My knowledge behind the man that made value investing big, the oracle of Omaha; Warren Buffett, was confined largely to the numerous books, annual letters, and interviews he’s done on news channels.
Don’t get me wrong. My impression of Mr Buffett, has been nothing but stellar. I’m a strong follower of his strenuous criteria when it comes to selecting stocks. I’ve learnt a lot from this man through his written mantras, but to be able to learn directly from this man in person, was a total different ball game.
Mary Buffett was someone who have had this privilege learning directly from the oracle. Mary Buffett, a best-selling author and well known international speaker at investment fairs, is probably most known for her first book; Buffettology.
In a meet up with Mary, I managed to shed more light onto the mantras of value investing, and left the conversation with an even sharper mind.
The Cash And Stock Route
Mary shared that she started out from ground zero when it came to investments. Mary revealed that back then, when she was in the family of Warren Buffett, she witnessed and experienced many things; much of what moulded her investment acumen and set a solid foundation of what would become a well versed language now.
“Back then, Value Investing wasn’t as big as it was today. However, every Christmas holiday season (the common period where Warren Buffett wrote his annual letters), I saw many industry titans, renowned journalists, all gathering at Warren Buffett’s house, listening to him, so it was really just learning as much as I could.”
When asked how she got her feet wet on investments, Mary told me the story of how she got her first share.
“Every Christmas, Warren will give out $10,000 in cash to the family members. Of course, at that time, all the kids were thrilled, the other girls and I in the family will just go spend it. But then one Christmas, I received an envelope, that entitled us to $10,000 worth of shares in a company he recently bought, and gave us the option of keeping the shares or cashing in. I decided to hold it and the value just went up soon after, and I realised from that point that I should actually go out and buy more of what he just gave me instead.”
It was the gift that kept on giving.
Circle Of Competence
Mary quipped that all her investments are pure value investing plays and she only invests in what she is familiar and understands; also known as investing within her circle of competence.
Made famous by Mr Buffett, circle of competence, was a theory that Mr Buffett advocated for an investor to focus only on investing in areas which they knew best. It is not important that the circle is small, but what’s more important is that of the understanding of the boundaries within this circle.
A great example was given to me by Mary on an occasion where she was at the Apple store with her son. She was with him in the store and all the kids in the store (including him) all knew what they were doing, and when her son told her, “you should buy this stock mom”, then she realised, while this (technology stocks) was not in her circle of competence, it was his.
That was the time when Mary took a bet on Apple and bought the stock, and it became a good investment.
Intrinsic Value, And Patience
Too often than not, people commit to a buy price which is way too expensive for that particular stock. It happens every single day.
Through Mr Buffett’s teachings, it is only natural to constantly question about the stock’s current trading price vs its intrinsic value (the true value of a company).
When asked about what would she do if the stock’s price kept climbing and that the potential of the company, coupled with its real value keeps climbing, Mary replied, “I’d say..be still my beating heart”.
Mary believes that the concept that stands hand in hand with intrinsic value, is to actually reduce your risks as much as you can when it comes to parting your dollar for investments.
That is why it is important to understand the company you are investing into, and even more important to know the underlying price the company is worth.
The Basics, Why You Should Bother To Learn Them
It is undeniable that understanding the business of a company, is probably one of the most time excruciating task ever.
This is not even taking into consideration of looking at the company’s financial statements, or what Mary refers to as, “knowing the financial language”.
Mary believes that the amount of effort you put into studying a company is directly linked to the potential performance that could be derived from your picks. That’s the difference between nit-picked investments, and pure gambling.
Mary explains that it is critical for investors to be familiarised with the concept of understanding financial statements, and added that it is a basic foundation that is normally built and run through during her courses and at Mind Kinesis Management International (first Singapore value investing programme endorsed and recommended by Mary).
It was humbling to see the world of investments that I’m passionate about through Mary’s eyes. After all, it’s not everyday that you get to talk to people who have really seen the oracle of Omaha walking the walk, and inculcating it well into their life’s journey.
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Source: Shares Investment