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D. Murali

IF YOU find making money too complicated, draw lessons from "the world's most successful investor", Warren Buffett. If you don't have the patience or time to sit and read a tome, here is an illustrated biography, Warren Buffett, from Wiley (www.wiley.com).

The book is `a comic' by Ayano Morio, and translated from the Japanese manga (meaning, entertaining visual) on `the superhero of finance'. As the blurb explains, the cartoon-strip provides an intro to `the man and his momentous achievements'.

The story begins with a baby born soon after the 1929 Wall Street crash that saw the collapse of businesses and loss of millions of jobs. "Warren never forgot the pain." At the age of 6, he was selling Coke at 5 cents a bottle. "He'd buy a 6-bottle pack for 25 cents and sell them in the neighbourhood." He made 5 cents per half a dozen bottles. "That's just over 16 per cent gross profit." When he was 13, we find him hawking newspapers as a `smart kid', running up and down the stairs. He got his deliveries up to 500 customers a day, and by 14, he was earning $175 a week, "as much as the average 25 year-old was earning".

You'd learn that Warren loves numbers, is conservative and invests in business that he understands. "He doesn't like to invest unless he thinks that a company is cheap." Cheap, means? "If he thinks that a company is worth more as a business than it's selling for in the stock market, then he says it is cheap." This is no cheap advice.

When shopping for books, don't miss The Intelligent Investor by Benjamin Graham, because that's the one our icon started with. Chapters 8 and 20 are `the most important'.

For the 19-year old Buffett, the book was an inspiration, and he read it through the night, so by dawn `he had found it'. For Graham, what the companies actually did was not critical. "All he wanted to know was what they were really worth."

After two `frustrating years at the Wharton Business School', Buffett goes to Columbia to study under Graham. In the class, Buffett has a question: "Say I find an undervalued stock and invest, how can I be sure that the price will eventually rise?" The Prof replies: "Look, the market may take an inconveniently long time to adjust to a rational valuation. It usually does readjust eventually."

Market is rational, but "it is like a manic-depressive most of the time," alternating between extremes of optimism and pessimism. For investors, the "advantage is that they can choose when to sell".

A job comes by in Graham-Newman, though Graham, at times, rejects analyst Buffett's suggestions. "Warren starts investing his own money in the stocks Graham rejects. He makes money."

The firm closed in 1956. Our man returns to Omaha, determined to build his business at home. Soon, he is running "three limited partnerships from his bedroom" and by 1961, his 5-year cumulative gains outperform: 251 per cent, compared to 74.3 of Dow Jones Industrial Average.

Chapter 3 is on how Buffett discovered intangible value in Amex, though the company posted $1.5 billion loss, and a fraud hit a subsidiary. Buffett gradually moves away from Graham's ideas about buying cheap companies. "Maybe a good price for a great business was better than a great price for a lousy business."

Entré Berkshire Hathaway; and Ken Chace gets Buffett's invite: "Ken, I want you to start planning exactly how you are going to put the company back on its feet. And you had better start writing your first speech as president." Remember Buffett's rule for success: "Stockholders are not managers. They should leave the running of a firm to competent managers with integrity."

An enthusiastic visitor asks Buffett to invest in electronics. The answer is no: "These technology businesses don't make any sense to me. They look way, way overpriced." Year 1966. Wall Street was chasing the "brave new world of synergies and innovation" but Buffett was looking "kind of square".

At 39, when his personal wealth is $10 million, he dissolved his partnerships and told his investors to put their money into municipal bonds. His timing was `immaculate' because by the end of 1969, the market began tumbling.

A sweet little snatch is about See's Candy that Buffett acquires for $25 million. He starts learning about sugar futures. "If See's can get the best prices on the sugar it uses, it can substantially enhance its profits. If we can cut costs and raise prices, this will really work."

You'd read about the `revised rules for success': "Pick companies that are simple to understand. Pick companies with stable long-term performance. Pick companies that have a promising future."

There is `a platonic affair' with Katharine Graham of The Washington Post, a company in which Buffett picks up ten per cent because he wanted to be part of it, for old times' sake, as a newspaper boy hawking the Post in one of his early business ventures.

Enjoyable read.

BookValue@TheHindu.co.in

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