I remember back to the Berkshire Hathaway Meeting in May of 2010 and chuckle to myself… there were many great moments that stick out, but there is one in particular that I want to discuss.
A man heads up to the microphone, it is his turn to talk. He takes a deep breath, and asks Warren Buffett a question (I’m paraphrasing here):
Warren, I’ve read every book about you, every shareholder letter, and every article in which you’ve been interviewed. I’ve gone through Graham & Dodd’s work, read Peter Lynch, and a lot about other great investors. My question is, what do I do now?
I forget what Warren said, but it was something along the lines of confusion and misunderstanding; he couldn’t understand why this guy had read & learned so much and yet didn’t use it to analyze businesses. It reminded me of a time I got “stuck”, so to speak.
I had just spent the last 16 months continuously reading & taking notes through various books on investment strategy and theory, only to sit down and say, “Hey, why don’t I try to compile everything I know in a Word document to reference for later?” And you know what? I couldn’t even fill up two pages. I became very distraught; this was an activity that had consumed more than 16 months of my free time and I didn’t have anything to show for it. I was in the “reading phase”, trying to learn enough to apply it to something, and this was my first attempt in the application of my knowledge. It failed miserably. I became very upset and stopped reading for about a week to think about it all. My epiphany moment came toward the end of the week. I decided that I needed to start researching different businesses instead of continuously reading about the same investment principles from different investors. In the end, most successful investors view the market similarly & there is only so much benefit to gain from hearing all their views.
So, after having spent 16 months in preparation, I set off to begin my application of it all. It was a lot more difficult than anticipated, and at first, I found I didn’t like it. My search strategy was terrible (online screening tools), I didn’t enjoy going through SEC documents at first, and I had trouble identifying what constituted an “undervalued” company. I understood all the principles to become a great investor, I just didn’t know how to use it all effectively. These things take time, as I have learned.
Then I discovered the power of Value Line. I remember Buffett talking about his early days, going through pages upon pages of the Moody’s Manual. It was how he began to develop an encyclopedic mind about different industries and businesses. I’ve gone through just about every issue (23 out of 26) and this is probably the most beneficial exercise I’ve found. I’ve seen over 3,000 companies (even if many were just for 5 minutes) and laid a great base for myself. Although I get the service for free at IU, I’d recommend paying for it if you are truly dedicated. It’s a great way to learn. Now if you ask me what constitutes a good business, a general idea of each industry, and what companies are the best in each industry, I can easily answer you. Just as important, it’s the place where I find the most undervalued opportunities.
I’m including an article written by Mohnish Pabrai here for you to see what his thoughts are on being both an astronomer (investor) and an astronaut (businessman): Click Here
This post is just for those of you starting out. I hope you’ll step away from the books every once in awhile & try to apply what you’re learning as you read about it. Otherwise, the only thing you can do with what you learn is argue with others over the finer points of investment philosophy (astronomer), without being able to analyze and understand the non-linear nature of businesses (astronaut).