I was familiar with bits and pieces of Warren Buffett's life, but it was really interesting to read a properly researched, in-depth biography.
On the investment side, the things that stood out were:
- Being greedy when others are fearful, and fearful when others are greedy. This is a famous quote, but I'd always thought that being "fearful" for Buffett meant not investing (rather than actively selling). In fact, periodically, when the market is irrationally exuberant, Buffett has sold almost all Berkshire's stocks, with the exceptions of a few core holdings. That jars slightly with his ideal holding period of "forever" - I had no idea he had moved almost entirely into municipal bonds in the mid-80s.
- His key departure from Graham, in assigning value to intangibles such as brand. This still follows the spirit of Graham, i.e. buying something for less than it is worth, with a decent margin of safety, but goes a step beyond in recognising value in something other than tangible assets.
- His focus on good management, but the recognition that a well-managed company in a crap industry is still not a good investment.
- Free cash flow is crucial. Berkshire Hathaway (i.e. the original textile company) wasn't in a great industry, but had plenty of cash, and had decent free cash flow. That funded everything else. Investing that cash back in the textiles business would have left the company worthless. Berkshire is able to buy entire companies now, and take all their free cash flow for their own. For someone just buying shares, they need to look at companies that produce exceptional free cash flow, and, crucially, companies that decide judiciously whether that should pay for dividends, buybacks, acquisitions or internal investment.
- The influence of Charlie Munger in persuading Buffett to invest in great companies at a fair price, rather than focusing exclusively on extreme good value.
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