The Warren Buffet Way - Summary and review

Compounding does not just apply to interest.

"Compound interest is eight wonder of the world. He who understands it, earns it. He who doesn't, pays it."

- Albert Einstein

A great investor learns both about how to succeed AND how to not fail.

Entrepreneurial lesson #1: Understand your business

Learn from others that previously failed, write down why it is not a good idea, and learn everything about the business.

Entrepreneurial lesson #2: Take action

"The way to begin to make money, is to begin."

- Minaker

People get frozen if they spend too much time seeking counsel from others, instead of taking action.

"If you ask the advice of enough people, you are sure to almost end up doing nothing."

- Minaker

This book changed Warren Buffet's life.

Value based investing - start by figuring out what a stock might be worth.

• Add up company's current asset (account receivables + cash + current assets)

• Subtract all its liabilities

That get's you the company's net worth. Now you can look at the stock price.

If the price is:

• (A) Below the net assets -> worthwhile and potentially profitable investment

• (B) Above the net assets -> not worth investing

It goes something like this.

You should treat market quotations as they were coming from your partner in a private business called Mr. Market.

He appears daily and offers you to buy your interest, or sell you his. Even though your common business may be economically very stable, Mr. Market's quotations will be anything but.

Mr. Market has incurable emotional problems. At times he is either:

• (A) Euphoric and only sees the positive factors affecting your business. Then he will name a high buy-sell price, as he fears you will buy his interest and he misses out on the big immediate gains.

• (B) Depressed and can see nothing but trouble ahead for both the business and the world. Then he will name a low buy-sell price, terrified that you will unload your interest on him.

Mr. Market also has another characteristic - he does not mind being ignored. If his quotations are uninteresting to you, he will be back with new ones tomorrow.

Some notes:

• If he shows up some day in a particularly foolish mood - you are free to ignore him, or take advantage of him.

• If you cannot value your business far better than Mr. Market, you don't belong in the game.

An investor will succeed by coupling good business judgement with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace.

- Warren Buffet

More coming soon..