“Becoming Warren Buffett,” the Man, Not the Investor
Lots of investors understand how to value companies, far fewer actually apply it regularly. I&#x27;m always amused when some Wall Street advisor discusses a businesses cash flow and growth rate using terms from his valuation courses, then starts talking about market sentiment and concludes by analyzing it&#x27;s chart.<p>It&#x27;s like a physicist laying out the math perfectly for an orbital launch, but then starts analyzing launch times using Astrology.<p>Very, very few investors apply valuation methodologies so well they they become true value investors, the name is really a marketing label for most funds. One necessary part of being a value investor that Buffett harps on in his letters is psychology, the ability to avoid bias in order to make decisions and not undo them in a panic. He works really hard to insulate himself from irrational fears, and focus on known facts.<p>For example, he tries to never know what a company&#x27;s stock trades at when he reads their annual reports and start making his own estimate of it&#x27;s value. If it&#x27;s a great company and it&#x27;s trading for $100, he doesn&#x27;t want to be subconsciously biased to raising his valuation estimate just to justify buying it.<p>There is a great story from his partnership days. His partners were told up front he&#x27;d never discuss what they were invested in, he didn&#x27;t want anyone front-running his trades at hurting the partnerships results. But one day during a market tumble a partner rushes in and demands to know if Buffett had invested in certain stocks that had crumbled. Warren just buzzes his secretary, asks how much the partner&#x27;s share was worth, and told her to write him a check for that amount, and told the guy you&#x27;re out.<p>He wasn&#x27;t going to panic. He wasn&#x27;t going to let others try to panic him.