J.K. LASSER’S™ PICK STOCKS LIKE WARREN BUFFETT

[Pages:306]J.K. LASSER'STM

PICK STOCKS LIKE WARREN BUFFETT

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J.K. LASSER'STM

PICK STOCKS LIKE WARREN BUFFETT

Warren Boroson

John Wiley & Sons, Inc.

New York ? Chichester ? Weinheim ? Brisbane ? Singapore ? Toronto

Copyright ? 2001 by Warren Boroson. All rights reserved.

Published by John Wiley & Sons, Inc.

Quotations from Philip Fisher are from Common Stocks and Uncommon Profits, by Philip A. Fisher. Copyright? 1996. Reprinted by permission of John Wiley & Sons, Inc.

Brief quotations from Ben Graham are from pp. 94, 96, 100, 101, 106, 109, 110, 284, of the The Intelligent Investor Fourth Revised Edition, by Benjamin Graham. Copyright? 1973 by Harper & Row, Publishers, Inc. Reprinted by permission of HarperCollins Publishers, Inc.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ@.

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Contents

Introduction: What Investors Can Learn from Warren Buffett

1 It's Easy to Invest like Warren Buffett 2 The Achievement of Warren Buffett 3 Buffett: A Life in the Stock Market 4 The Influence of Benjamin Graham 5 The Influence of Philip Fisher 6 How Value and Growth Investing Differ 7 Buffett's 12 Investing Principles 8 Don't Gamble 9 Buy Screaming Bargains 10 Buy What You Know 11 Do Your Homework 12 Be a Contrarian 13 Buy Wonderful Companies

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1 9 17 23 33 45 53 55 61 69 73 77 83

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CONTENTS

14 Hire Good People

91

15 Be an Investor, Not a Gunslinger

97

16 Be Businesslike

115

17 Admit Your Mistakes and Learn from Them

121

18 Avoid Common Mistakes

127

19 Don't Overdiversify

135

20 Quick Ways to Find Stocks That Buffett Might Buy

141

21 William J. Ruane of Sequoia

145

22 Robert Hagstrom of Legg Mason Focus Trust

153

23 Louis A. Simpson of GEICO

157

24 Christopher Browne of Tweedy, Browne

161

25 Martin J. Whitman of the Third Avenue Funds

171

26 Walter Schloss of Walter & Edwin Schloss Associates

177

27 Robert Torray of the Torray Fund

185

28 Edwin D. Walczak of Vontobel U.S. Value

197

29 James Gipson of the Clipper Fund

205

30 Michael Price of the Mutual Series Fund

209

31 A Variety of Other Value Investors

221

32 Putting Everything Together

237

Appendix 1 Wanted: Cheap, Good Companies

243

Appendix 2 Berkshire Hathaway's Subsidiaries (2000)

245

Appendix 3 Quotations from the Chairman

246

Appendix 4 "65 Years on Wall Street"

255

Appendix 5 Martin Whitman on Value Versus Growth

265

Appendix 6 A Weekend with the Wizard of Omaha: April 2001 268

Appendix 7 "If You Own a Good Stock, Sit on It."--Phil Carret 274

Glossary

279

Index

283

Introduction: What Investors Can Learn from Warren Buffett

Berkshire Hathaway's stock has risen nearly 27 percent a year for the past 36 years. For its consistency and profitability, this company, managed by Warren E. Buffett of Omaha, has been amazing.

If you asked Buffett how you, as an individual investor, could go about imitating his spectacularly successful investment strategy, his answer would be: buy shares of Berkshire Hathaway. He happens to be an unusually sensible person, and that is clearly the best answer.

But if you buy or intend to buy other stocks on your own, either one-at-a-time or through a managed mutual fund, there is much that you can learn by studying Buffett's tactics.

Why not just do the obvious and put all your money into Berkshire Hathaway stock? One reason: It's mainly an insurance holding company--Buffett is an authority on insurance. Because of this, the stock has virtually no exposure to many areas of the stock market, such as technology and health care. A second reason: Berkshire has become so enormous that its future performance is handicapped, much like the odds-on favorite in a horse race being forced to carry extra weights.

In short, you might do better on your own. First, because you have a smaller, more nimble portfolio. And, second, because you might shoot out the lights by overweighting stocks in whatever field you're

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