Even Buffett Isn't Perfect What You Can—and Can't—Learn from the World's Greatest Investor
09/01/2008 12:00 am EST
Vahan Janjigian states right up front in his new book that he is an admirer of Warren Buffett, commonly regaled as 'the greatest investor' who ever lived. But he notes that almost every tome written about Buffett and his incredible investing success is simply written from a fan's standpoint-pure adulation, not much evaluation, and often-erroneous conclusions about Buffett's real investing style.
In fact, Janjigian notes that Buffett's 'style' has constantly evolved, and past attempts to pigeonhole him as a 'value' investor are simply not quite correct. As well, he addresses various misconceptions about Buffett's attitude toward diversification and options.
In his book, Janjigian plays devil's advocate and tells investors why it's virtually impossible to duplicate Buffett's successes with the limited funds and time frames at their disposal. Instead, he sets out to show investors how they can create their own successes by, yes, incorporating many of Buffett's strategies, but with a few twists along the way.
First, he puts to bed the 'value' moniker that is always attached to Buffett's name. He asserts that Buffett is an 'undervalued' investor, not a 'value' investor, and he spends some time and ink explaining the difference.
Janjigian lauds Buffett's knack for assessing risk and his discipline of buying simple businesses that he can understand. But he takes issue with several of Buffett's strategies that just don't work for an individual investor, including over-concentration in particular companies, an exceedingly long holding period, and Buffett's reluctance to sell any of the stocks he owns.
As an alternative, Janjigian tells investors that they can practice some of Buffett's best strategies such as buying companies for less than what they are worth and adequately diversifying their portfolios within and among asset classes. And he eases concerns of less mathematically-oriented investors, by explaining that although Buffett has tremendous assistance in helping him determine discounted cash flows and correlation coefficients, one of the talents that he often uses in lieu of science is something that we all have-common sense.
And since most individual investors have a shorter time horizon than Buffett, Janjigian demonstrates how investing in momentum and growth stocks in the short run, rather than value stocks for the very long term, can be extremely successful. Lastly, he emphasizes the importance of selling stocks, a philosophy that Buffett rarely employs.
In wrapping up his book, Janjigian takes issue with Buffett's until-recently lax corporate governance, his stance on eliminating earnings guidance, and his advocacy of higher investment and estate taxes.
Janjigian's point is this: Buffett is a great investor, but his way is not the only way, and is very difficult for individual investors to replicate. Instead, he offers a method in which investors can emulate some of Buffett's best strategies while employing additional tools to help them build strong portfolios.
Although Janjigian's strategies are essentially nothing new, and granted, may not be 'sexy' enough for investors looking to make quick money, they will make a lot of sense for folks who are interested in steadily developing a profitable and functioning financial plan.