Buffett and Beyond, + Website

Construct a portfolio that is sure to outperform market averages

Warren Buffett had it right all along. Now it's your turn to learn how to construct a portfolio that is sure to outperform the market averages, as well as almost every professional money manager in the world. Warren Buffett's method of predictability can determine a future target price, which in turn determines his all-important purchase price. However, Buffett doesn't draw conclusions of his predictability method relative to the future total returns of portfolios. That's where Buffett and Beyond comes in, taking Buffett's method one giant step beyond, proving that if you select a portfolio of stocks using the predictability method in this book, you will outperform 96% of professional money managers over the long term.

In addition to the information in the book, readers will have access to a password-protected website that includes tutorial videos, PowerPoint slides, free trial access to a video newsletter, and a trial subscription to the author's computer program, which follows the research presented in the book.

• Explains Clean Surplus Accounting (CSA) to determine Return on Owners' Equity (ROE)
• Uses CSA to determine ROE in a unique way to verify Buffett's all-important purchase price
• Draws conclusions between Clean Surplus Return on Equity and future total returns
• Shows that every portfolio selected from the S&P 500 index with above-average Clean Surplus ROEs outperformed the S&P average during the test periods from 1987 to the present

If you're an investor, this book will impact your financial life forever.

Preface: From Then Until Now xiii

Introduction: A Sea Story xvii

Chapter 1: The Purpose of This Book—Your Journey 1

Chapter 2: About Warren Buffett 5

Chapter 3: Determining the Earning Capacity of a Company (Now Really, Can It Be This Easy?) 11

The Beach Factor 12

Clean Surplus 13

Determining an Efficient Company 14

Take Your Bank Account 14

Bonds 15

Earning Capacity 15

How to Determine the Operating Efficiency of a Company 17

Sooo Important 19

You See . . . ROE Tells Us Everything 19

Let’s Ask Warren 20

Summary—the Key to the Investing Business 21

Why Hasn’t the Entire World Figured This Out Yet? 21

You Will Learn 22

Chapter 4: My Theory of Why Most Money Managers of the World Cannot Outperform the Market Averages 25

My Contest—Beware How You Select the Random Portfolio 29

One Step Beyond Buffett 30

You Don’t Have to Worry 30

Fun with Our Portfolio Reviews 31

In Summary 32

Chapter 5: A Very Simple Income Statement and an Even Simpler Balance Sheet 35

The Income Statement 36

The Balance Sheet 36

Tying Together the Income Statement and Balance Sheet 37

Chapter 6: The Return on Equity Ratio 41

This Chapter and the Next and the Next 43

Chapter 7: The Return Portion of the Return on Equity Ratio 47

The Income Statement: Return 47

Chapter 8: The Equity Portion of the Return on Equity 53

Earnings 55

Accounting Statements and the Link between Them 55

The General Motors Story 57

The Central Flaw of Traditional Accounting 60

Let’s Not Forget the Main Question 60

Addendum to The General Motors Story 61

Chapter 9: How to Determine an Equitable Equity Number 65

Let’s Review Just a Bit 65

Our New Return on Equity Equation 67

What Does Warren Buffett Say about All This? 69

Chapter 10: The Predictability of Finance Valuation Models 71

Efficiency Is the Key 73

College and Finance Valuation Models—They Just Don’t Work Very Well 74

Chapter 11: Clean Surplus ROE—the Only Comparable Efficiency Ratio 79

Clean Surplus 81

I Forget, What Are We Looking For? Let’s Review! 83

Chapter 12: What Buffett Looks for in a Company, or How Clean Surplus Accounting Recognizes the Quality of a Company 87

Buffett 88

The Consumer Monopoly versus the Commodity Type of Business 89

The Commodity Type of Business: Companies Buffett Avoids 89

The Consumer Monopoly: The Type of Business Buffett Loves 92

Chapter 13: General Electric Then and Now 97

The Purchase Price 97

Back to Basics 99

A Very Important Point 100

Back to the Good Bank 100

Beware, Beware, Beware 102

A Real Stock 103

The P/E Ratio 105

Back to the Future 107

Let’s Discount Back—the All Important Purchase Price 108

Important Note: Approximately 110

Very Important Addendum 111

Chapter 14: General Motors Then and Now 115

Let’s Look at General Motors 116

High ROE 116

Consistency Up to 2002 117

Compare 118

The Blind Kid—A Sea Story 119

A Lesson to Be Learned 120

So You See, Folks 121

Addendum to the General Motors Saga 121

Chapter 15: The Beginning: The Initial Research 125

Why Work with the Dow 30? 126

Constructing the Portfolio: My First Research into Clean Surplus 127

Methodology 127

1987: The Year of the Anomaly 129

Buffett the Anomaly 129

More Parameters: The Simple Rules 130

The Test Period Parameters 130

The Results 131

Compounded Returns 132

Is There a Correlation Between the ROEs and the Returns? 133

Getting Published in an Academic Journal 135

Chapter 16: Continuing Research: The Doctoral Research on the S&P 500 137

Finally, a Lead for Clean Surplus Accounting—Buffett, Graham, Ohlson 138

The Results of the Research 139

Methodology 139

Notice the Difference 141

Standardized Against the Market 142

Portfolio Construction 142

Results: First Test Period 143

Results: Second Test Period 144

Bias 144

Summary of Results 145

Chapter 17: Rules for Structuring a Great Growth Portfolio 149

Debt 153

Chapter 18: Great, Great Job, but You’re Fired 155

A New Definition 156

The Research Begins 156

The First Class 157

To Teach or Not to Teach? 159

Chapter 19: Stocks on Our Radio Show 163

Back in 2012 163

The Structure of This Report 165

Chapter 20: Stories of Audience Hecklers 169

The Know]It]All Half]Back 170

Chapter 21: A Great Dividend Income and Growth Strategy—Part I: The Economic Spectrum of Dividend Stocks 173

Portfolio Parameters 175

The Four Stages of the Business Life Cycle 176

The Maturity Stage 179

Chapter 22: A Great Dividend Income and Growth Strategy—Part II: Selecting Stocks That Are Growing Their Dividends for Our Portfolio 183

Chapter 23: A Great Dividend Income and Growth Strategy—Part III: Selecting Stocks That Are Growing in Price for Our Portfolio 189

Philip Morris International 192

AT&T 194

A Pretty Good Portfolio Stock 195

Chapter 24: Enhanced Income 199

Covered Option Writing 201

What Does This Have to Do with Options? 202

What? Give Up My Stock? Shame on You! 203

A Bit of Technical Analysis 204

Chapter 25: Portfolio Insurance 207

What Does Buffett Do? 209

So What Can We Do? 209

Ok, So What Can We Do to Take the Guessing out of Investing? 210

The Amazing Thing About Portfolio Insurance 210

Market Crash Mentality 211

Back to the Crash Mentality 211

Which Scenario Do You Prefer? 211

How Do We Insure Our Portfolios? 212

Cash, Cash, Cash 213

But How Much Cash? 213

What Do We Mean by Market Conditions? 215

Chapter 26: What Have You Learned? A Summary 217

Dividend Income and Growth Strategy 220

Portfolio Insurance and Enhanced Income 221

Putting the Odds of Success on My Side 222

Chapter 27: We Won’t Leave You Out There Alone 225

www.wiley.com/go/buffettandbeyond 225

The Weekly Video 226

The Computer Program 226

Tutorial Videos 227

For Individual Investors 227

For Professional Money Managers, Wealth Managers, and Investment Advisors 228

About the Author 231

Index 233

DR. JOSEPH BELMONTE is a renowned investment strategist and market thinker. Dr. Belmonte has taught investments, corporate finance, and advanced managerial finance for many years, and has lectured to numerous professional and investment groups across the country.

Over any ten year period, 96% of professional money managers cannot outperform the market averages without taking on added risk. It would be just as effective to pick stocks by blindly throwing darts! That’s why, when a successful investor like Warren Buffett comes along, the world takes notice. Buffett is known as one of the most successful investors in history. In Buffett and Beyond, Second Edition, his simple strategy is revealed so that any investor can replicate it. This book also goes one step beyond Buffett’s approach, demonstrating a proven method for predicting the future success of portfolio positions. This book walks readers through the step-by-step process of improving the odds by building solid growth portfolios as well as dividend growth and income strategies.

Buffett is famous for his long-term approach to investments, and this book reinforces the strategy that has worked so well for the Berkshire Hathaway chairman. But few people know that the method used by Buffett is the real foundation of his success. Clean Surplus Accounting, explained in depth in Buffett and Beyond, structures the calculations that let investors discover a very unique Return on Owner’s Equity (ROE). This simple accounting method is powerful enough to beat out even the most complex systems used on Wall Street in terms of both income and growth. This book, along with the videos available on the companion website, allows readers to make decisions using the same guidelines Warren Buffett uses every day.

Buffett and Beyond contains no magic, no jargon, and no passing fads. Instead, it shows investors an approach that has been working for over half a century. This book even takes Buffett’s strategy one step further to take the guesswork out of port-folio building. Knowing when an investment will yield predictable long-term returns—and when it won’t—is within the reach of any individual investor using the Clean Surplus Accounting method. This method expands on what Buffett has taught us and provides a solid framework for ensuring investment stability and income far into the future.