A beginners guide to value investing

Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett the World's Most Famous Investor - Mary Buffett, David Clark

I just clicked on Mary Buffett's name on Goodreads and discovered that she is actually the author of quite a large number of books, and each of those books has the name 'Warren Buffett' somewhere in the title (though in reality there are only four books). To be honest with you I am not really sure who Mary Buffett is because she is not one of Warren's children, nor is she his ex-wife (who is dead, by the way) but from what I can remember when I read this book she is connected to him somehow (if not simply using his name to make it appear that she is connected with the self-made billionaire so as to sell more books).

What this book does is that it explores Warren Buffett's strategy of investing in companies that are undervalued, a term known as value investing, at a point in time when the company is going 'cheap': when the value of the shares in the company are significantly less than the actual value of the company. The problem is trying to work out whether a company is undervalued or not, and also having the spare capital to invest. Warren's strategy has worked for him, which is why he is now a billionaire, however we must remember that there was also a lot of luck and guess work on his side.

The issue that I had with this book was, well, first of all it suggested that I wanted to be a billionaire, which, well, I don't because, well, I really do not think that having lots of money is really going to make my life any better (though having money would be a benefit because it means that I could quit my job and then go back to university and self-fund my way through it, which at this stage I cannot). The other issue that I have with the book was the calculations that were being put forward, and these were using a term call 'future value' which is a vague figure at some point in the future which only comes about through predictions and speculations. My biggest issue with the market is that it tries to make concrete some future point that may not come about, yet people will hold onto those suppositions as if they were true.

There are a lot of theories that abound as to how the market works, and my theory is basically that it doesn't. In fact my theory is that the stock market is nothing more than a mathematical illusion that exists simply because we want to believe that it exists and is efficient because we want to believe that it is efficient. In fact, the whole basis of the market is that it exists on confidence, and if nobody had any confidence in the market then the whole system would collapse. In fact this has come about numerous times, and they usually end up with names like Black Friday, Black Tuesday, well, actually any day with the world black in front of it. The sad thing is that when a market (or even a particular stock) crashes in that way it is usually us poor sods that are left standing around holding our dicks in our hands as the wealthy elite run off with all of our money, and all that we are left with are a bunch of worthless pieces of paper.

That is all a share is, and in a way it is no longer even that, and that is a piece of paper that represents ownership in a company, (and also the right to vote at an annual general meeting). In the end if that company collapses in a heap of debt, then in that piece of paper (or the representation of that piece of paper) is absolutely worthless. However, the problem is that we need to prepare and we need to use our resources wisely, which means investing it in as many ways as possible, whether it be through a superfund, or directly as I tend to do it (because getting money out of a superfund, even when you are entitled to it, can be nigh impossible – just ask the guy that sits next to me at work).

Source: http://www.goodreads.com/review/show/187707455