The Warren Buffett Way - Robert G. Hagstrom

The Warren Buffett Way - Robert G. Hagstrom

Learn the mindset of the biggest investor in the world and win the financial market with his insights.

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Do you know the philosophy of one of the richest men on the planet with investments in the capital market? Warren Buffett is named several times as one of the 15 richest people in the world by Forbes magazine and has a fortune estimated at 92.4 billion dollars.

Currently, investment chains are based on actions of almost immediate return, however, one of the most successful men in the economy reveals the most important principles for his entrepreneurial rise. So, how will you, the investor, know how to evaluate stocks with such varied fluctuations?

Start now to develop consistent skills for valuing companies and stocks in this volatile market with the summary of the book "The Warren Buffett Way" by Robert G. Hagstrom

Read here, the investment policy of the assiduous reader and titan of the corporate world Warren Buffett and make your investment portfolio richer!

About the book "The Warren Buffett Way"

Unlike the growing performance of Day Trading, which is a quick negotiation of purchases and sales of stocks during market price fluctuations, the inspiration of the best seller demonstrates that constancy and consistency in the acquire of assets results in greater returns to the investor.

Published in 1994 with the original title "The Warren Buffett Way", the book has 8 chapters and 221 pages. Despite its launch time, it is still an excellent work on investment methodology.

About the author Robert G. Hagstrom

Robert G. Hagstrom is a master in the liberal art of investment and has a total of 9 books published in the area of finance and economics. Besides that, he has a long history of research on interdisciplinary investment decision models.

To whom is this book indicated?

If you are an investor, an economics student or someone who is interested in wealth management, the book "The Warren Buffett Way" is the ideal reading.

Get inspired by Warren Buffett, considered the patron of Buy and Hold and make fortune with the knowledge and skills taught in this work.

The author Robert G. Hagstrom describes the role of this entrepreneur through the interpretation of varied and detailed documents from the CEO of Berkshire Hathaway with data reported to the company's investors periodically. As Warren Buffett himself told him "If I were an investor, I would like them to be done with the same dedication".

Main ideas of the book "The Warren Buffett Way"

Here are the most important insights studied by the author about Berkshire Hathaway and also about Warren Buffett, during Hagstrom's 20 years of research:

  • Business principle: it consists of evaluating the product or service itself, its quality;
  • Management principle: consists of observing who is responsible for the business;
  • Financial principle: it consists in projecting the profitable perspective;
  • Market principle: consists of estimating the value of the product to buyers

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[Book Summary] The Warren Buffett Way - Robert G. Hagstrom

Overview: The formation of the oracle of Omaha

The first two chapters tell Warren's story and the beginning of his relationship with the market, until he became a "5 sigma event", due to his statistical rarity of profits. Warren Buffett was born in the state of Nebraska, USA, during the Great Depression that led to the stock market crash of 1929.

He was fascinated with mathematics and money since childhood and during visits to the brokerage where his father worked, he always asked many questions to everyone who was there. Beyond that, he was very fond of reading, unlike the other children he studied with.

At the age of 11, he bought his first group of stocks on the New York Stock Exchange. After a while, disappointed by the fluctuations and low yield of his first assets, Buffett learned to be patient and only sell when his stocks started to make profit.

Then, at the age of 25, he decided to enter Columbia University of Business School, where he studied Value Investing until his return at the age of 26 to his hometown, Omaha. Later, he opened with 7 friends, an investment holding company with a capital of $ 105, 100 that after 6 years was worth around $ 7 million, and which would later become the Berkshire Hathaway investment limited company.

Overview: Buying business and common stocks

To better assess his investments, Warren Buffett's vision has changed after the sharp declines his stocks in the textile industry have suffered. He saw that it was necessary to choose specific products that offered differentiation from competitors as well as a reasonable cost.

Thus began the era of insurers bought by Berkshire Hathaway Reinsurance. So 38 insurance companies were acquired, and in order for him to retain his earnings, Warren Buffett hired as manager, an Indian engineer, well qualified by IIT, the Indian Institute of Technology, called Ajit Jain.

Then, in 1994, his businesses revolved around insurance companies, capital-intensive companies and service and manufacturing operations, which returned annual profits of approximately 20%, which in comparison with indexed companies was only 9.4%.

In the same period, the theory of the efficient market emerges, which reveals the values of companies as reflecting their price exposed in the market.

Overview: Investment management

Warren Buffett learned from Benjamin Graham, his Columbia professor and friend, several concepts such as the definition of a safety margin, which is the difference between the value given to an ordinary stock and its intrinsic value which is based on dividends paid, assets, profits and prospects.

In this way, asset management is organized through long investments of 10 to 20 years for the sake of a consistent profit. Therefore, Buffett divided investment management into 4 principles, with 3 fundamental characteristics for each of them, totaling 12 characteristics.

Business principles

These are the characteristics that the business must attend to realize the purchase:

  1. Be simple and understandable;
  2. Have a consistent history of operations;
  3. Have favorable long-term prospects.

Management principles

These are the characteristics that employees and managers must present:

  1. Rationality;
  2. Transparency;
  3. The institutional imperative.

Financial principles

The decisions from an economic point of view:

  1. Return on patrimony;
  2. Profits of the owner and profit margins;
  3. Premise of "one dollar".

Market principles

These are the external characteristics observed on the services or products offered:

  1. Determine the value of the business;
  2. Buy at an attractive price;
  3. Anatomy of the long-term price.

Overview: Investment psychology

According to Hagstrom in his book "The Warren Buffett Way", the purchase and sale of stocks should occur when these values are attractive. For the author, the importance of finding a window of opportunity to become a shareholder through the purchase of stocks below the intrinsic value and the prospective future savings of the business are the main differentials for greater profits.

By the way, the purchase of a share must be made based on an analysis of the business. You will be buying a company, not just sheets of paper or titles, so you should look at the prospects for a consistent return on the company's equity.

In short, Warren Buffett does his shopping and he is not in a hurry to sell them. This loss aversion is in many ways the failure of mindware that distinguishes investors from speculators.

According to the case studies on Coca-Cola, IBM, among other companies in his portfolio, it is important to deal with the psychological burden of the investor so as not to give up on their purchase and enjoy it for a long period by gaining confidence in their choices.

Overview: The biggest investor in the world

In a certain way, Warren says that the value of patience and time is responsible for measuring your way of investing and your earnings. So he demonstrates, in this last chapter, Buffett's impressive track record and performance for long years of financial education.

Finally, it can be said that Buffett is patriotic, optimistic, calm, and determined. He values that it is not necessary to have a high IQ to be successful, but it is necessary to persevere and believe in his rational management and honest analysis of the data and facts that are made available to him. So, according to Warren Buffett, you too can become a millionaire!

What do others authors say about it?

The book "The Intelligent Investor", by author Benjamin Graham, was an important inspiration for Buffett's life. Benjamin was Buffett's teacher and chief, as well as his correspondent and friend. In this book, there is an appreciation of investors who think and reflect instead of speculators with unfounded opinions.

In the book "Warren Buffett's Management Secrets", the authors demonstrated that Buffett evaluates companies according to their potential for growth with essential products or services. Also, another source about this investor's successful business vision.

Last but not least in the book "Billionaires", the author Ricardo Geromel traces the profile of billionaires and what these people share besides their fortune, their peculiar work and their perception of the world.

Okay, but how can I apply this to my life?

  • Be consistent! When you find a good business opportunity, thoroughly research your purchase, the company, its products and services. Therefore, this detailed financial analysis will be the differential of a significant investment.
  • Maintain a safety margin for your investments and the assurance of a satisfactory rate of return. In that way, you will be able to rise in times of crisis.
  • Quality management will ensure that your profits are maintained over time. So, encourage qualified people to work for you.

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