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Aventador (< 20)

The 'Warren Buffet' Approach, 'The Snowball', superior to Ben Graham



January 28, 2011 – Comments (4) | RELATED TICKERS: BRK-A , BRK-B , KO

Reading Buffet's biography ‘The Snowball' was an eye-opener on many different levels.

Buffet had huge respect for Ben Graham and the manner in which he found and analysed companies, but even he admitted in the end that Graham's "cigar butt" approach and the manner in which he (over-)diversified his investments was not necessarily the right way to move forward.  

A company's balance sheet and income statement told all according to Graham, but the reason why Buffet has stuck with investments like KO through all the ups and downs is because he realises the value in Coca Cola's products and their growth potential, even now. 

And more importantly that it's a company's management that can make or break a company, something which was faltering for a long time at KO and took much longer then Buffet expected to be properly rectified. 

In the end Buffet teaches you that patience is key when investing, something which is severely lacking in this day and age. Sometimes you have to wait and wait for the right opportunities to come along. And when they do, stick by your guns and concentrate your investments. Buffet’s GEICO investment is probably the best example of this approach over the years. 

When you are within 15-20 years before retirement there is nothing wrong with wanting more diversification and a more stable income stream, but if you're younger than 45 or have only been investing for a couple of years, with limited capital, one would be wise to follow the 'Buffet' approach. 

"You only have to do a very few things right in your life so long as you don't do too many things wrong." Of course that realisation is key not only in investing, as everyone will agree that a health body and sound mind, along with a loving family, is more important than any amount of money.  

Perhaps this is the wisest lesson one can take from Buffet and why his legend has only grown later in life through his contributions to charity and through the Gates Foundation. 

Best regards,


4 Comments – Post Your Own

#1) On January 28, 2011 at 8:55 AM, russiangambit (28.83) wrote:

Patience often might result in the loss of opportunities. It doesn't always work as expected.

As for Coca-Cola, one day this company will be either non-existent or completely changed since they sell liquid poison in nicely designed bottles. We will see whether they have the ability to reinvent themsleves eventually. In my opinion this bet could've went either way. But if it were going the wrong way you would see the losses inr evenue each year and had opportunity to get out. I don't think this is a case of patience but rather a case of watching carefyully and revaluating the odds as time progressed.

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#2) On January 28, 2011 at 10:23 AM, tekennedy (93.27) wrote:

I'd read the Snowball a little while ago and agree that it is a worthwhile read. Its interesting getting the historical/biographical view of his life and investments.

@russiang- I'd say coca cola is already partway thru this turnaround as they now own a number of other drink brands. I'd say there is a very slim chance of them going to zero and it would involve significant mismanagement.

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#3) On January 28, 2011 at 12:46 PM, MegaEurope (< 20) wrote:

Buffett had higher returns earlier in his career when he was more Grahamian and price sensitive.

Developing a focus on long-term quality over price has worked very well for him, but I don't agree that it is superior in general.

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#4) On January 28, 2011 at 5:15 PM, SultanOfSwing (32.60) wrote:

About a year ago, I got halfway through the book (just at the point where Buffet and Munger's partnership started to gel) and put it down because, well, I lacked the patience to finish it.  Go figure.  Thanks for your blog.  I'll have to find the book again and finish it off...

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