Book Review > The Essential Buffet

Another book on the multimillion dollar investment legend of Warren Buffet! This aptly named book synthesises and expands upon two earlier books by the same author: The Warren Buffet Way; and The Warren Buffet Portfolio (see review in Investors Voice Feb 2001). This book revisits the Buffet approach to share selection and portfolio management in the aftermath of the dot.com mania whose heady gains had begun to make his technique appear mundane until the crash came. Although the inside fly claims that this book picks up where the earlier books left off it really covers much the same ground, although it does expand on how the techniques apply to technology, small cap and international shares.

The first three chapters (70 pages) give a history of how and where Warren Buffet came from. The next 3 chapters (140 pages) are the core of the book and cover the Buffet share selection and portfolio management techniques, which comprise four basic tenets.

• Analyse the share from a business (profit-generating) perspective
• Minimise the risk of paying too much for those profits by calculating a fair price for the share
• Focus your portfolio on a few superior shares for superior returns rather than diversify towards the market average
• Resist speculation and market emotion

The last chapter (40 pages) is new material that extends the Buffet principles to the new opportunities of technology, small cap and international shares which have come within reach of individual investors. Hagstrom notes that although we have passed from the agricultural-based economy of the 19th century, to a manufacturing-based economy in the 20th century, with progression to a new technology economy in the 21st century, that the Buffet principles are timeless and can still be applied.

Hagstrom notes that the recent ready abundance of share information is not enough to ensure investment success but that understanding is also required: "your goal as an investor should be simply to purchase, at a rational price, a part interest in an easily understood business whose earnings are virtually certain to be materially higher five, ten and twenty years from now". The book is concise, well written and easy to read, with many real world examples illustrating the theory and application of Buffet techniques to achieve such a goal. For those interested in value investing and wanting to know something of Warren Buffet and his methods the book is well worth a read.