Thursday, 7 June 2012

Book Review: The Essential Buffett by Robert G Hagstrom

The Essential Buffett: Timeless Principles for the New Economy
The Essential Buffett is a book which attempts to simplify and explain the life, teachings, investment philosophy of Warren Buffett – the world’s richest investor.  The book is a cross between a Warren Buffett biography and a ‘how to’ book on focus investing.  I would rate this book 3 / 5.

Topics covered include:
  • A background to Warren Buffet including a biography of the man and his most visible investments; 
  • The theories and individuals that influenced his development as an investor;
  • The criteria and method that Buffett uses to choose his investments; 
  • The theoretical basis for focus investing; 
  • Evidence of others who use focus investing; 
  • The emotional side to investment ; and 
  • Applying the principals of focus investing beyond the scope of what Warren Buffet invests in
Writing a book (especially one less than 300 pages) that covers all these topics adequately was always going to be a challenge for any author and while Hagstrom does a reasonable job in ‘The Essential Buffett’ the reader is left feeling that there is a lot more reading that they need to do before they are able to apply any of what Buffett does.

This book is suited to those who are beginning their investment journey and are seeking an investment framework that works for them.  It covers a lot of in depth concepts at a very high level – those who have already embraced the concept of Focus investing are best placed to look elsewhere for more detailed books on methodology. 

The core lesson from this book is that investing should be able core value – are you getting a good deal (and not paying too much) for what the underlying business really is?  The author provides very strong (albeit unintended from his point of view) evidence for this.  The book was written prior to the tech bubble bursting in the early 2000s and it attempts to provide a value investing analogy to invest in technology stocks.  In hindsight we see that the principals of value investing hold true in all sorts of markets while attempting to extend the philosophy to new concepts and ‘fads’ without proven earnings rarely yields the same returns.
ü  A good high level book for beginners in the value investing philosophy
ü  Does not attempt to make the
task of value investing sound easy or simple – emphasises the need for research and investment education
ü  An engaging, well written book which should keep anyone interested in investing glued to the pages
û  Does not go into sufficient detail in any of the concepts covered in the book
û  Inadequately explains the potential pitfalls of focus investing (e.g. the book provides significant evidence that focus investing provides higher average returns than diversified investments however does not adequately emphasise the fact that this also comes with a much higher risk of loss)
û  Attempts to cover too much in a relatively short book.  This book could have done without the chapters related to other focus investors and other concepts and ideas covered in this book
  • I felt that this book had so much potential and was written in a great way though fell short of what it set out to do
  • A book which purports to be about Warren Buffett and his investment methodology should be solely about that – the book seemed to transform halfway through from one about Warren Buffett and his search for value in stocks into a book about focus investment 
  • I would still buy this book to use as a road map for further learning.  That is while Hagstrom does not cover the ideas in sufficient detail he has references to books and ideas which provide greater detail on the ideas which he covers

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