May 17, 2008
Five key ideas about investing from Graham, Buffett and Munger
Buffett summarizes Graham as:
1. The Mr. Market analogy
2. Shares are ownership interest in a business
3. Margin of safety.
That's it.
1 is the idea that the market isn't "efficient" but moody and nuts, and therefore someone you can rationally take advantage of.
2 is the idea that you should judge share price against its value as an interest in the underlying business (how it makes money)
3 is the suggestion that you only buy when you've got a killer killer deal, like 70% below fair value.
Buffett and Munger pretty much just add/revise that:
4. A great business at a fair price is better than a fair business at a great price
5. Load up on winners/"20 punches on your ticket"
4 means you buy Coke in 1965, but not Yahoo in 2007.
5 means you should wait and wait and wait until you are really right and seriously load up. These together mean you should forget 3.
