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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s.
My book:
A Modern Approach to Graham and Dodd Investing
  • Warren Buffett: A "Record" Investor 0 comments
    Mar 6, 2010 12:52 PM
    "Throw a bunch of guys out on the field, and then see who's standing at the end." That's the way sports teams are sometimes formed. And that's the way some people construct portfolios. As humorist Will Rogers quipped: "Buy a bunch of good stocks and watch them go up. If they don't, don't buy more of them."

    Although he's a value investor who likes to buy at the bottom, Warren Buffet follows this philosophy to some extent. He uses his value background to determine which stocks are trading close to their bottoms. Then he buys a number of those stocks. Finally he keeps the ones that the thinks will perform over a long period of time, and throws out the others.

    For instance, during the "intermediate" period (the time between the dissolving of the Buffett partnership and the purchase of Capital Cities/ABC), Buffett invested in several promising mid-cap growth stocks including Washington Post, GEICO, Affiliated Publications, Interpublic Group, Media General, and Olgilvie & Mather. All of these had promising track records and good prospects. But Washington Post, GEICO, and Affilliated sprinted ahead of the others, which is why he kept them (until Affliated was taken over, and GEICO was bought by Berkshire itself), and let go of the others.

    These successes forced him to upgrade into large cap stocks. His first successful venture in this area was General Foods, although he also dabbled in Exxon and RJ Reynolds. But Foods quadrupled Buffett's investment in six years. It was the profits from that the enabled Buffett's next large investment; backing Capital Cities' acquisition of ABC that turned two mid-caps into one large cap company, with Buffett getting nearly a quarter of the combined company. After that, he bought Coke, which appreciated over 70% in Buffett's first full year of ownership, and was quickly placed on the list of "permanent" holdings. Put another way, it does no harm to impress Buffett "out of the box."

    "Selling" is a different matter for Buffett. Even though he thinks newspapers are doomed, Buffett is not about to sell his Washington Post. Instead, he will always remember how good it was to him in the early days. To him, dumping a long-time favorite is like "divorcing your wife when she gets old." Like story of a man about his age, who now had his pick of newly widowed female classmates (many of whom rejected him on the first go around), Warren doesn't necessarily look at companies the way they are today, but rather the way they WERE when he first got to know them.
    Long BRK.A
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