[Investing] Book Review - The Warren Buffett Way (3rd Edition) by Robert G. Hagstrom

As the title suggests, this book is about Warren Buffett and his approach and wisdom on investing. It is well-known that Buffett's investing approach goes something like this.

1. Regard buying a stock as owning part of a business. That is, treat stock investing as you would running a business.
2. Buy stocks of businesses that are easy to understand, within your level of competency, has a competitive edge and run by companies' with competent management.
3. Buy stocks cheap.

The book actually sums up the above 3 points in a form of a framework call the Tenets of the Warren Buffett Way. It has four categories, namely Business Tenets, Management Tenets, Financial Tenets and Market Tenets.

The book also discusses the academic forms of finance/investing that gave birth to the modern portfolio theory (the idea of covariance of stock prices as risks, the Captial Asset Pricing Model and the Market Efficient Hypothesis). I found a part pretty meaningful and I shall quote it here:

Today, investors are caught in an intellectual and deeply emotional crossroads. To the left lies the pathway of modern portfolio theory. The theory has a 50-year history full of academic papers, neat formulas, and Nobel Prize winners. It seeks to get investors from Point A to Point B with as little price volatility as possible, thereby minimizing the emotional pain of a bumpy ride. Believing the market is efficient, hence price and intrinsic value are one and the same, adherents to modern portfolio theory focus on price first and asset value later -- or sometimes not at all.

To the right lies the pathway that Warrent Buffett and other successful investos have taken. It has a 50-year history that is full of life experiences, simple arithmetic, and long-term business owners. It seeks to get investors from Point A to Point B not by providing a smooth short-term price ride but by orchestrating an investment approach that seeks to maxmize, on an economic risk-adjusted basis, the intrinsic-value rate of growth. Proponents of the Buffett approach do not believe the market is always efficient. Instead, they focus on asset values first and prices later -- or sometimes not at all

I have read much on value investing (see my reading list!) and I consider myself  a value investor. I think this book is worth a read.

~ZF