The Hindu Business Line : Older the things get, the more interested he is

Riches are about excess and indulgence, whereas being wealthy is having knowledge, personal relationship success, a sense of humour, and a foundation of principles," explains Robert P. Miles in Warren Buffett Wealth, published by Wiley (www.wiley.com).

The book is about becoming wealthy — creating and sustaining it. Not a `get-rich-quick' recipe, it clarifies; nor is there a promise that you too will become a billionaire just by reading about the `principles and practical methods used by the world's greatest investor.'

Miles rues that many people view stock market like jewellery purchase, thinking that more expensive is the better. "Buffett methods are the opposite; the greater the discount to a stock's true value, the greater the interest."

In the dictionary of Warren, the Oracle of Omaha, `value capital' is the artful acquisition of resources at a discount to their real value, and `social capital' is having the right connections for the right reasons to move in the circles that bring more and better deals.

`Business model capital' is the developing of a business environment to attract an untold variety of businesses and managements under one umbrella, and `circle of capital' is the successful allocation of excess capital of one business into the acquisition or expansion of another.

Buffet has `influence capital' too — the ability to attract "over fifty worldwide media outlets to cover Berkshire's annual meeting, while giving limited access to interviews during the rest of the year."

An important building block in Buffett's wealth is the difference between stock market speculator and business owner. "An owner is concerned with what's going on inside the business," writes Miles. "A speculator is more concerned about what is going on outside the business or the stock's market price." Thus, owners are business analysts, while traders and speculators are market analysts. "A trader is likely to have an addictive personality, is quite possibly superstitious, and prefers games of luck over games of skill."

Buffett paints the difference more bluntly: "Calling a trader an investor is like calling a person who engages in frequent one-night stands a romantic."

Mystery queen Agatha Christie's husband was an archaeologist. Once, Agatha remarked that archaeology was the best occupation for a husband. "Because the older things get, the more interested he becomes." Citing this, Miles adds: "Warren invests like an archaeologist." That's why Coke means more to him than Microsoft, though Buffett plays bridge with Bill Gates often.

There are more than a dozen types of investors that Miles describes.

`Faddists' go after the latest trend, and `fortune tellers' or `chartists' read `tea leaves'. Are you a `delegator' who hands over decision-making to somebody else, or a `validator', micromanaging your brokers? `Technicians' or `mechanical investors' have no regard to qualitative aspects, while `guru followers' go behind a chosen leader.

`Mountain climbers' are busy with macroeconomics such as interest rates, but `random walkers' believe that there's nothing you can gain by actively studying stocks.

A chapter is devoted to Buffett's `investment mistakes' for you to learn from, so you don't make `the wrong mistake', as advised by Yogi Berra.

First among the foibles is "no long-term durable competitive advantage" as it happened in the case of Berkshire Hathaway textile mills that got closed. "His mistake was buying in the wrong industry," points out Miles.

Second fault was to invest in another troubled industry, like the airline. That industry is "capital, labour, fuel, weather, economy, and competition-sensitive," writes the author. Yet, Buffett's NetJets, the world's largest corporate aircraft fleet, has a 70 per cent market share.

Third slip, "investing with stock, instead of cash", the way it happened at Dexter.

"Selling too soon," is the fourth mistake that showed in Buffett's dealing with Amex and Disney.

Fifth skid is not buying when seeing value, a mistake of omission, such as not investing in Wal-Mart.

Sixth blunder is "too much cash", and this happens when "the overwhelming need to allocate excess cash can interfere with disciplined thoughts".

Miles cautions patience; "very few big ideas come along, and when they do you need to act decisively."

The author lists 24 myths about investing, and these include statements such as: anyone can make a killing just by investing in the stock market, you should follow your investments daily, rich people and large institutions have an enormous advantage over average investors, buy the biggest house possible, and the market is always efficient.

There are 11 myths about wealth, including the notion that wealthier people are happier. About Buffett too there are myths such as that he was just lucky. But Miles counters: "Creating more than $100 billion in value from scratch is hardly lucky."

The book introduces you to `five investment principles from the next Warren Buffett', Lou Simpson, who gets his investment ideas from the 12 hours he spends reading "every annual report and every financial publication," and works with a small team "that excels in filtering the noise, asking the right questions, and examining every bottom line."

On having a rich life, there are Buffett's lessons in chapter 11. One such is that the reward is in the doing: "You cannot motivate the best people in the world in any field with money. They are motivated by passion."

Add to your wealth of Warren knowledge.

BookValue@TheHindu.co.in

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