Book Review: “The Tao of Warren Buffet” by Mary Buffet and David Clark

This book consists of many wise quotes from Warren Buffet, the sage of Omaha. He practiced these principles that turned him into one of the richest (2nd) person in the world.

Warren practice buy and hold strategy. He would pick a stock and assume the stock market is going to be closed for 5 to 10 years. If it can pass this simple test, in other words, the business model is simple and predictable for the next 5 to 10 years, and the business is fairly priced like Disney, Coca Cola, Wrigley, and others, he would buy them at a fair price and hold them for ever (almost). “The business should be so simple that even a fool can run it because soon or later a fool will.” “Wall Street makes its money on activity. You make money on inactivity.”

You need to understand the business model of the company before you buy. Of course, by this standard, many of the technology companies, especially the Web 2.0 companies, would not cut it. The technology companies rely too much on the IP and knowledge of the workers and the business models are easily duplicatable if you can manage grabbing the talents from the market leaders.

Pick the right manager/CEO/owner with good integrity, and leave him/her alone to run the business. This may sound like a leap of faith, but it’s true that a few of the big companies (e.g. Enron, Tyco, and etc.) of the 90’s did not have the integrity and ended up driving the companies to the ground. Integrity is ingrained and not learned. “You can’t make a good deal with a bad person.” “In looking for someone to hire, you look for three things: integrity, intelligence, and energy. But the most important is integrity, because if they don’t have that the other qualities, intelligence and energy, are going to kill you.” “It takes 20 years to build a reputation, and 5 minutes to lose it. If you think about that, you will do things differently.”

The advise to the young people to work for companies with good business fundamental instead of the most up-and-coming is a sound advise. There are some technology companies that no longer hold the the competitive advantages, thus the good business fundamental to warrant consideration by the young employment seeker. A lot of times, I wonder if Sun Microsystems, Inc. has fallen into the same categories; its Sparc-system and Solaris no longer hold the monopoly in the internet age as it used to. Linux and x86 architecture have changed all that.

Warren makes a lot of decisions himself. Contrary to common belief, he doesn’t consult others. Of course, he has lots of practices and he keeps things simple enough that it’s hard to make the wrong decision. But I wonder if Warren Buffet’s investment method can continue to thrive like before. Currently, Yorkshire Hathaway is sitting on many billions of cash waiting to be deployed/invested. Many of the businesses these days have so many dimensions to them with the introduction of Internet. Newspaper, once a profitable and “simple” business, is on a rapid decline thanks to Internet. Things used to be simple is now more complicated. By his standard, no one should invest in technology companies like Apple, Microsoft, Yahoo, and Google and they would forgo a huge amount of profit. Will his investment method stand the test of time or his method is simply a set of trading rules good for just 50 years or so. Time will tell.