Beating the average is “not” about finding the best of the best winners every year! It is about avoiding the clunkers. (Remember Buffett’s two rules!!! The secret is buried in there when you understand what he was saying.)
Winners are harder to find. But losers? Some are hard to spot and others stand out like a sore thumb. These deadbeats will break the Buffett rules and put you in the position of catchup. Hard to beat the indexes coming from behind.
The best way to learn is by studying the best. Experience has value as long as it also has a foundation in knowledge. Reinventing the wheel again and again is a fool’s errand and not conducive to personal development.
Studying the best takes many forms. Working for someone at the top of their game is the best way to learn, but the opportunities to do so are limited. Formalized education communicates facts without always presenting the best in your selected field. The number one way to learn from the masters is to study them through intense research of their work. The greatest minds are available like never before. YouTube videos of their speeches and books and news articles on their practices give us massive quantities of material to learn from.
Today we will focus on a simple story shared by Charlie Munger, Warren Buffett’s friend and right-hand man at Berkshire Hathaway.
Over the years I have met some truly awesome people. Mrs. Accountant and I used to frequent science fiction conventions and stalk authors I enjoyed reading. You would be surprised how many were thrilled (they acted thrilled) to break bread with the missus and me. Many of my heroes have either died or are getting up in age. I miss Zig Ziglar; I have a picture of me shaking hands with him over breakfast. Tony Robbins was busy as heck but still took time to talk. Beside my office desk I have a picture of me, Mrs. Accountant, Newt Gingrich, and Mark Green. Newt was Speaker of the House at the time and he was promoting his Contract with America. For the record I vote both side of the isle; it just happens the opportunity to have my picture taken with the Speaker of the House came up so I took it. Also sat at a round table with the Speaker and five other people in Green Bay talking politics and taxes.
From an early age I practiced picking out conversations from a crowd. It’s a neat little trick for a business owner to have. When you think I cannot hear you I may actually be listening in closely. Conversation in a crowded room takes skill with multiple conversations amped in volume so you can be heard over the cacophony. Picking out a select voice from across the room takes a lot of practice.
In the course of my work I am frequently asked to place a value on a business a client wants to sell or acquire. There are several ways to determine value in such situations. Today we are going to focus on the value of listed companies (stocks). Warren Buffett has stated most people should drop their money into an index fund and let it ride. If you are like me you follow Warren’s advice, but invest a portion of your money in individual stocks anyway.
There are numerous books on Warren Buffett and his style of investing. These books glance over the process Warren uses, focusing on tidbits of advice Warren has given over the years. Reading Graham and Dodd’s Security Analysis exposes how difficult it can be to value a company. Since Graham and Dodd, our understanding of value creation has grown and Warren Buffett uses the new analysis tools in his investing style.