American Capitalist

After a false start of just a few chapters last year, I’ve recently picked up and finished pouring through Roger Lowenstein’s biography of Warren Buffett, “Buffett – The Making of An American Capitalist.”

This book is a great read, especially for any like-minded business-book junkies like me. Having said that, I’m not sure there is a whole lot I can say about Warren Buffett that a thousand others haven’t beat me to many times over. However, what does occur to me is that I can further clarify a post to this blog I made back in December.

In a post prompted by the "news of the day," and entitled “Predators serve a purpose, (Dec. 11th)” I talked a little bit about my view of corporate raiders serve a purpose by keeping the management public corporations on their toes. Since Warren Buffett has often played the White Knight role, protecting the occasional good management team of a company put in play by raiders, it occurred to me that I should also highlight what I think is a much more important, perhaps even “noble,” component of the free market – the true long term investor.

From the book:

“One time, Buffett said an investor should approach the stock market as if he had a lifetime punch card. Every time he bought a stock he punched a hole. When the card had twenty holes he was done—no more investing for life. Obviously, the investor would filter out every idea but the best.”

Much more than corporate raiders, the long term investor holds up and supports our market system by financing industry. Warren Buffett actually stands out among the world’s super-rich because his fortune was not built solely one main business, but instead on his ability to evaluate many different businesses. The brilliance of Buffett is not just that he is able to assess intrinsic value of a business, but also in his ability to allocate capital by repurposing free cash flow from one business into another.

“ What counted was the profit as a percentage of the capital invested. That was the yardstick by which Buffett would grade Chance’s [the top manager at Berkshire Hathaway’s textile mills] performance.” A Buffett would say, “I’d rather have a $10 million business making 15 percent than a $100 million business making 5 percent,” Buffett said. “I have other places I can put the money.”

Incidentally, my favorite business book ever, that is, the one I think if studied enough could probably replace my entire MBA, was written by Warren Buffett himself! The Essays of Warren Buffett: Lessons for Corporate America,” is actually and edited compilation of Buffett’s writings, primarily from Berkshire Hathaway annual reports.

In combination, the two books are a great course on Warrant Buffett the man, and the philosophies that have made him the second richest man in the world.