Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett the World's Most Famous Investor

Product Information

There are dozens of books written on the topic of value investing, and many even claim to reveal the secrets that made superinvestor Warren Buffett billions of dollars. David Clark and Mary Buffett's bestselling book Buffettology , as the name suggests, belongs to the latter category, but the reason it stands out is that it actually delivers on its promise. Without some predictability of future earnings any calculation of future value is mere speculation. Notice that Buffett and Munger prefer companies which do not pay a dividend. This is because dividends lower retained earnings and therefore limit future growth. A company should only pay a dividend, according to the authors, if it has no better way of allocating the money, for example if a company has grown to the size of Apple (AAPL) and therefore has limited room for growth left. And the one that we've got a good opportunity with, at long last, was Fevertree Drinks (LSE:FEVR). And that, you would have thought, should have gone into Buffettology, given the size of it. The reason we put it into Free Spirit and not Buffettology, was that Buffettology already owns Diageo (LSE:DGE), which is its sort of premium-brand business, and it also owns Barr (A G) (LSE:BAG), in a more sort-of general area so, we thought, well, Fever-Tree will go more naturally into Free Spirit. It doesn't have that exposure. So that's why it went in there. But in terms of Buffettology, as I say, the only thing that we've really done is and it's been very limited, is just top up one or two. We haven't put any new names, as they call it, into the portfolio.

Kyle Caldwell, collectives editor at interactive investor: Hello and welcome to our latest Insider Interview . Today in the studio I have with me Keith Ashworth-Lord, fund manager of the CFP SDL UK Buffettology fund. Keith, thanks for coming in today. Learn how to approach investing the way Buffett does, based on the authors' firsthand knowledge of the secrets that have made Buffett the world's second wealthiest man Kyle Caldwell: Could you give a couple of examples of companies that you already hold that you've been topping up? Kyle Caldwell: 2022 is a year that most investors will want to forget. Your fund, it was a tough year. It was down 23% in 2022. Was this primarily down to the macro rather than the micro?

In a Forbes article, which the book quotes, Charlie Munger summarized Berkshire Hathaway's strategy as follows:

Any administrative or dealing enquiries about the Fund should be directed to the ACD’s appointed registrar on 0330 123 3739 (UK) or +44 (0)20 3975 1021 (international).It is not difficult to see why, because retained earnings is the money that a company can reinvest into the company for future growth, and the return on equity determines to a large extend the extra income that will be generated from these investments. So the higher the retained earnings and the higher the return on equity, the faster the intrinsic value of a company will grow over time. Keith Ashworth-Lord: Very rarely. I mean, our portfolio turnover currently, if you exclude where we've had to sell things, say, for meeting redemptions or whatever, it's currently 7.5%, and that's high by historic standards. So no, we don't chop and change the fund. Like Buffett, our ideal holding period is forever. I had also read by then a couple of other books from Mary Buffett (The Oracle’s ex-daughter in law, his son’s Peter ex-wife). She wrote several. This one will remind you, that when buying great businesses, it’s all about having a durable competitive advantage, a long product life ahead, with little change, little disruption probability, little capex requirement, so in other words tons of free cash flow. If you can buy this business when the price is fair or even better, when it’s cheap, then you never need to sell. Don't believe it? Ask people you know why they chose to invest in a particular mutual fund and they will more than likely tell you it was because the fund was ranked as a top performer. The nature of the mutual fund beast influences a lot of very smart people into playing a short-term game with enormous amounts of capital. No matter what fund managers' personal convictions may be, producing the best short-term results possible is the way to keep their job.

Short-sightedness and the bad news phenomenon. What are these things and what do they have to do with Warren Buffett? The answer is everything. With the help of Munger, Buffett seriously improved upon Graham. The key realization was that if you only focus on getting something for the cheapest possible price, you will end up with crappy companies in your portfolio which never realize their value, or even worse, see their value decline over time, because many of these cheap companies are cheap for a good reason! Warren Buffett does not calculate the intrinsic value and then buys at half that price. Instead, he calculates the Expected Annual Compounding Rate of Return , compares it with other available investments, and buys the best one.We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Keith Ashworth-Lord: Yes, it's a very disciplined process. We start off looking for businesses with an economic moat, which effectively means they've got barriers to entry and they've got pricing power. And the way we go about it is we analyse the growth potential of the companies in their markets, the growth potential of the markets themselves.Tax rules can change and benefits depend on individual circumstances. Please remember loyalty bonuses received on funds held in the Vantage ISA or Vantage SIPP are exempt from tax. If you desire to have a real increase in your purchasing power, then it is necessary that the return on your wealth be at least equal to the effects of inflation and taxation." Buffettology Timeless investing strategies for any economy—in this step-by-step guide, you will learn the formula Warren Buffet used to succeed.