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The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy Paperback – Nov 20 2000

3.8 out of 5 stars 26 customer reviews

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Product Details

  • Paperback: 256 pages
  • Publisher: Wiley; 1 edition (Nov. 20 2000)
  • Language: English
  • ISBN-10: 0471392642
  • ISBN-13: 978-0471392644
  • Product Dimensions: 15.2 x 2 x 22.9 cm
  • Shipping Weight: 340 g
  • Average Customer Review: 3.8 out of 5 stars 26 customer reviews
  • Amazon Bestsellers Rank: #81,549 in Books (See Top 100 in Books)
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Product Description

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It's no secret that most mutual funds fail to beat the performance of the S&P 500. And if the pros can't beat the averages, it's not unreasonable to assume that most individual investors can't, either. Why? According to Robert Hagstrom, author of The Warren Buffett Portfolio, a big reason is the industry's emphasis on diversification. In the interest of minimizing risk, many investors have "become intellectually numb to its inevitable consequence: mediocre results." As a result, they wind up owning too many stocks and churn their portfolios unnecessarily (for example, the average mutual fund holds 100 stocks and turns over 80 percent of its portfolio annually). In The Warren Buffett Portfolio, Hagstrom shows how Buffett and others use the idea of focus investing to organize winning portfolios.

Unlike Hagstrom's first book, The Warren Buffett Way, which describes how the world's greatest investor selects individual companies, this book looks at the mathematics, the psychology, and the mental models necessary to build a successful portfolio. The basic ideas: Pick no more than 10 to 15 companies with good track records and high probabilities of future success; plan to hang onto them for at least five years; and ignore predictions and the sometimes terrifying swings in market behavior. It's hard to argue with Hagstrom's approach, especially when he practices what he preaches. His fund, the Legg Mason Focus Trust, has 15 stocks, an annual turnover rate of 9 percent, and percentage annual returns in the mid-30s. For thoughtful investors and devotees of Warren Buffett, who are looking for more than the next hot stock tip, The Warren Buffett Portfolio is well-written guide. Recommended. --Harry C. Edwards --This text refers to an out of print or unavailable edition of this title.

From Publishers Weekly

In a straightforward follow-up to his bestseller, The Warren Buffett Way, Hagstrom shows how to put Buffett's ideas into practice. Buffett, universally described as one of the world's greatest investors, has made a fortune with a number of extremely large bets on a relatively small number of companies. By doing so, Hagstrom, who runs a mutual fund for the Legg Mason investment house, correctly points out that Buffett flies in the face of orthodox notions of portfolio diversity. Buffett's approach, which Hagstrom calls "focus investing," limits his investments to an extremely small number of stocksA10 or 15Athat he thinks have the greatest long-term potential. In The Warren Buffett Way, Hagstrom identified how Buffett chooses those stocks. And here, in his straightforward followup, he shows the benefits of this approach: if you pick right, returns will be far greater than the market as a whole. The problem, of course, is that you have to pick winners. That, as Hagstrom notes, still takes hard work and discipline.
Copyright 1999 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.

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Customer Reviews

Top Customer Reviews

Format: Hardcover
Don't get me wrong- I learned a lot of valuable lessons about investing from this book. However, I believe most people don't understand the true secret of Mr. Buffet's success, and that is his ability to buy influential stakes in large concerns that he understands thoroughly. Buffet is not the typical small investor who is trying to nickel and dime his way to riches. Far from this, he is a man who has a lot of cash behind him, and can wield that cash to obtain seats on the boards of promising companies. Once there, using a bit of common business sense and uncommon financial influence, he can effect positive change in a company (there may also be a few derivatives being bandied about to boot). None of us small investors can ever do that.
Like I said, I learned a lot from the book. Instead of telling me which stock to buy, the book offered me basic principles to guide me in my investment activity. The book also helped me to better understand my own financial behavior and accurately diagnose my investment temperament. It also gave me some very important pieces for a strong blueprint for successful investing. Three of the most important lessons that I took from this book are first, buy only those companies that you understand intuitively, second, be patient with your investments, and third, the most important lesson, never hesitate to buy into quality and transparency. The book also pointed me in the direction of other references that I believe are worth reading, such as John Burr Williams' Theory of Investment Value, Benjamin Graham's Security Analysis, B. Graham's Intelligent Investor, and Philip Fisher's Common Stocks and Uncommon Profits.
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Format: Hardcover
Hagstrom's second book is outstanding, especially for anyone looking to develop and define a rational investment style and process for managing their own money. As a professional money manager, I have read many books on investing, and like to refer the better ones to my clients. This one would be at the top of my recommended list, because it is clearly written, logical in its approach (Hagstrom backs up the tenets of his "focused portfolio" approach to investing with good empirical data), and provides a consistent and rational framework for people to invest their money. Hagstrom advocates that investors own relatively few stocks (maybe 10-15), and concentrate their holdings in companies that have a high probability of enjoying financial success over the long term. He points out the risks of this approach (fewer stocks in a portfolio can result in higher than average portfolio volatility in the short run, which can be disconcerting to some investors), but also highlights the success that Buffett and other practicioners of a long term, focused approach have had historically. Hagstrom includes interesting discussions of the math underlying his strategy, and the psychological factors that predispose a person to embrace or reject the principles of investing he recommends. The beauty of the book, and the focused portfolio approach to investing, is that it is logical, supported by solid mathematical principles, makes sense intuitively, is relatively easy to apply, skews the odds of outstanding absolute and relative total returns in the investor's favor, and provides a solid framework against which to invest in a world that is fraught with risk and dominated by a media culture that probably hurts more individual investors it helps (CNBC, internet sites, mutual fund advertising, etc).Read more ›
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By A Customer on April 6 1999
Format: Hardcover
Warren Buffett must find it irritating that his name is treated as a hanger for the tangential thinking of Robert Hagstrom in "The Warren Buffett Portfolio". When the author isn't quoting or paraphrasing Buffett, he is arthritically connecting Buffett's ideas with strangely incomplete summaries of tangential concepts like Kelly betting or Stern Stewart's EVA and Cost of Capital (the latter concept has been explicitly rejected by Buffett's partner, Charlie Munger). At the end of the day, this book looks like an investor's collection of idealogical lint and Hagstrom seems like an overrated exponent of Buffett's investment strategies. Thoughtful Buffett newbies might have found Hagstrom's previous "The Warren Buffett Way" only vaguely unsatisfying, but those who have read-up on Buffett in the interim since Hangstrom's last book will find this latest work a muddled and half-baked mess.
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Format: Paperback
In "The Warren Buffett Portfolio", author Robert Hagstrom devotes an entire book to debunking the greatest misconception prevalent in the investment world today: the myth of "diversification". Hagstrom sets out to prove that Mark Twain was a market wizard when he said "put all of your eggs in one basket, and guard the hell out of that basket!"
The heart of this book rests on the premise that a proper portfolio must be "diverse" (i.e. must include 40 to 100 different companies) in order to remain "safe" and avoid a loss of capital. However, while such a notion may decrease short-term volatility, it does not necessarily increase returns. Hagstrom examines investment guru Warren Buffett's ideas on the subject, such as "knowledge decreases risk, not the number of stocks in your portfolio". Such an approach makes sense. Which is better, to own a few companies that you know everything about, or a lot of companies that you know little or nothing about? The less you know about a company, the more likely it is that an unforeseen event will sneak up on you and hammer your portfolio.
The book also addresses the fallacy of "re-balancing a portfolio". Again, Warren asks, why are you selling off your best company to buy a bunch of under-performing companies? Such a line of thinking is akin to saying "Michael Jordan takes too many shots and makes too much money relative to the other players on his team, so he should be traded to another team for three players so as to decrease the risk of an injury hurting the team... or we should give more shot opportunities to players of lesser talent so that the team doesn't become dependent on Michael Jordan to win." Nobody ever won an NBA Championship with run-of-the-mill players, but the Bulls won six NBA titles by relying on Michael Jordan.
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