Page 6 - Boca ViewPointe - July '19

Page 6, Viewpointe July 2019

JICYMI

Just In Case You Missed It (that included Chinese asset management firms) was the Unfortunately, too few investors are willing to believe

opportunity to learn about Buffett’s investment philosophy, that sometimes the most sensible decisions are right before
By Bob Kronish return to China, and proclaim first hand knowledge of how their own eyes. While the presence of some 1,000 Chinese

Buffett And Ben: to mimic the strategies practiced by the God of Investing. nationals at the Berkshire Hathaway shareholder meeting
was impressive, even more so was the estimate by the Wall
Of course, they could have saved significant time, energy,
That’s As Good As It and travel expenses with a simple expenditure of $15 for a Street Journal that in 2014 there were “roughly 40,000”
Gets—Redux—Part IV one-year subscription to Money Magazine. After all, what people in attendance. According to Buffett himself, this
Authors Note: The article more would one need than, as trumpeted on the cover of was 3,000 to 5,000 more than last year, and the largest
below was first published in that June 2014 issue, “BUFFETT’S SECRET FORMULA shareholder meeting for any company, ever. (In 2019, 44,000
this newspaper exactly 10 REVEALED.” investors attended the meeting.)
years ago and then again five Money Madness It is obvious from these and other metrics that Berkshire
years ago. In order to update WOW! Really? If Buffet is considered the God of Hathaway shareholders agree with the Chinese that Warren
the numbers, today’s figures Investing, he is also known as the King of Transparency Buffett is indeed the God of Investing. With a market
are shown in the brackets that appear after those that were when it comes to his “secrets” of investing. Each of his capitalization of more than $313 billion in 2014, fifth largest
applicable in 2014. How many Chinese Nationals does it shareholder letters could be considered an investment in the U.S. It’s holdings are larger than those of the largest
take to bestow the title of “gu shen” on Warren Buffett? The primer; the hundreds of books and articles devoted to his mutual fund (Vanguard’s Total Stock Market fund). In 2019
answer would be a whopping 1,000, all of whom showed “secrets” tell it all––supposedly. Did Money really divulge Berkshire is still number five with a market cap of $511
up in Omaha, Nebraska for Berkshire Hathaway’s annual some obscure, abstruse, enigmatical precepts, heretofore billion. In fact, some consider it to be a virtual mutual fund
meeting in May 2014. In addition, Chinese media outlets, unknown to the investment world? Not really. The magazine because of its diverse portfolio. If that is the case, it certainly
anxious to transmit the goings-on back to the homeland, describes two different investing systems, both of which rely has the most successful mutual fund manager of all time.
outnumbered their colleagues from other foreign nations. on two primary determinations–– 1) invest only in textbook Don’t Just Sit There
Oh! You don’t know the meaning of the Chinese word “gu value plays; 2) Invest only in quality entities. What puzzles me is why anyone would attempt, and
shen?” Apparently, that appellation identifies Mr. Buffett as This is the big secret? Anyone familiar with Warren believe they could copy Warren Buffett’s investment style
“the God of Stock Investing.” To his revering shareholders Buffett knows that he is the ultimate value investor who based on a magazine article, or book, or a suggestion by any
worldwide, that phrase may be considered even more buys only high quality companies. Even the author of one kind of investment manager, when the better solution is so
relevant than the popular “Oracle of Omaha” cognomen of the “secret” systems is quoted as declaring that a big obvious. This is best illustrated by a not so new story I’ve
used in the U.S. The appeal for Buffett’s Chinese disciples part of “the secret behind Buffett’s success is the fact that used in past articles. It goes like this:
he buys safe, high quality, value stocks.” What the two A deeply religious man, whom I will call Dave, finds
systems attempt to decipher, is how to quantify the concepts himself in dire financial trouble. He prays earnestly to his
Your Driver of “value” and “quality.” Buffett still abides by his mentor at God to help him out of his predicament. “God, I’m about to
lose my car. Please help me. Let me win the lottery.” Lottery
Columbia University, Benjamin Graham’s (nee Grossbaum)
Airport Car Service considered the “father of value investing’s” definition of night comes, but sadly, Dave is not the winner.
WPB, FLL, MIA value as assets minus debt, now known as book value. One Things go from bad to worse. Without a car to get to
team’s gauge of quality combines 21 measures, and is too work, Dave loses his job. Without a job, his mortgage is
HowarD BarrY complex to even consider. foreclosed on, and he loses his home. Without a home, his
No Worry Arrival The author of the other system however, argues, wife leaves him, taking the kids. After each horrible step in
& Departures “something called ‘gross profitability’ (sales minus the cost the mounting crisis, he pleads with God to let him win the

Lowest Prices Boca Pointe of goods sold, divided by assets) can help explain long-run lottery, but he never does.
Finally, broke, hungry, living on the street, he tries again.

returns.” To prove his point, he maintains that “a theoretical
Boca Raton, FL
561-254-2550 yourdriverhb@gmail.com portfolio of big companies with a high combined score “God, please, my life is a wreck. I have no car, no home, no
on value and profits, would have beat the market by an family. Please let me win the lottery just this once so that I
annualized 3.1 percentage points from 1963 through 2012.” can turn my life around. I beseech you.”
This information was published in the influential Journal Suddenly, a flash of light rends the sky, and the
of Financial Economics. However, what the author, the resounding voice of God echoes down from the heavens.
financial journal, and Money magazine neglected to reveal “Dave, you have to meet me halfway on this. Buy a damn
is, during an almost identical long-term period, under Warren ticket.”
Buffett’s management, Berkshire Hathaway exceeded the How does this apply to Berkshire Hathaway? It would
performance of the market by an annualized 9.9 percentage seem certain that left to the opinion of the 40,000 (now
points. That’s more than triple that of a system that seems 44,000) share holder meeting attendees, their response, in
to have impressed Money. The folks at Money apparently one resounding voice that echoes down from the meeting
were asking its readers the oft quoted question posed by auditorium would boom, “Buy the damn stock.”
Chico Marx (Yes, Chico, not Groucho), “Who you gonna
believe, me or your own eyes?” JICYMI on page 8

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