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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Buffett's Edge 3 comments
    Jan 27, 2013 10:35 AM | about stocks: BRK.B, BRK.A

    Published Sunday, January 27, 2013

    Buffett's past investment techniques may be more useful to the average investor than his high-dollar practices today, Chris DeMuth Jr. wrote for SeekingAlpha.com.

    DeMuth, a partner at Rangeley Capital Partners of New Canaan, Conn., writes that in 1969 Buffett was an "arbitrage specialist" who exploited "workouts" such as liquidations, acquisitions, reorganizations, spinoffs and other business events that were reported publicly, mostly in newspapers.

    "Buffett's edge wasn't that he had better information than everyone else. It was that he understood that in these 'workouts' held the potential for significant mispricing by the market, where the market price of the security no longer accurately reflected the true value of the underlying asset," DeMuth wrote.

    Buffett's sophistication in spotting such bargains meant he could cash in while others hesitated. DeMuth cites Buffett's discussion of Commonwealth Trust Co. in his 1959 letter to investors. The bank's stock was selling for about $50 while its intrinsic, or true, value was at least $125.

    The market price was low because the bank wasn't paying dividends, and the low price made it a potential takeover target. Buffett bought enough of its stock to influence merger proposals.

    While average investors might not be able to buy as much stock, DeMuth wrote, they do stand a chance at finding such mispriced companies, even though Buffett himself has said they are "very difficult to find on the right terms."

    "Buffett is a winning card player and he plays with an edge. His investment style has evolved over time as his edge has changed, but he always maximizes his edge," DeMuth wrote. "Make no mistake, what Warren Buffett does is neither simple nor easy."

    In the end, DeMuth recommends buying Berkshire shares "to invest alongside Buffett."

    For more on Buffett, I would recommend Tap Dancing to Work: Warren Buffett on Practically Everything

    Disclosure: I am long BRK.A, BRK.B.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

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Comments (3)
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  • That's so sick! I didn't realize you were quoted! Haha. How awesome is that!
    26 May 2013, 11:20 PM Reply Like
  • Three things Bill Gates learned from Warren Buffet

     

    Here are three things I’ve learned from Warren over the years:

     

    1. It’s not just about investing.

     

    The first thing people learn from Warren, of course, is how to think about investing. That’s natural, given his amazing track record. Unfortunately, that’s where a lot of people stop, and they miss out on the fact that he has a whole framework for business thinking that is very powerful. For example, he talks about looking for a company’s moat—its competitive advantage—and whether the moat is shrinking or growing. He says a shareholder has to act as if he owns the entire business, looking at the future profit stream and deciding what it’s worth. And you have to be willing to ignore the market rather than follow it, because you want to take advantage of the market’s mistakes—the companies that have been underpriced.

     

    I have to admit, when I first met Warren, the fact that he had this framework was a real surprise to me. I met him at a dinner my mother had put together. On my way there, I thought, “Why would I want to meet this guy who picks stocks?” I thought he just used various market-related things—like volume, or how the price had changed over time—to make his decisions. But when we started talking that day, he didn’t ask me about any of those things. Instead he started asking big questions about the fundamentals of our business. “Why can’t IBM do what Microsoft does? Why has Microsoft been so profitable?” That’s when I realized he thought about business in a much more profound way than I’d given him credit for.

     

    2. Use your platform.

     

    A lot of business leaders write letters to their shareholders, but Warren is justly famous for his. Partly that’s because his natural good humor shines through. Partly it’s because people think it will help them invest better (and they’re right). But it’s also because he’s been willing to speak frankly and criticize things like stock options and financial derivatives. He’s not afraid to take positions, like his stand on raising taxes on the rich, that run counter to his self-interest. Warren inspired me to start writing my own annual letter about the foundation’s work. I still have a ways to go before mine is as good as Warren’s, but it’s been helpful to sit down once a year and explain the results we’re seeing, both good and bad.

     

    3. Know how valuable your time is.

     

    No matter how much money you have, you can’t buy more time. There are only 24 hours in everyone’s day. Warren has a keen sense of this. He doesn’t let his calendar get filled up with useless meetings. On the other hand, he’s very generous with his time for the people he trusts. He gives his close advisers at Berkshire his phone number, and they can just call him up and he’ll answer the phone.

     

    Although Warren makes a point of meeting with dozens of university classes every year, not many people get to ask him for advice on a regular basis. I feel very lucky in that regard: The dialogue has been invaluable to me, and not only at Microsoft. When Melinda and I started our foundation, I turned to him for advice. We talked a lot about the idea that philanthropy could be just as impactful in its own way as software had been. It turns out that Warren’s brilliant way of looking at the world is just as useful in attacking poverty and disease as it is in building a business. He’s one of a kind.
    11 Jul 2013, 11:15 PM Reply Like
  • Author’s reply » Great observations all.
    12 Jul 2013, 09:34 AM Reply Like
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