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Buffett is an interesting case. When he got going, people were mostly just buying what their broker told them to, which was some company the broker had heard a

Buffett is an interesting case. When he got going, people were mostly just buying what their broker told them to, which was some company the broker had heard about that morning on the elevator. There was such little information out there that his philosophy (buy and sell on fundamentals looking at various ratios) gave him a major advantage. This was Ben Graham and The Intelligent Investor, who Buffett studied under at Colombia, then worked with him. I'd say Buffett's biggest innovation past that is realizing the role of management. He talks about it in various ways, but I think his main rule comes down to "avoid psychopaths in management; it's a fundamental people don't understand how to discount correctly." There's a lot to that, it turns out. Then he got into insurance, as you say, to get lots of cheap cash to invest. Compare him to say, Jay Gold, who mostly got rich through stock manipulation or Michael Milken who got rich by inventing the junk bond (a "new" financial product) then went to jail. Not many successful stock pickers out there; most rich finance people made it from commissions of some form or another, not market gains. The world is different now though; Graham's methodologies are so beat to death at this point that there's no advantage to be had. Buffett's philosophies on the importance of the management team (not being psychopaths) still apply though.

valuearb 10y ago
No one follows Grahams methodologies because you can't raise money doing it. They pay lip service to it. Riches on wall street come from fees on other peoples money, something Buffett voluntarily gave up in the late 60s. And as far as "avoid psychopaths in management" that's actually nearly opposite Buffett's real philosophy, which is "you want to own a business any fool can run, because sooner or later a fool will be running it". He looks for businesses with strong competitive barriers.
- dave_sullivan 10y ago
  > No one follows Grahams methodologies because you can't raise money doing it. Or because they're old and beat to death and don't work anymore? They used to work and that's where Buffett started. > Riches on wall street come from fees on other peoples money Yes, that's mostly true, which is what I said (I said, "most rich finance people made it from commissions of some form or another, not market gains.") > And as far as "avoid psychopaths in management" that's actually nearly opposite Buffett's real philosophy, No, it's really not. > which is "you want to own a business any fool can run, because sooner or later a fool will be running it". Didn't Peter Lynch say that? It's a good quote though; I've certainly used it. My favorite Buffett quote is "Risk comes from not knowing what you're doing." Also "Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down" The guy has said lots of interesting things and is worth learning more about if you're even tangentially interested in business and investing.

valuearb 10y ago

No one follows Grahams methodologies because you can't raise money doing it. They pay lip service to it. Riches on wall street come from fees on other peoples money, something Buffett voluntarily gave up in the late 60s. And as far as "avoid psychopaths in management" that's actually nearly opposite Buffett's real philosophy, which is "you want to own a business any fool can run, because sooner or later a fool will be running it". He looks for businesses with strong competitive barriers.

dave_sullivan 10y ago
> No one follows Grahams methodologies because you can't raise money doing it. Or because they're old and beat to death and don't work anymore? They used to work and that's where Buffett started. > Riches on wall street come from fees on other peoples money Yes, that's mostly true, which is what I said (I said, "most rich finance people made it from commissions of some form or another, not market gains.") > And as far as "avoid psychopaths in management" that's actually nearly opposite Buffett's real philosophy, No, it's really not. > which is "you want to own a business any fool can run, because sooner or later a fool will be running it". Didn't Peter Lynch say that? It's a good quote though; I've certainly used it. My favorite Buffett quote is "Risk comes from not knowing what you're doing." Also "Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down" The guy has said lots of interesting things and is worth learning more about if you're even tangentially interested in business and investing.