The Business of Value Investing: Six Essential Elements to Buying Companies Like Warren Buffett

Introduction

This is a book about how to think about investing intelligently. Due to the unrivaled success of investor Warren Buffett, value investing has become the only intelligent manner in which to approach investing. The philosophies of value investing emphasize an approach that focuses on preservation of capital, risk aversion, discipline, and avoidance of crowd psychology. Contrary to the academic belief that greater return can only be achieved by taking on greater risk, value investing confirms that returns can be maximized by taking on very little relative risk.

Reciting the value investing rhetoric is one thing, but doing it is something else entirely. Value investor Seth Klarman of the Baupost Group suggests that the philosophies of value investing may very well be genetically determined: "When you first learn of the value approach, it either resonates with you or it doesn't."^[1] My interpretation of Klarman's assessment is that the foundations of value investing—patience, discipline, and risk aversion—aren't subjects that are taught in school. You either possess them or you don't. Business schools can teach how to analyze a business and how to value a business, but they can't teach you patience or discipline to say no to a popular security. More so, business schools can't teach you to have the courage to make a significant investment during the maximum point of pessimism. Education is invaluable and certainly aids in investment success, but it's not the sole determinant ...