Library / Investment Tools

Date of review: June 2019
Book author: Mary Buffett & David Clark
Вook published: 2013

The Warren Buffett Stock Portfolio. Warren Buffett's Stock Picks: Why and When he is investing in them by Mary Buffett & David Clark (2013)

Marry Buffett has written about ten books on the most famous investor. I have only read four of them and would recommend to read at least two, but if I have not read any of them, it might be that I would pick one or two different books.
To start, Marry Buffett is not a daughter of Warren Buffett, she used to be married to one of his sons – Peter - for 12 years. Interestingly, when asked directly at a shareholder meeting in 2000 what he thinks about this book, Buffett instead said that Lawrence Cunningham's book (I guess he meant 'The Essays of Warren Buffett) better represents his investment approach as it is based on direct speech and writings by Buffett rather than someone's interpretations. He also noted that some people try to simplify everything to a mechanical formula which is not possible in investing.

With such a disclaimer, I would still say that I found Mary's books quite useful as they are very clearly written, to the point and with practical takeaways. It helps to keep your thinking process straight especially when you just start investing.

The early part of the book reiterates key principles which have been written in other books such as finding companies with durable competitive advantages and buying them below intrinsic value (for example, during a market correction). Mary Buffett correctly notes that while investment strategy is quite easy, it is hard to implement in practice due to psychological reasons.

An important concept introduced in the book is that company's equity represents a bond with rising coupon (as long as it has a durable competitive advantage that keeps its business running for a long time and defending it against competition). Bonds coupons are fixed and paid within a fixed period of time. While they have relative safety as coupons and the principle are repaid in most cases, they offer no upside and no protection against inflation.

The author brings 17 real examples of companies that Buffett had invested (e.g. American Express, Wells Fargo, Johnson & Johnson) in showing their consistent growth in earnings, dividends and book value and explains how this translates into shareholder returns.

While the book may look too simple for someone who has read a few advanced books by McKinsey or Greenwald, I think it manages to show where the returns come from in real cases (which is of course earnings, dividends and book value per share). The book makes you look at stocks as real businesses and encourages you to take a long-term view (the author uses 10-year horizon for calculations).

You may also be interested in ...