Buffettology

Buffettology
By Mary Buffett & David Clark
1997, Simon & Schuster

The Previously Unexplained Techniques that have made Warren Buffett the Worlds most Famous Investor

Amazon Link: Buffetology, My favorite Warren Buffett Book

Here is my personal summary/cliff notes of Mary's incredible ideas, which I am sure will net me years of pure enjoyment as my personal fortune compounds.

Stock Decisions:
You are buying a part of an enterprise
buy excellent businesses at a price that makes sense
The offering price determines your compounding gains
The earnings can be given to the investors or kept by the company for continued gains
Responsible management reinvests gains to increase earnings rate of increase

Warrens Intrinsic Value Method:
"Investment is most intelligent when it is most bussinesslike."
Investing from a business perspective means making decisions on expected returns alone
Intrinsic value is determined by the companies earnings
Projecting a future value looks at rates of earnings growth over time
Annual compounding rate of return is the estimated future stock price/offering price across time
10$ stock in 10 years at 50$ has a 17.46% rate of return using SG Texas financial calculators
Shopping around annual compounding rate is key to finding good investments
"how much money can this business predictably earn and what is the asking price?"
compare $/share of earnings to stock price: $5/share x 100shares = $500 profit/year
company can reinvest $500 or pay a dividend

Predictability:
focus on high degree of certainty to remove risk from investment
improves determination of business' future value
discounting to present value means determing future %compounding based on price change over time
So BA-35 Texas Solar Calculator does this calculation to find price now for % gained later

Value Now Formulation
Warren takes yearly per share earnings/offering price = return on investment (ROI)

Buying Compass:
Focus on the kind of business you would like to be in first
Then let the buying price determine buy decision
(like letting a break-up with her boyfriend before you go after the girl)
The Right prices in Certain Businesses with exceptional Economics
Do companies profitably employ earnings retained, or spoil them on grandeur? if no dividend

Leverage:
Other peoples money to profit from your investment expertise
Warren started an investment partnership and later acquired insurance companies

General Foods example:
1979, asking price of 37$/share, earnings of $4.65/share, earnings growing at 8.7% annually
so 13.6% return was better than 10% on bonds, and 8.9% earnings growth