Buffett Beyond Value

A detailed look at how Warren Buffett really invests

In this engaging new book, author Prem Jain extracts Warren Buffett's wisdom from his writings, Berkshire Hathaway financial statements, and his letters to shareholders and partners in his partnership firms-thousands of pages written over the last fifty years. Jain uncovers the key elements of Buffett's approach that every investor should be aware of.

With Buffett Beyond Value, you'll learn that, contrary to popular belief, Warren Buffett is not a pure value investor, but a unique thinker who combines the principles of both value and growth investing strategies. You'll also discover why understanding CEOs is more important than studying financial metrics; and why you need an appropriate psychological temperament to be a successful investor.

• Reveals Buffett's multifaceted investment principles
• Discusses how Buffett thinks differently from others about portfolio diversification, market efficiency, and corporate governance
• Highlights how you can build a diverse and profitable investment portfolio

With this book as your guide, you'll learn how to successfully invest like Warren Buffett.

Acknowledgments xv

Part One Introduction and Background 1

Chapter 1 The Thrill of Investing in Common Stocks 3

Chapter 2 1965–2009: Lessons from Significant Events in Berkshire History 9

Part Two Buffett Investing = Value + Growth 23

Chapter 3 Value Investing—It's Like Buying Christmas Cards in January 25

Chapter 4 Growth Investing 43

Chapter 5 Intrinsic Value 57

Chapter 6 Buffett Investing = Value + Growth 69

Part Three Other People’s Money 87

Chapter 7 Insurance—Other People’s Money 89

Chapter 8 Reinsurance: More of Other People’s Money 99

Chapter 9 Tax Deferment: Interest-Free Loans from the Government 109

Part Four Success in Retailing, Manufacturing, and Utilities 113

Chapter 10 If You Don’t Know Jewelry, Know Your Jeweler 115

Chapter 11 Compete Like Mrs. B 123

Chapter 12 Why Invest in Utility Companies? 129

Chapter 13 High Profits in Honest-to-Goodness Manufacturing Companies 137

Part Five Risk, Diversification, and When to Sell 143

Chapter 14 Risk and Volatility: How to Think Profitably About Them 145

Chapter 15 Why Hold Cash: Liquidity Brings Opportunities 155

Chapter 16 Diversification: How Many Baskets Should You Hold? 161

Chapter 17 When to Sell 169

Part Six Market Efficiency 175

Chapter 18 How Efficient Is the Stock Market? 177

Chapter 19 Arbitrage and Hedge Funds 185

Part Seven Profitability and Accounting 193

Chapter 20 M = Monopoly = Money 195

Chapter 21 Who Wins in Highly Competitive Industries? 205

Chapter 22 Property, Plant and Equipment: Good or Bad? 211

Chapter 23 Key to Success: ROE and Other Ratios 217

Chapter 24 Accounting Goodwill: Is It Any Good? 223

Part Eight Psychology 229

Chapter 25 How Much Psychology Should You Know? 231

Chapter 26 How to Learn from Mistakes 243

Part Nine Corporate Governance 249

Chapter 27 Dividends: Do They Make Sense in This Day and Age? 251

Chapter 28 Should You Invest in Companies That Repurchase Their Own Shares? 257

Chapter 29 Corporate Governance: Employees, Directors, and CEOs 263

Chapter 30 Large Shareholders: They Are Your Friends 273

Conclusion B = Baseball = Buffett 277

Appendix A Summary of the Book 281

Notes 283

About the Author 295

Index 297

PREM C. JAIN is the McDonough Professor of Accounting and Finance at the McDonough School of Business, Georgetown University, in Washington, D.C. He has previously taught at the Wharton School of the University of Pennsylvania and the Freeman School of Business at Tulane University. His research has been published in many prestigious finance and accounting journals including the Journal of Finance and the Journal of Accounting Research. Jain received a doctorate from the University of Florida and a master’s degree in applied economics from the University of Rochester. He is also a CPA in the state of Florida.

While Warren Buffett’s investment ideas are simple to understand, his success can be difficult to duplicate—unless you become familiar with how he really goes about the process of investing.

In this engaging new book, author Prem C. Jain extracts Warren Buffett’s investment wisdom from Berkshire Hathaway annual reports, Buffett’s letters to shareholders and partners in his partnership firms, and as many of Buffett’s other writings as he could find—thousands of pages written over the past fifty years. Through this effort, Jain uncovers the key elements of Buffett’s approach and offers an accessible way to apply it to your own investment endeavors.

With Buffett Beyond Value, you’ll quickly learn that, contrary to popular belief, Warren Buffett is not a pure value investor, but a unique thinker who combines the principles of both value and growth investing strategies. You’ll also discover why Buffett emphasizes the importance of high-quality management above many other metrics when evaluating a company he’s interested in.

Written for anyone serious about stock market investing, this unique guide skillfully outlines the proven principles Buffett has followed over the course of his long and successful career and shows you what it takes to make them work for you. Topics include:

• How to build a diverse and profitable portfolio the Warren Buffett way
• Why you need an appropriate psychological temperament to be a successful investor
• Buffett’s thoughts on market efficiency and the ways in which you can incorporate them into your investment decision making
• How issues related to profitability and accounting can provide you with a perspective that is uncommon in investing circles
• Why Buffett thinks differently from others about portfolio diversification, corporate governance, and much more

If there’s one person worth listening to when it comes to investing—whether you’re an individual investor, a student, an academic, or a professional portfolio manager—it’s Warren Buffett. And with Buffett Beyond Value as your guide, you’ll gain valuable insights that could enhance your understanding of investing and improve your ability to make more profitable decisions in today’s markets.