Primer pays homage to Buffett's coups

Primer pays homage to Buffett's coups

Book Review: Inside the Investments of Warren Buffett by Yefei Lu

If you are serious about becoming a better investor or business-person you can’t read too many books about Warren Buffett.

Having said that, the best writing about Buffett remains his own: the annual Berkshire letters. I remember my university tutor telling me that everything you ever write, at whatever age and in whatever context, should be written in such a way it can be readily understood by an intelligent 18 year-old; that clarity is the highest literary virtue.  

And here Buffett is a master. He makes you understand stuff others obfuscate. He and Munger have been so generous with their teaching too. They did not have to be so transparent and we have all benefited.

Meanwhile, Yefei Lu’s new book is a worthy addition to the burgeoning literature. He analyses 20 investment decisions taken by Buffett over a span of 53 years, reviewing only the information that would have been available to Buffett at the time.

This is smart, because Lu knows hindsight is a wonderful thing. Hindsight gulls many first-time investors into thinking it must be easy – because in hindsight everything does seem inevitable. But Lu reminds us the future is always radically uncertain. And that Buffett’s coups – apparently obvious, so inspired they seem to us today – were all decidedly un-obvious or looked unacceptably risky when made.

Lu also highlights three unusual qualities that make Buffett so formidable an investor.  First, the mile-deep knowledge he has of the relatively few industries he invests in. I worry all the time about slipping into dilettantism – knowing a little about a lot of things, but not enough about any to make truly value-added decisions.

Buffett amazed senior executives at newly acquired General Re by how much he knew about the insurance industry. Next, his patience – a willingness to do nothing for long periods. Lesser investors find it hard to do nothing and to be seen to do nothing.  

His purchase of the Burlington Northern railroad came 70 years after he first became interested in the industry.  

Finally, just his sheer cojones. Between 1988/9 Buffett invested over $1bn into Coke. At the time that was 25 per cent of Berkshire’s assets – a quarter in just one investment.  

Nassim Nicholas Taleb says: “A man is honourable in proportion to the personal risks he takes for his opinion.”  Buffett is the most honourable of us all.    

Published by Columbia Business School

Nick Train is a co founder of Lindsell Train