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The Warren Buffett Way – Investment Strategies of the World’s Greatest Investor.

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Warren Buffett remains one of the most sought-after and watched figures in business today. He has become a billionaire and investment sage by buying chunks of companies and holding onto them, managing them as businesses, and eventually reaping huge profits for himself and investors in Berkshire Hathaway.

The first two editions of The Warren Buffett Way gave investors their first in-depth look at the innovative investment and business strategies behind the spectacular success of living legend Warren E. Buffett. Tracing Warren Buffett’s career from the beginning, Hagstrom told listeners exactly how, starting with an initial investment of only $100 Buffett built a business empire and has an estimated net worth of $44 billion.

The Third Edition of The Warren Buffett Way will focus on the timeless principles and strategies behind Buffett’s extraordinary investment success. There will be new chapters on the important distinctions between investment and trading and an examination of the most successful disciples of Warren Buffett.

Some less important material will be deleted and the overall focus will be to create an edition that will stand the test of time, distilling Buffett’s success formula in a way that will provide value to listeners for decades to come.

Warren Buffett is the most famous investor of all time and one of today’s most admired business leaders. He became a billionaire and investment sage by looking at companies as businesses rather than prices on a stock screen.

The first two editions of The Warren Buffett Way gave investors their first in-depth look at the innovative investment and business strategies behind Buffett’s spectacular success.

The new edition updates readers on the latest investments by Buffett. And, more importantly, it draws on the new field of behavioral finance to explain how investors can overcome the common obstacles that prevent them from investing like Buffett.

The greatest challenge to emulating Buffett is not in the selection of the right stocks, Hagstrom writes, but in having the fortitude to stick with sound investments in the face of economic and market uncertainty.

The new edition explains the psychological foundations of Buffett’s approach, thus giving readers the best roadmap yet for mastering both the principles and behaviors that have made Buffett the greatest investor of our generation.

The First Edition Forwords by Peter Lynch

One weekday evening early in 1989 I was home when the tele-phone rang. Our middle daughter, Annie, then eleven, was f irstto the phone. She told me that Warren Buffett was calling. I wasconvinced this had to be a prank. The caller started by saying, “This isWarren Buffett from Omaha [as if I might confuse him with some otherWarren Buffett]. I just f inished your book, I loved it, and I would like toquote one of your sentences in the Berkshire annual report.

I have alwayswanted to do a book, but I never have gotten around to it.” He spokevery rapidly with lots of enthusiasm and must have said forty words inf ifteen or twenty seconds, including a couple of laughs and chuckles. Iinstantly agreed to his request and I think we talked for f ive or ten min-utes.

I remember he closed by saying, “If you ever visit Omaha anddon’t come by and see me, your name will be mud in Nebraska.”Clearly not wanting my name to be mud in Nebraska, I took himup on his offer about six months later.

Warren Buffett gave me a per-sonal tour of every square foot of the off ice (which did not take long, asthe whole operation could f it inside less than half of a tennis court), andI said hello to all eleven employees. There was not a computer or a stockquotation machine to be found.After about an hour we went to a local restaurant where I followedhis lead and had a terrif ic steak and my f irst cherry Coke in thirtyyears.

We talked about jobs we had as children, baseball, and bridge, and exchanged stories about companies in which we had held investmentsin the past. Warren discussed or answered questions about each stockand operation that Berkshire ( he never called his company BerkshireHathaway) owned.

Why has Warren Buffett been the best investor in history? What ishe like as an individual, a shareholder, a manager, and an owner of entirecompanies? What is so unique about the Berkshire Hathaway annual re-port, why does he donate so much effort to it, and what can someonelearn from it? To attempt to answer those questions, I talked with himdirectly, and reread the last f ive annual reports and his earliest reports aschairman (the 1971 and 1972 reports each had only two pages of text).

In addition, I had discussions with nine individuals that have been ac-tively involved with Warren Buffett in varied relationships and from dif-ferent viewpoints during the past four to over thirty years: Jack Byrne,Robert Denham, Don Keough, Carol Loomis, Tom Murphy, CharlieMunger, Carl Reichardt, Frank Rooney, and Seth Schof ield.In terms of his personal qualities, the responses were quite consis-tent. Warren Buffett is, first of all, very content.

He loves everythinghe does, dealing with people and reading mass quantities of annual andquarterly reports and numerous newspapers and periodicals.

As an in-vestor he has discipline, patience, f lexibility, courage, conf idence, anddecisiveness. He is always searching for investments where risk iseliminated or minimized. In addition, he is very adept at probabilityand as an oddsmaker.

I believe this ability comes from an inherent loveof simple math computations, his devotion and active participation inthe game of bridge, and his long experience in underwriting and ac-cepting high levels of risk in insurance and in reinsurance.

He is will-ing to take risks where the odds of total loss are low and upsiderewards are substantial. He lists his failures and mistakes and does notapologize.

He enjoys kidding himself and compliments his associates inobjective terms.Warren Buffett is a great student of business and a wonderful lis-tener, and able to determine the key elements of a company or a com-plex issue with high speed and precision.

He can make a decision not toinvest in something in as little as two minutes and conclude that it istime to make a major purchase in just a few days of research. He is al-ways prepared, for as he has said in an annual report, “Noah did not startbuilding the Ark when it was raining.”

Warren Buffett has established a high standard for the future per-formance of Berkshire by setting an objective of growing intrinsic valueby 15 percent a year over the long term, something few people, and noone from 1956 to 1993 besides himself, have ever done.

He has stated itwill be a diff icult standard to maintain due to the much larger size ofthe company, but there are always opportunities around and Berkshirekeeps lots of cash ready to invest and it grows every year. His conf i-dence is somewhat underlined by the f inal nine words of the June 1993annual report on page 60: “Berkshire has not declared a cash dividendsince 1967.”Warren Buffett has stated that he has always wanted to write a bookon investing.

Hopefully that will happen some day. However, until thatevent, his annual reports are f illing that function in a fashion somewhatsimilar to the nineteenth-century authors who wrote in serial form:Edgar Allen Poe, William Makepeace Thackery, and Charles Dickens.

The Berkshire Hathaway annual reports from 1977 through 1993 areseventeen chapters of that book. And also in the interim we now haveThe Warren Buffett Way, in which Robert Hagstrom outlines Buf-fett’s career and presents examples of how his investment technique andmethods evolved as well as the important individuals in that process.

The book also details the key investment decisions that produced Buf-fett’s unmatched record of performance. Finally, it contains the think-ing and the philosophy of an investor that consistently made moneyusing the tools available to every citizen no matter their level of wealth.

– Peter Lynch.

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