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Buffett's Holy Grail of Investing

Notes from a speech by Alice Schroeder at Darden Value Investing Conference 2008. This is so much better than her mass audience oriented book for insights on how Buffett invests.

-So much of Warren’s success has come from training himself into good habits. Aristotle said, “We are what we repeatedly do.” Excellence is not an act, but a habit.
-First habit of Buffett – hard work. What more can I do to get an edge on the other guy?
-Charlie Munger says, “The guy is a learning machine.” It does help to have a photographic memory, which he has.
-Horse Handicapping. First step is what is the odds that this business could be subject to any catastrophe risk that will make it fail? If there is any chance, he won’t go there.
-Figured out the one or two factors that can make a business succeed or fail. Then look at all the historical data, quarter by quarter, for every single plant and every competitor. Filled pages with this information. Rely totally on historical figures with no projections.
-What is the cat risk? You save yourself a lot of time and energy. Focused on efficiency. Being realistic about cat risk, don’t convince yourself otherwise later.
-Compounding. I want a 15% return on day one return-of-investment and compound growth from there using a huge margin of safety. Very simple thing. No DCF model.
-Doesn’t really care if the price goes up or down for the next year or two. He just knows at this price, odds are it will do well
-In 1999 he said it’s good idea to invest in the market when stock market’s value is 70-80% of GDP
-Inner Scorecard: The only person really qualified to advise you on what you can do is yourself. You know yourself better than anyone else does. You and you alone know how determined you are to make a success of any undertaking. And in the last analysis, about 90% of being successful in business is that indefinable thing which for lack of a better name we call guts.
-Follow your passion. Do what you really want to do. Don’t waste time with resume filling jobs. Don’t work for anybody that makes your stomach turn. You can’t get ahead that way. The odds are better for you to succeed if you love what you do.
-The purpose of margin of safety is to render forecasts unnecessary.

From her book:

The Buffett Method
-estimate an investment’s intrinsic value
-handicap its risk
-buy using margin of safety
-stay in circle of competence
-let it roll as compounding does the work

People who exploited [inefficiencies] them generally had a steady pulse and deep knowledge based on long study, and the willingness to put in full-time concentrated effort

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  • Ken

    How can he lose $16Billion in just a few months (http://www.cnbc.com/id/28877530) and then say he only invests in things with a high margin of safety? Where’s the safety in losing $16billion?