The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy Paperback – Nov 20 2000
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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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Top Customer Reviews
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.Read more ›
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.Read more ›
Most recent customer reviews
The author seems to use Mr. Buffett'S reputation to bring forward his own ideas. The author is a very good and respected investor. He should write based on his own experience. Read morePublished 14 months ago by Pierre-Paul Rolland
All the books of Robert Hagstrom very good for your money and for you too.Published on July 7 2014 by Brezina Vladimir
I'm not sure what this is about after reading it. Actually I'm even more surprised noone has reviewed this (or read this?) or maybe I shouldn't be? Read morePublished on Nov. 16 2002 by dasn0wman
I have always been fascinated by Warren Buffett ever since I heard about this character in Omaha who didn't even have a stock ticker his office but had remarkable results in Adam... Read morePublished on March 17 2001 by E. Martin
It says "It's no secret that most mutual funds fail to beat the performance of the S&P 500. Read morePublished on July 21 2000
I liked this book and I'd certainly recommend it. However, Mary Buffett's "Buffettology" is a much better book. Read morePublished on Oct. 1 1999
I haven't read it yet, but purchased it after reading Eugene Baisch's letter to Baron's. He stated that "It's absolutely terrific". Read morePublished on July 24 1999
There are many roads to wisdom and as one who wants to invest (not trade) intelligently I found this book to be invaluable. Read morePublished on June 5 1999
I read Hagstrom's previous book, The Warren Buffett Way, years ago. This book taught me to apply Buffett's strategies in a whole portfolio -- in a way that is easy to learn and... Read morePublished on June 4 1999
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