Hagstrom concludes that Buffett’s approach to investing represents progress in the financial world. When Buffett invests, he evaluates the business. He is not striving to achieve superior quarterly performance results, but rather he is interested in achieving superior long term results. Buffett’s approach is simplistic, logical and yet retains an incredible track record of success.
Buffett believes that investors and businesspersons should look at a company in the same way. A businessperson most often looks at how much cash can be generated from a company and investors should do the same. Buffett has told us that over time, the price of a company’s stock will track to its underlying business economics. Therefore, study and understand a business thoroughly before deciding to invest.
Buffett has experience in operating businesses, and this is something he values greatly. Buffett said “one day on land is worth a thousand years of talking about it and one day running a business has exactly the same kind of value”.
Another key aspect to Buffett’s approach to investing is in evaluating management. We have seen with the Berkshire investments reviewed in this book, that Buffett invests in companies that possess shareholder-oriented managers. Other managerial qualities that Buffett respects include the ability to control and cut costs and resisting the institutional imperative of blindly following what others in the industry are doing.
This concludes the review of the Warren Buffett Way.