Warren Buffet’s Ground Rules Book Summary

Book Summary

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Brief Summary

Warren Buffet based his investment strategy on Benjamin Graham’s concept of “deep-value investing”, or only investing in companies that he knew to be intrinsically valuable. In the long-run this strategy paid off, as he consistently worked to choose companies that would beat the DOW and grow in value over time. Even if these companies failed, he wouldn’t lose money since they were just as valuable at liquidation. He started take large stakes in companies and helping them move past inefficiencies. In the end, he stuck by his values and didn’t start speculating when it became popular, ending his run at the investment firm with millions to his name.

About the Author

Jeremy Miller is a brand strategist and bestselling author. He and his team Sticky Branding have profiled hundreds of companies to find out how they grow “sticky brands”. That is, brands that are memorable, recognizable, and sustainable. He is a popular keynote speaker and his books Sticky Branding, Brand New Name, and Warren Buffet’s Ground Rules were all best sellers.

Topics

Money & Investments

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Key Insights

Warren Buffet, before his world-famous tenure at Berkshire Hathaway, ran his own investment partnership in the 1950s and 1960s. He built his investment philosophies on the theories of his teacher Benjamin Graham, and stuck to them for the rest of his life. Through letters, he shared his evolving thoughts with a growing team of partners and followers. The letters shed light on a period of enormous investing success and offer his commonsense guidance for investors of all kinds.

Buffet based his own principles on those of Benjamin Graham, his mentor. Graham believed that in the long run, the market will reward valuable companies.

In 1956, Warren Buffet worked in New York with his mentor, the legendary investor Benjamin Graham. Buffet had been a fan of Graham, the author of his favorite book The Intelligent Investor, even before business school. When he found out that Graham worked at Columbia, he immediately applied, and soon enough was sitting front row during Graham’s lectures. After graduating, he desperately wanted to work for his professor’s company, but was turned down twice. After returning back to New York from Nebraska a few years later, Buffet eventually landed the job in 1954.

Graham was Buffet’s ultimate hero, given his convictions as an investor and pioneer of a new, more conservative style of investing. Graham had a reason for his methods— he had survived many failures early in his career, going totally broke in the 1929 stock market crash. Going forward, he vowed to build his investment strategy from scratch, coming up with a way to avoid as much risk as possible.

This approach involved looking for companies with liquidation values that were higher than the market valuation. This meant that even if the company folded, he would still avoid total losses. In a way, there was no way to lose, but the process was not for the lazy or impatient.

In the long term, Graham said, the market will get the valuation right, even if they undervalued the companies in the long-run. He called this theory “deep-value investing”, focusing on the hidden value of each purchase over everything. This approach was different from the often popular short-term investing, which speculates about the ups and downs of trends in the market. Graham believed these fluctuations to be wholly unpredictable and not worth an investor’s consideration.

Buffet built many of his own principles on this foundation of patience and careful analysis of individual companies. He would go on to become a stock-picker obsessed with companies that were inherently valuable and priced too low.

Unfortunately, Buffet didn’t get a chance to work for Graham for very long. After a year, Graham decided to retire and Buffet had to return to his home state of Nebraska. Back in Omaha, at the age of 25, Buffet decided to start his own investing partnership, against the advice of his parents and Graham himself. Still, he modeled his company after Graham’s philosophies and quickly proved everyone wrong.