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					Warren Buffett Way (a)
????Chapter small probability event

????In recent years, the field of economic and financial scholars and
investors have been debating the "market efficiency theory"
is correct. This controversial theory is that the stock is a waste of
time, because the current stock prices already reflect all available
information. Adhere to this theory claim that investors do not like
those experienced professional investment analysts, like spend a lot
of time to study the latest estimates of annual or quarterly reports,
stock quotes just throwing to a misty fly to These professional
analysts can be successfully selected as promising stocks. However,
some people who repeatedly offend this conclusion - most famous
Buffett to the fact that their investment success: market efficiency
theory wrong. The theorists believe in market efficiency argue that
the theory itself is not wrong, Buffett's success can only be a small
probability event purely by chance, a probability so small that the
statistical phenomenon occurred virtually impossible .
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The fall of 1993, "Forbes" magazine compiled a list of
wealthy America, including DuPont, Mellon, Rockefeller, and other
major family and the net assets of 69 billion USD in 10 individuals.
Buffett's personal net worth 8.3 billion U.S. dollars among the
wealthy top of the list. In these 69 persons, only Buffett fortune
from stock market wealth. In 1956, the $ 100 he began his career as an
investment partner. 13 years later, the charge of the wealth he has
reached 25 million U.S. dollars. 22 years later, became the richest
man in America. However, to a more comprehensive assessment can be
like Buffett's amazing, it should not only stay in his wealth and
respected for his on.
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The beginning of your resume and investment
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Warren. Edward. Buffy until August 30, 1930 was born in Omaha,
Nebraska. His father, Howard. Buffett has been living in Omaha, a
local securities broker and Republican lawmakers. Warren. Buffett in
childhood on numbers are fascinated with the strong mental arithmetic.
Buffett 8 years old, his father began to read books about the stock
market. Buffett, age 11, his father served as agent in Harris. A Pu
Beckham company accounts. In the same year, he bought his first stock
- preferred shares of municipal service companies.
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Buffett's father, while working in Congress, Buffett has lived in
Washington, however, to be Buffett's interest turned to business.
Buffett, 13 years old, looking for a drop along a fixed route,
"Washington Post" and "Times Herald" work. After a
savings of small, Buffett bought a few sets priced at $ 25 a pinball
game and put in the local casino. Soon, Buffett has 7 home consoles
and will give back $ 50 per week. Later, Buffy to be a joint venture
with a high school friend 350 dollars, bought a 1934 Rolls-Royce cars
produced, Then the Government also the price of 35 dollars a day
rental. This 16-year-old high school graduation Buffett has amassed $
6,000.
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Buffett at the University of Nebraska into high grade, read Benjamin.
Graham's classic: "rational investor." This book on Buffett
investment securities had a profound impact. To this end, the
University Buffett left home after graduation to Omaha and moved to
New York to enter the Columbia University Business School under the
tutelage of his admiration for this. Graham. Graham stressed the
importance of understanding the intrinsic value of companies. He
always believed: investors as long as the correct calculation of the
intrinsic value of companies and enterprises with less than the
purchase price of the intrinsic value of its shares will be able to
make a fortune. Graham Buffett caused this assessment the importance
of numbers.
???
Buffett, a master's degree in economics at Columbia University, I
returned to Omaha. In his father's brokerage firm for a short period.
During this period, Buffett continues to keep in touch with Graham,
writing about their various investment ideas. In 1954, Graham invited
Buffett down to New York to join Graham Newman.
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Graham Newman in his tenure, Buffett's investment approach of the
Graham fascinated. In addition to Buffett, Graham also hired Walter.
Shilao Si, Tom. Resistance to general and Bill. Loon. Shi Laosi later
in a well-known large companies for 28 years as chief financial
officer; Snipes graduated from Princeton University chemistry major,
is the Tweedy. Brown's initial partnership; Loon River Sequoia Fund is
established .
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In 1956, Graham Newman, the company is dissolved, 61-year-old Graham
decided to retire. Buffett returned home to Omaha. With Graham had
learned from the investment knowledge and financial background of
friends and relatives, Buffett offered a partnership investment
company. At this time he was only 25 years old.
???
Buffy to be in this investment company formed by the seven partners,
invested a total of 105,000 U.S. dollars, Buffett is the chief person
responsible for his own spending only $ 100. Each partner can get the
equivalent of 6% of their investment income, in addition to the
standard amount, it can also be assigned 75% of annual net profit.
Another 25% of the profits would go to Warren Buffett. After 13 years,
Buffett's management, the partnership's average annual investment
return rate of 29.5%. Very difficult to achieve such success. Because
in the past 13 years, the Road. Jones industrial average fell 5 times,
and Buffett's investment company is a partnership Zhimakaihua steadily
high, there has never been a recession. Buffett's commitment to his
partner, said: "Our investment is based on the basis of the
intrinsic value of stock and not follow the crowd." Partnership
"will try to put the long-term capital loss (not accompanied by
the city of short-term losses) to reduce to a minimum. "
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During the partnership, Buffett management of their money. Occupation
by increasing investment, Buffett Partnership appropriate for more
established companies. This phenomenon continued until 1962, Buffett
decided to merge them into a partnership on p, he was the partner of
the company's headquarters moved to Omaha Kivett Building, which is
the company's current office location. By 1965, the partnership's
assets reached $ 26,000,000.
???
In 1969, Buffett decided to end investment partnership. He believes
that the stock market is now highly speculative atmosphere of dry, the
real value of the investment analysis and decision making in the role
of smaller and smaller. The late 60s, the stock market dominated by
the overvalued stocks, "a beautiful 50 stocks," so often on
the lips of investors. Like *, Polaroid, Xerox, the company's stock
price-earnings ratio as high as 50 or 100 times. Buffett to give his
partner sent a letter, said he can not keep up the pace of today's
market. Buffett said, "I will not give up earlier that I have the
inherent logic of Shenzhen and Hong Kong approach, even though I know
it is very difficult to apply, and is likely to result in significant
permanent capital loss, but on the other hand, this methods means that
a huge and obvious benefits. "
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The beginning of the partnership, Buffett has set a goal, the annual
rate of return to exceed the road. Jones industrial average average 10
percentage points. 1957 to 1969, he did beat the Road. Jones index.
But not just 10 percent, but 22 percentage points (see Figure II. L).
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After the dissolution of the partnership, investors withdrew their
capital share, and then go our separate ways. Some investors switched
to municipal bonds, and some recommended by Warren Buffett gave a fund
manager, who was his classmate at Columbia, friends, Bill. Loon, the
rest of the other members, including Warren Buffett myself, put the
assets transferred to Beike Xia. Hasi Wei Company, formed a new
partnership. Buffett's partner in the new company's equity increased
to $ 25,000,000, enough to control the Beike Xia. Hasi Wei company.
Over the next 20 years, Buffett and Beike Xia. Hasi Wei wealth of both
companies soaring.
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Beike Xia. Hasi Wei's early history
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Beike Xia. Hasi Wei was originally a cotton company, founded in 1889.
Forty years later, Beike Xia. Hasi Wei seven textile companies and
other factories merged to become New England's largest textile
companies. During this period, Beike Xia. Hasi Wei's output to meet
the U.S. demand for about 25% of the cotton, spent New England l%
generating capacity. In 1955, Beike Xia. Hasi Wei manufacturing
company and the Ha Siwei Company
Merger, the company changed its name to Beike Xia accordingly. Hasi
Wei company.
???
Unfortunately, the combined company's business situation is very bad.
Less than a decade, shareholders equity decreased by half operating
loss of more than ten million bucks. Despite these dismal results,
Buffett's partner company or Beike Xia took over in 1965. Hasi Wei
company. Over the next 20 years, Buffett and the textile branch
manager Ken. Chase together, make every effort to reverse the
company's losses. However, the result is still disappointing, equity
return on capital has not been more than 10%.
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The late seventies, Beike Xia. Hasi Wei company's shareholders to
continue in the textile industry began to doubt the wisdom of the
investment. Buffett did not conceal the difficulties, but many
expressed their concerns: Bei Kexia. Hasi Wei is a company under the
textile mill where the region's largest employer; labor force only to
a relatively stable, relatively speaking skills; corporate management
team demonstrated a high degree of enthusiasm; unions have been the
work of the management of comparable companies. In short, I believe
Buffett is still profitable textile business. However, he also stated
that he hoped that textile group to obtain a small amount of capital
expenditure is revenue. Buffett said: "I will not only increase
our revenue to a profit of 1.0 stops below the level in normal
business, but the event in the future if the company may be signs of a
large loss, then, even if it is currently effective Well, can not
continue to provide funding. Adam. Smith would not agree to my first
idea, Carl. Marx is the second claim against me; 'middle ground' is
the only place I feel comfortable. "
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Beike Xia. Hasi Wei entered 80 years after the company, Buffett
gradually realize from the fact that a number of reasons. First, the
specific nature of the textile business, it can not determine the high
returns. Textile products is difficult to differentiate from
competitors of goods, foreign competitors rely on the employment of
low-cost competitive advantage of cheap labor squeezed operating
margins. Secondly, in order to remain competitive, textile mills need
to add considerable capital investment, which in an inflationary
environment is very terrible, when lack of business returns plaque
will fall into disaster.
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Buffett was faced with tough choices. In order to remain competitive
if the textile division major capital investment Beike Xia. Hasi Wei
company may expand into capital expenditure, but income poor
condition; if not additional investment, Beike Xia. Hasi Wei will be
the company's mills other mills in the contest at home and abroad have
lost their competitiveness. Regardless of Beike Xia. Hasi Wei whether
additional investment in the textile segment, foreign manufacturers
still employ cheap labor, low-cost competitive advantage.
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In 1980, Beike Xia. Hasi Wei reveal the company's annual report the
specter of the textile division. That year, the textile division has
lost its chairman and report in a prominent position, followed by the
second year, the report did not mention the textile business. Finally,
in July 1985, the Vampire Slayer to be finally deleted the page in the
textile sector, which ended about a hundred years of history of this
business.
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Although the textile sector, the less fortunate, but the experience is
not entirely a failure. As the saying goes, failure is the mother of
success. First of all, Buffett realize from a valuable lesson: Few
people have been successful in reversing a loss of disease into
Qingmang enterprises. Second, Buffett used the early stages of the
textile business to create the capital to buy a company later became
Beike Xia. Hasi Wei company cash cow for insurance companies. Can be
described as loss of Sang Yu, was the east corner.
?????????
?Insurance business
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March 1967, Bei Kexia. Hasi Wei Company invested $ 8,600,000 to
purchase two of the first card Omaha Insurance Company - National
compensation company and fire and marine insurance companies all of
the outstanding shares. This is Beike Xia. Hasi Wei company began an
extraordinary success story. To understand the extraordinary place
herein should first have to understand the true value of an insurance
company. Sometimes the insurance company is a good investment, and
sometimes the opposite. But be sure, the insurance industry is always
thrilling areas of investment to investors. Insurance policyholders to
pay for the insurance companies to provide a stable cash flow;
insurance companies can invest the cash until a claim occurs. As the
uncertainty of the claim occurs, insurance companies, investment flows
and good preferred securities, mainly stocks and bonds. Therefore, not
only the two Buffett got good corporate operations, and is a
management investment armored vehicles.
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In 1967, the National Compensation Corporation and the marine and fire
insurance company has a value of $ 24,700,000 of bonds and stock worth
$ 7,200,000. Two years later, the two insurance companies hold the
total value of stocks and bonds to $ 42,000,000. Buffett this
"cautious" in hand stock investors, this is a beautiful
combination. In fact, in the year management Beike Xia. Hasi Wei-owned
textile company's portfolio, Buffett has already tasted success.
Buffett took over in 1965, Beike Xia. Hasi Wei company, which owns $
2,900,000 of the securities. The first end of the year, Buffett took
the company to expand the amount of securities account to $ 5,400,000.
In 1967, Beike Xia. Hasi Wei securities of companies in the textile
segment investment income of 3 times the total operating income, and
investment portfolio in common stocks and other securities on the
capital is only one-tenth of the latter.
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Buffett exit time of the textile industry to enter the insurance
industry is controversial, in fact, he just changed the company's
product type. Insurance companies and textile companies, is selling a
commodity - an intangible commodity. Insurance company products are
standardized, can be anyone to follow. Insurance companies have not
been able to distinguish each other's trademarks, patents, regional or
raw materials advantage. Easy to up the insurance company, premium
rates are also public. Generally, an insurance company is its largest
member. The efforts of individual managers on performance of an
insurance company has a huge impact.
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The late 60's, the insurance industry is a very profitable line of
business. In 1967, the National Compensation Company charged $
16,800,000 in insurance premiums and gain 160 million after-tax
profit. By 1968, premium income increased to $ 20,000,000 after-tax
profit reached 220 million U.S. dollars. Buffett's early business
success of the insurance industry led him to boldly expand the camp in
this industry. The entire 70 years, Buffett bought a total of three
insurance companies and other established five insurance companies.
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Despite the good momentum, Buffett has been vigilant in peace time.
The late 70s, he organized the business of insurance companies had
some concerns. He can not directly control some of the factors that
began to affect the cost. Although the price index grew by only 3%
annually, but medical and automotive repair costs increased 9%
annually. Moreover, the court proceedings the plaintiff's damages
award and the insurance company must pay in compensation at an
alarming rate. Buffett, the monthly operating costs estimated to
increase by about one percentage point. This basis, the corresponding
increase in insurance rates unless otherwise operating profit
insurance business is bound to shrink.

But the fact is just the opposite, not only does not increase
insurance rates, but declined. In the commodity business, the low
prices to gain market share is a competitive strategy. Buffett noted
that some companies would rather sell less than the operating costs of
the insurance policies do not want to risk losing market share risk.
Obviously, they are betting the premium rate will rise, so that it can
regain the profit to make an apology Feng, offset the losses.
Buffett's common sense way to prevent him from using the development
of Beike Xia unprofitable. Hasi Wei's insurance industry.
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Because do not want to compete on price, Buffett tried two other ways
to show Beike Xia. Hasi Wei insurance business and operating
characteristics. The first is through Beike Xia. Hasi Wei corporate
insurance company's economic strength. In the property insurance
industry, Beike Xia. Hasi Wei company's net asset value of the
insurance company after the National Agricultural Company. Moreover,
Beike Xia. Hasi Wei total value of investment portfolio and the ratio
of the total premium is level with the industry
Both the level of 3 times.
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The second difference is that Buffett does not value the Beike Xia.
Hasi Wei total company business insurance company. Buffett, he may be
issued in a given year, or five times a year only one fifteenth of the
previous year's policy business. He certainly hope can always get a
lot of insurance business, provided that, at reasonable prices. If the
price is too low, he would rather release a small amount of the
policy. Buffett's philosophy is that the insurance business from the
founder of the National Compensation Jack. Linwo Te where the learned.
Beike Xia. Hasi Wei has been the company's insurance business had not
deviated from this principle.
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Buffett believes that Beike Xia. Hasi Wei dramatic changes in the
insurance business and not by Beike Xia. Hasi Wei company insurance
company of its own making, but the vicious competition of other
insurance companies caused the behavior. When the insurance companies
to compete, have to sell insurance policies cost less than expected,
customers will see Leith moved, leaving Beike Xia. Hasi Wei company
insurance companies. However, because many insurance companies are so
scared of the losses on the exit from the market, Beike Xia. Hasi Wei
company insurance companies have stayed true to its staff. Of course,
Beike Xia. Hasi Wei company insurance companies still adhere to the
"reasonable price" principle. Buffett's business management
as a stabilizer. Buffett himself believes that "we supply
shortage in the insurance business a substantial increase in insurance
business. Of course we are not only in order to stabilize the
insurance industry to follow this strategy, we follow it because we
believe this is the most sensible is the most profitable business of
the Road. "
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Nineties, brutal price competition, continued modest insurance losses
and investment income together painted a picture of the insurance
industry at risk. Buffett continues to financial stability and fiscal
responsibility as Beike Xia. Hasi Wei corporate insurance company's
operating characteristics. Beike Xia. Hasi Wei solid financial
strength of the company's insurance business to make it stand crane
peers. In a sense, the Vampire Slayer to be given to Beike Xia. Hasi
Wei company insurance company's financial firm, the practice of faith
has created a business in the only commodity that has the concession.
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Indeed, in the past decade, Beike Xia. Hasi Wei company also
experienced a lot of insurance companies suffering. Buffett himself
has undertaken insurance business failures of the responsibility. But
his investment experience and practice of common sense to Beike Xia.
Hasi Wei shareholders of the company has been in an enviable position.
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Operating Non-Insurance
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Beike Xia. Hasi Wei-known companies to holding companies. In addition
to a number of insurance companies, it also has a newspaper, a candy
company, a furniture store, a jewelry store, an Encyclopedia
Publishing House, a vacuum cleaner shop and a production company and
distributor of uniforms.
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Buffett how to obtain these different business story itself is very
interesting. These stories help to inspire us to explore Buffett is
the company's unique approach to evaluation. Warren Buffett on the
wholly owned, the company has a controlling interest, and only a small
part of the shares purchased by the company's evaluation criteria are
the same. Buffett owns the company also provides quality evaluation of
business situation and prospects of first-hand experience, which
Buffett's stock selection decisions was critical.
(Reprinted)

				
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