Reading this book in 2011 marked a shift in my investment philosophy. It covers Warren Buffett’s upbringing and his rise to become one of the most successful investors on earth. This book does more than just offer insight into his personality, it also describes his philosophy and investment strategies in a way that makes them applicable. For example, the manner in which this book describes liquidation value investing allowed me to make such investments during the aftermath of the US credit downgrade in 2011.
This book contains a huge amount of value per page. It offers experienced investors a great refresher in regards to the fundamentals of valuation and it gives new investors a great foundation to build upon, all within a 144 page package. Joel Greenblatt’s writing style does an excellent job of explaining complicated concepts in a simple and relatable way, so early stage investors will be able to stay engaged. One of this book’s primary concepts involves investing in companies that are a) trading at a low price relative to their earnings
and b) able to invest those earnings at high rates of return.
This is perhaps the most operations focused investing book that I have read. The author, Philip Fisher, is considered to be the father of growth investing and in this book he describes his fifteen points of investing, which emphasizes assessing the qualitative factors of a company such as its sales force, its product line and the integrity of its management. In fact, only one financial measure, profit margin, makes the cut for his 15 points and no valuation metric is included. I highly recommend this book for business owners and for investors who are looking to gain more insights in regards to assessing the intangible aspects of a company.
Reading Warren Buffett’s letters to Berkshire shareholders marked a second shift in my investing style. Buffett’s succinct descriptions of companies that he invested in and the industries in which they operate showed me the importance of understanding the relevant industry specific factors when assessing the competitive advantage of a company. For example, if one were to look at the balance sheet of a property and casualty (“P&C”) insurer without an understanding of the insurance industry, they would see large liabilities and perhaps turn down the investment; however, a more relevant factor would be the cost of the float, which is the amount that a P&C insurer loses in its underwriting activities relative to the amount of investable funds that it accumulated from selling insurance. These letters brought about a change in my perspective.
In this book, Joel Greenblatt describes how he obtained 50% annual returns from 1985 to 1995 by investing in strategies such as spin-offs, rights offerings and bankruptcies. This is a great book for investors with an existing foundation in finance who are looking to broaden their investment opportunity set.