How to Think Like Benjamin Graham and Invest Like Warren Buffett

How to Think Like Benjamin Graham and Invest Like Warren Buffett

Posted by jack_miller | Published a year ago

With 15 ratings

By: Lawrence A. Cunningham

Purchased At: $19.39 (7 used & new offers)

How to Think Like Benjamin Graham and Invest Like Warren Buffett wraps a lifetime of investing wisdom into one highly accessible package. An intelligent guide to analyzing and valuing investment targets, it tells investors what questions to ask, what answers to expect, and how to approach any stock as a skeptical, common-sense business analyst.

Above all, this fast-paced book provides investors with the tools they need to thoroughly value any business in which they might invest. A common-sense approach to investing, this book discusses: *
Three things investors must get from a financial statement *
Valuation examples from today's top companies including GE, Amazon, Microsoft, and Disney *
Why prices deviate from actual values

Although the definitive popular book on Benjamin Graham and Warren Buffett remains to be written, this excellent work is certainly the state-of-the-art in this area. For those who do not have the time or inclination to read the writings and speeches of these important investment thinkers, you get the key kernels of wisdom in action-oriented doses here. This is the first book I have read that gives the stock investor who wants to outperform the market averages a sense of what is involved in order to have a chance. The examples of how to apply these methods to companies like General Electric, Coca-Cola, Microsoft, and internet retailers are very helpful. I thought this book was much more valuable in every way than Buffettology.
Both Graham and Buffett see buying stock as being the same as buying a whole company. The analytical methods involved are similar to those used by companies thinking about making an acquisition, except there is no need to consider what the joint operating benefits of the companies will be. The strength of this approach to stock investing is that if stock values for a company fall too low another company or group of cash-flow-oriented investors will acquire the whole company. In the long run, stocks should not fall too far below their intrinsic value (a Graham concept) as cash flow generators.
The book is organized into three sections. The first looks at whether the stock market is efficient or not. If it is, you cannot beat it. If it is not, you can beat it by investing where it is not efficient. The evidence here summarized estimates that the stock market is at least 20 percent inefficient and becoming more so. I am aware of a number of studies showing other kinds of inefficiency that Professor Cunningham does not cite. My own personal view is that the stock market is not very efficient at all, but is relatively predictable within a band of probability.
A particular strength of this section is in creating a summary of many of the arguments for stock market efficiency and inefficiency. Trust me. Unless you really love reading this kind of research (which I happen to), you will be better off reading the summaries here rather than the originals.
The second section discusses how to outperform the stock market. The best part of this section is an extremely well done parable about a man who wants to sell his apple tree. He is approached by many different types of potential purchasers, and they offer wildly varying prices. You get the interior logic of how each price is arrived at in a way that allows you to see the fundamental weaknesses and strengths of each approach. Nicely done!
The heart of this section emphasizes the familiar Graham and/or Buffett (their philosophies do not coincide, but rather partially overlap) concepts of sticking to what you know well, having a margin of safety, and doing your homework. I particularly liked the detailed description of how to determine where you have a knowledge edge that allows you to potentially have an advantage as a stock investor. The cautions against overestimating what you know are very well done.
The third section looks at the role of company management and boards of directors. It debunks a lot of the popular thinking about the importance of good governance. As Warren Buffett often emphasizes in his annual letters to shareholders, you should invest only with people you "like, trust, and admire." A CEO with a weakness (particularly a lack of integrity) can quickly tank your investment before you can do anything about it. Certainly, I have been sorry a number of times when I have not followed that rule. I certainly subscribe to it now. Every management will make mistakes. Only highly focused and capable ones will notice that they have and work on rectifying the errors rather than trying to explain why there really is no problem.
If you read this book carefully, it will convince you that outperforming the stock market is a pretty hard thing to do unless you have a great deal of knowledge about public companies and unusually good access to company managements. I think describing what needs to be done is the most eloquent argument that I have seen for why the average investor should be in indexed mutual funds for the stock portion of her or his portfolio. I suggest you already read John Bogle's Common Sense on Mutual Funds. I was pleased to see that this book raises an important question of valuation for when to commit to new purchases of indexed funds. People differ on this subject; but while the S&P 500's multiple is as high as sit is now and cash flow growth is so weak, many people may benefit from holding off or buying other indexes instead. Consider the small cap value indexes instead now, for instance.
I suspect that you can learn a lot by comparing your past stock investing with the patterns described here. Are you a great investor? Great investors have "independence of thought, . . . [and] utter and profound common sense . . . ." The challenge here is that "common sense is . . . it is so uncommon." On the other hand, "those who buy stocks outside their circle of competence are gamblers, speculators, or fools." Please wear the shoe that fits you.
The most accurate prediction of future stock market conditions is that they will fluctuate. Currently, the average stock varies by 50 percent in price each year. What method of stock investing will allow you to either ignore or best take advantage of that volatility? Be sure to consider your emotions at least as much as your intellect and available time in making this determination.
Get a great return on your time and on your investments!

- junior_morales

For any reader or beginner who likes to have a very brief idea of what Graham and Buffet preach on value investing, this book is okay.
In order to make the book readable and interesting, the author had chosen not to go into details but focused mostly on principles. Whilst so much of it (about 35%) was written, in text and no data/graph, to validate value over price as the primary consideration of any investment, that made the part on the assessment of the true value of a stock too simple and short.
In a word, this is like the introduction or the first chapter of a 12 chapter book. I strongly suggest any aspired value investor to read the originals of Graham and Buffet for a full picture before they take up one of the most competitive and demanding jobs in the world.

- rey_morgan

"Everything should be made as simple as possible, but not more so." Albert Einstein
Mr. Charles Munger likes the above referenced quote when speaking of investing methodology, and the Author of, "How To Think Like Benjamin Graham And Invest Like Warren Buffet", embraces that concept in his book as well. Mr. Lawrence A. Cunningham who authored this book delivers to readers the methodologies of the legends mentioned in his book's title, and he applies them to Corporations ranging from GE, to Microsoft, to He delivers information that is understandable, that does not mean no effort is required as making money takes work.
Mr. Cunningham is unique as his work is considered the best when it comes to documenting what it is Mr. Warren Buffet does. The book is, "superb", his book is far better than any of the biographies to date, if I were to pick one book to read this would be the one. Quotes are only as valid as their source, and the comments I just referenced were from the sage himself Mr. Warren Buffet when speaking of the previous work by Mr. Cunningham, "The Essays Of Warren Buffet". I have commented on that book some time ago, and I have referred to it countless times. If you trade it should be within arms reach.
This is not a mindless publication that proclaims, buy this now, do this now, the stocks to own now! Books such as these are by definition irrelevant, when is the now that is referred to? If that could be explained I would change my opinion, it cannot, so I shall not. This book dismisses myths, and reviews the fundamentals that have worked for decades. And if there is an appropriate time to read the work it is now. As I write this the NASDAQ has dropped below 2,000 when a year ago this month it was just over 5,000. The DJIA is down over 200 points, and the S&P is down 25.6, and the market has been open for an hour.
So why read the book, Berkshire Hathaway is trading at 95.71% of what it was trading at one year ago. This is at a time when other major firms are down, CSCO at 23.09% of one year ago, Intel at 37.75%; even General Electric is trading at 69.96% of one year ago. These vast differences are no accident, they have been indicative of Mr. Buffet's performance for decades. He had been heavily criticized for not making purchases of Tech Stocks; I don't hear that criticism now.
The Author goes to great length to demonstrate how misleading numbers can be, and thankfully he leaves politically correct speech behind. There is no creative accounting, there is fraud, failed CEO'S are not rewarded with undeserved praise as they are with millions upon millions of dollars for severance after destroying the value of the company they were hired to manage. And he does not speak in generalities, he names companies and their CEO'S whether he is praising or condemning their performance. The definition of a CEO that embodies an individual you trust for their integrity and for caring for your money, Mr. Jack Welch CEO of General Electric. Or the CEO who tries to buy the company profitability with a bad acquisition, based on bad reasoning, Ms. Jill Barad of Mattel. One year prior to the acquisition of The Learning Company Mattel was trading at $40.00 per share, then at the time of acquisition, down to $26.00. And after loosing $100 million for Mattel, the new stock value was $11.00. She was asked to leave, and paid millions to do so.
The paragraph above contains real examples of a myriad of topics that are discussed, ranging from the integrity of the CEO, The Board, how many directors there should be, what they should be paid, and how they should be judged. Another illuminating area was the negotiations between Mercedes Benz and Chrysler, and the list of great case examples continues through dozens of additional companies. Humor is also used deftly and sparingly. Chapters like, Prozac Market, Take The Fifth, and Apple Trees And Experience are wonderful. The apples discussed are not those of Mr. Jobs.
If you have walked by the financial magazine section in the last month a very familiar face has graced several covers. On one magazine the photograph was accompanied by an insipid question along the lines of, "why this person is in fashion once again". The man is Warren Buffet, and the answer is he has never been out of fashion as he has never been as transient, shallow, and seasonal as fashion or all the 15 minute hotshots that come along every minute or so with another method to get poor quick.
No one can match Warren Buffet and the great teachers he studied under and whose methods he has either remained faithful to or modified for his shareholders benefit. The same man says this Author has done a "superb" job in documenting Berkshire Hathaway, better than any other Biographer.
Why would an investor not read this book, and again keep it within arms reach when making an investment decision?
I have 35 stocks on my screen, 33 are down 2 are up, Berkshire A Shares, and Berkshire B shares..........

- isla_williams

Es ist schon eine Weile her, dass ich dieses Buch gelesen habe. Und es fiel mir sehr schwer, es zu beenden.
Ich weiß also nicht mehr genau, welche Kritikpunkte ich hatte. Aber es war auf jeden Fall zu kompliziert geschrieben und bot zu wenig neuen und interessanten Inhalt. Mit der klaren und genialen Denk- und Schreibweise von Ben Graham hatte das ganz und gar nichts zu tun.

Ich hab mich damals ziemlich geärgert, dass zwei solche Namen für einen so dürftigen Inhalt herhalten müssen.
Und der Titel wurde komplett verfehlt!

Aber wenn jemand wissen will, wie Benjamin Graham dachte, und wie Warren Buffett investiert(e), dann würde ich demjenigen raten, einfach "Security Analysis" und "The Intelligent Investor" zu lesen, und sich das Geld und vor allem die Zeit für dieses Buch hier zu sparen.

Auf haben es Albert Cheng und Noah R. Freeman meiner Meinung nach auf den Punkt gebracht.

- miller_gomez

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