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Ugo Okonkwo

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What Is Warren Buffett's Investing Style? 1
 

In his latest edition of The Warren Buffett Way (2nd Edition), Robert Hagstrom illustrates the investment methods of the world’s most prominent value investor. If you want to emulate a classic value style, you already know that Warren Buffett is a great role model. Early in his career, Buffett said, “I’m 85% Benjamin Graham.” Graham is the godfather of value investing. He introduced the idea of intrinsic value - the underlying fair value of a stock based on its future earnings power.

There are a few things worth noting about Buffett’s interpretation of value investing. First, like so many successful formulas, it looks simple. But simple does not mean easy. Buffett utilizes about a dozen “investing tenets”, or key considerations. One of them asks if management is candid with shareholders. This is simple to ask and simple to understand, but it is not easy to answer. There are some interesting examples of the reverse: concepts that are complex but easy. In this respect, economic value added (EVA) is a good example. The full calculation of EVA is not easy to comprehend, and the explanation of EVA tends to be complex. But once you understand that EVA is a laundry list of adjustments - and once armed with the formula - it is fairly easy to calculate EVA for any company. Hence, Buffett’s tenets may sound like clichés because they are easy to understand, but they can be very difficult to execute, and vice versa.

Second, the ‘Warren Buffett way’ can be viewed

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