This book is one of the five "optional" books that we've to read (and testable) for Financial Markets. I've just read the first four chapters and I'm already impressed! His strategy makes sense. If I may summarise the first four chapters:
Buffett's investment strategy is shaped by four men: Graham, Fisher, Williams, and Munger. From them, he synthesized the following - a need for margin of safety, control of his emotions and therefore use market fluctuations to his advantage, have as complete understanding and knowledge of the company as possible, investing in companies with above average potential and capable management, a good model for the intrinsic value of the business, and paying a fair price for quality companies.
Based on these, his strategy puts forward the following criteria:
1. Simple, undertandable business
2. Consistent earning power and possess good economics
3. Little debt as possible
4. Trustworthy managers/management team
And of course, the fundamental idea behind his strategy is basically that he is the owner of the business whether he buys a business or buy stocks in the business. Long term commitments instead of short term holding.
As I was reading, I recalled how my father lost a lot of his savings when he was playing the stock markets in the 80s. Part of the fault lies in the little understanding of the companies and dangerous strategy to make money from any arbitrage opportunities. I'm also wondering how I could apply to my own investment strategy. Given that my investments are mostly in mutual funds, it's definitely not easy to know who the managers of these funds are and my knowledge is limited to the prospectus and annual reports given out. Well, I've got more chapters to go. So, perhaps the answer will come along the way.
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