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life
On the business side, I think the biggest misconception about him is that he is a "buy and hold forever investor." He has never said that. I think that people have made a mistake of pulling a few words or a sentence or two here and there and treating that as an all-weather investing technique. It doesn't really work because Warren himself is quite opportunistic, and he does trade and he does adapt. So anybody who thought that you could buy four or five big-cap growth stocks at a fair price and then you could just sit back and just go to sleep -- that has not worked out very well. And he [Buffett] would be the first to say so.
Princeton economics professor Burton Malkiel, author of A Random Walk Down Wall Street
Warren Buffett is exceptional; there is no question about it. And you know what? If I had known that Warren Buffett was going to be Warren Buffett, when I first wrote the book, I would have said, "Buy Berkshire Hathaway; don't buy an index fund." And you know, there will be some Warren Buffetts in the future. There may be a few of them, but here is the problem: I don't know who they are and I don't think anyone else knows who they are; it's like looking for a needle in the haystack. And I would say fine, you want to go and try that, that is fine, but at least have the core of your portfolio in the haystack, because once you try to find that unusual person like Warren Buffett, you are more likely to do worse than average rather than getting the market return.
Let me just also say something else about Warren Buffett. I think there is a myth that Warren Buffett just reads Graham and Dodd and buys stocks that are cheap. Warren Buffett more or less buys companies. He can do things that other people can't do. In fact, take one of his first very successful investments, when he bought a big position in The Washington Post, he then was invited on to the board and was a very influential board member that helped turn the company around. He is a great businessman and a lot of the businesses he owns have been helped by his acumen, but I just think it is important to realize that it isn't simply that he is a stock picker and buys them when they are cheap and sells them when they are expensive. In fact, Warren Buffett has said the right holding period for a stock is forever.
Georgetown University McDonough School of Business professor Prem Jain, author of Buffett Beyond Value: Why Buffett Looks to Growth and Management When Investing
People think of Buffett as if he was basically a duplicate of Benjamin Graham, in the sense that he reads the financial statements; examines numbers such as price-to-earnings ratio, price-to-book ratio, and other metrics; and invests using the so-called buy low, sell high paradigm. I think that is a misconception. He himself has said that it is better to buy a good company at a fair price. Consider his purchases, especially the latest $36 billion purchase of Burlington Northern Santa Fe. He seems to have paid at least a fair price in the sense that he paid a price-to-earnings ratio of 18.
So this whole idea that he is a value investor alone is a misunderstanding once we examine the way he invests. He is a value investor in the sense that he focuses a lot on the downside risk -- as he has said a couple of times, rule No. 1, you should not lose money, and that is a very important aspect of value investing. But that is not all he does. It is very important to realize that the companies in which he has invested have generally grown fast. So, he is looking for companies that are likely to grow in the future, and his valuation is not based just on the current price-to-earnings ratio or the current-price-to-assets ratio or the current-price-to-book ratio. He himself says that he is 85% Benjamin Graham and 15% Philip Fisher, Philip Fisher being a growth investing guru.
I think that people seem to consider him to be stuck on the value concept rather than the growth concept. However, as time has progressed in the last 50 years or so, he has been focusing a lot more on growth than people realize.
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