Invest Like a Guru: How to Generate Higher Returns at Reduced Risk with Value Investing
Posted by jack_miller | Published a year ago
With 124 ratings
By: Charlie Tian, Jonathan Yen, et al.
Purchased At: $34.95
Adopt the investment strategy that built Warren Buffett's fortune.
Invest Like a Guru provides an invaluable resource for high-quality-focused value investing, with expert insight and practical tools for implementation. Written by the man behind GuruFocus.com, this book expands on the site's value strategies and research tools to provide a primer for those exploring pathways to higher returns at lower risk. The book begins with an insightful explanation of high-quality-focused value investing concepts, then quickly moves into practical, detailed guidance on analysis, valuation, key factors, and risks to avoid. Case studies demonstrate real-world application of various analysis methods, and the discussion walks you through important calculations using real examples. Author Charlie Tian draws upon his own experiences and lessons learned to provide true insight on high-quality-focused value investing as a strategy, providing both reference and expert advice in this singularly useful guide.
Warren Buffett once said, "I would rather buy good companies at fair prices than buy fair companies at good prices." That's how he built his fortune, and his method is what we now call high-quality-focused value investing. This book shows you how to determine what constitutes "good companies" and "fair prices," with practical tools for real-world application.
- Learn the principles and concepts of high-quality-focused value investing
- Understand the analysis process and valuation of prospective investments
- Avoid the value traps that can trigger permanent losses
- Study clear examples of key ratios and calculations
So, I was thrilled to find out that GuruFocus founder Charlie Tian, PhD recently authored a book, Invest Like a Guru: How To Generate Higher Returns At Reduced Risk With Value Investing.
Tian doesn’t have a background in finance. He’s a scientist with a PhD in physics and an expert in fiber optics and lasers. Perhaps because of his unorthodox background Tian approaches the investing process in a scientific way, picking apart the strategies of successful investors to see how they work. Much of Invest Like a Guru – and GuruFocus too, for that matter – is focused on the strategies of wildly successful value investors such as Warren Buffett, Peter Lynch and Donald Yacktman.
The dominant theme of the book is quality. Buffett famously said “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” and Tian spends most of Invest Like a Guru expanding on that core idea. Chapter 6 is particularly useful as a 20-point checklist of criteria to look for when seeking out quality companies, including consistent profitability, capital efficiency and insider ownership.
But while Invest Like a Guru is full of solid advice in what to look for in a stock, it’s far more useful in telling you what to avoid. As a case in point, Tian dedicates a chapter to deep-value investing, and I personally consider this the most important chapter in the book. I myself have gotten suckered into deep-value plays in the past, and they rarely seem to work out as planned or on the timeframe I had hoped.
Deep-value investing is what Warren Buffett called “buying dollar bills for 40 cents” earlier in his career. Later, he mostly eschewed the strategy, calling it “cigar-butt” investing.
The rationale is easy enough to understand: It’s hard to lose money buying a company that is worth more dead than alive. If a company’s net assets are worth significantly more than its current market price, management could sell off the company for spare parts and deliver a decent profit to shareholders. And generally, that would be the right move. Remember, if a stock is trading that cheaply, chances are good that it is a company with very deep problems.
The problem is that it never quite works out that way. Monetizing assets is messy and complicated, and management has a vested interest in keeping the enterprise going. And the longer they do, the more value gets eroded.
As a case in point, consider the case of Sears Holdings. Eddie Lampert and Bruce Berkowitz – both respected value investors – have effectively bet their careers on Sears in the belief that its real estate and brand portfolios represented massive untapped value. They problem is that the Sears retail business continues to deteriorate around them. They may eventually unlock the value they had hoped to, but it will have cost them dearly in money, reputational damage and – perhaps most importantly – opportunity cost. Had they focused their energies elsewhere, they might have made far better profits with far less headache.
Buffett himself learned the same lesson with Berkshire Hathaway, which was a failing textile producer when Buffett originally bought it. Berkshire eventually failed, but only after Buffett had wasted untold time and energy (not to mention money) trying to keep it afloat. Buffett called his purchase of Berkshire Hathaway a “$100 billion mistake.”
Tian finishes the chapter with the simple observation that “There are better ways to make money.”
If you’re new to value investing, I highly recommend Invest Like a Guru. But even if you’re a seasoned investor, you’ll find plenty of insightful food for thought. My compliments to Tian on a solid addition to the value investor’s library.
In my opinion, Dr. Tian has quantified some important concepts in value investing, and use financial indicators to measure them, such as using constant high profit margin to measure a company’s economic moat, so the art part of the investing become more like science.
You don’t need to have a Finance degree to understand this book’s key concepts. Adding humor to cut and dried materials, Dr. Tian effectively used many metaphors so even a high school student can relate and follow. Warrant Buffet’s wisdom is not out of reach any more.
I think many readers will agree with me that the investing wisdom in this book can be applied to many areas of one’s life, for example, marriage, shopping, career, and entrepreneurship. So, the earlier you read this book, the more intelligent in general you will become. Two thumbs up!
Very practical, to the point, and easy to understand. I agreed with lots of things Charlie mentioned in the book.
I highly recommend it especially if you are a user of gurufocus.com.
However, the analysis is flawed. An example: Tian shows that companies that made a profit in every one of the last ten years had better stock market returns over those ten years than companies that made a profit in nine of the last ten years, who in turn delivered better returns than companies who posted profits in eight of the last ten years. Etc.
This is all very interesting, but we would need to be able to predict which companies are going to make a profit in all of the next ten years to use this information. Tian asserts that we can do this by assuming that, as for human beings, past behaviour predicts future behaviour. However, a massive amount of academic research shows that predicting future earnings from historical financial filings is extremely difficult and earnings persistence is close to random.
Tian must know this, he is obviously a very smart guy.
If you want proof that these historical patterns do not foretell future results, simply observe that Tian makes his money by selling his analyses via his website GuruFocus.com rather than making a fortune by investing.
If Tian knew how to reliably recreate the success of Buffett et al., he would be a billionaire investor and not an investment author.
But, an interesting book none the less.
The only problem with the main process outlined in this book is that most of us will not be able to do the painstaking analysis necessary to make it work-which is were I guess, the authors website comes in. With over 500,000 subscribers, I guess he must be doing something right and there is literally a mine of further information on the site. But if you want any screening along the lines outlined in the book, you will need to subscribe. the bias is towards the US though there are analyses of other markets on the site
If you subscribed GuruFocus.com, it is a must read. It explains all features on the website and provided research evidence. It lays down a good foundation for fundamental analysis.
However, the methods used in this book are mostly based on looking at hindsight. I wish some thoughts on how to think about the future are provided since investing is not just about the past but more about the future.
No ha inventado nada pero ha mezclado muy bien lo esencial de Buffett, Lynch, etc. Además, trata ejemplos muy recientes, ya que el libro tiene menos de 1 año. Se agradece leer libros de esta temática del año 2016 cuando la mayoría son del siglo pasado.
En resumen, me gusto mucho leerlo, los mejores del año 2017 junto con How to build wealth de Pat Dorsey. Eso sí, solo está en inglés.
Como crítica la tapa dura es muy sosa y sobria, totalmente negra. Aunque eso es lo menos importante en un libro de inversión en valor.
Nicely written and well explained the contents and helps you to focus on the right path of investing.