Review of The Essential Buffett: Timeless Principles for the New Economy (Hardcover)

The definitive book on Warren Buffett has yet to be written.Perhaps only Mr. Buffett can do so, and he has no incentive in this direction.Interestingly, the more Mr. Buffett's performance weakens versus the market, the more books come out focusing on his methods.Mr. Buffett writes about his thinking in his annual reports of Berkshire Hathaway, speaks about it at his annual meetings, and occasionally shares ideas with reporters.Conclusions about his methods then are a distillation of these sources, much like the CIA used to interpret what the Soviet's thought by reviewing Pravda.The results are probably about as accurate.My main complaint about this book is that Mr. Buffett does not and probably will not invest in the new economy.And for good reasons.It doesn't fit his investing standards.So a book that takes the principles and applies them in that direction is misleading at best, and I suggest you decide what you want to call it at worst.

If you want to read a good book about Mr. Buffett, I suggest that you read How to Think Like Benjamin Grapham and Invest Like Warren Buffett.That volume covers much of the same ground as here, but does so better.It also is more accurate in characterizing Mr. Buffett's philosophy, as I understand it.You can read my review of that book.

If you have read Mr. Hagstrom's book, The Warren Buffett Way, you probably don't need to read this one as well.Let me summarize some of the key points so you can decide.Here are the principles in the book, as I have paraphrased them:

(1)Think about a stock investment like you are buying the whole business.

(2)Give yourself a large margin of safety when you buy, picking a time when a stock is depressed well below its economic value.

(3)Hold few stocks and think about their current and future fundamentals constantly to see if your assumptions are holding.

(4)Avoid speculation at all costs.

The tenets of The Warren Buffett Way are repeated here:

Business Tenets

(a)"Is the business simple and understandable?"

(b)"Does the business have a consistent operating history?"

(c)"Does the business have favorable long-term prospects?"

Management Tenets

(a)"Is the management rational?"

(b)"Is management candid with shareholders?"

(c)"Does management resist the institutional imperative?"

Financial Tenets

(a)"Focus on return on equity, not earnings per share."

(b)"Calculate owner earnings."This is essentially free cash flow.

(c)"Look for companies with high profit margins."

The reported reason Mr. Buffett does not buy technology stocks is because he feels the long-term prospects are too murky.He is probably right in most circumstances.Technology companies are usually about as successful as their new products.How can you know how good they will be versus the competition 10 years from now?

The fundamental premise of a book like this is also questionable in another way.If you want to get Warren Buffett's results, you can simply own Berkshire Hathaway stock while Mr. Buffett is alive.

For most people, indexed mutual funds are a better choice.I suggest that you read John Bogle's Common Sense on Mutual Funds to learn the argument for that approach.If 90 percent of the pros cannot beat the market, can you expect to do better?

After you read this book, also think about where modeling of a famous person's behavior might not capture what you want to learn.For example, can an actor distill her or his approach into a few principles and tenets?Yes, but that distillation wouldn't allow you to duplicate the results.

Take your money seriously, and keep focusing on how to keep it safe as your first investment priority.Avoiding losses is a key Buffett principle that has served him and his investors well.

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Review of Lloyd Ruby: The Greatest Driver Never to Win the Indy 500 (Hardcover)

Update (April 1, 2009): Lloyd Ruby just died at 81. Many surviving Indy racers are again emphasizing that LR was one of the greats... See the obituaries popping up online. Anyway, RIP Lloyd Ruby.Here's the review I wrote a few years ago:

This is a great book for several reasons.GREAT.I mean it.

First off, Lloyd Ruby was an amazing driver.If you remember Ruby's stirring charges from the back to the front, and his ridiculously poor luck at critical moments, you'll never forget the spectacle.But you don't need to know about Ruby or racing or the Indianapolis 500 for this part of the story to get under your skin.You can feel the grand prize dangling before the hero throughout the book.The outcome somehow matters even though you already know it.

Part of what makes this story truly great is that we learn how this guy put in super-human performances, endured tragic losses, recovered, and lived well anyway.Maybe this is the real heart of the story, meaningful to any reader.

What emerges from the pages of drama, victories, failures, and tragic losses of precious life is the clear portrait of a great person. Again, I mean it. (As a psychologist, I really appreciate the fact that the portrait of Ruby did not seem superficial.It had a believable depth to it).Like all successful drivers, he had an intensely competitive spark, along with a superb intuitive set of skills.But despite his legendary performances and deep disappointments, he seemed to never sacrifice his values or his sense of humor.Through it all shines his remarkable calm, his ability to deal graciously and sanely with adversity, and his unquestionable integrity. This is the "good old boy" who befriended--against all odds--his "opposite," Ken Miles; who defended Janet Guthrie against detractors when she took the track, etc., etc., etc.An amazing part of the story is that the legendary champions of Ruby's time are quick to acknowledge Ruby's talents, as well as his remarkably positive personal strengths. (Al Unser, Mario Andretti, Carroll Shelby, Roger McCluskey, Andy Granatelli, to name a few).Their affectionate comments seem to indicate that even though he never led the last lap at Indianapolis, he was a leader...

I believe that the book achieves greatness in its own right, as a well-told story and first-rate biography.The depthof the story kept my interest.

Frankly, I wasn't planning to write a long review.I bought the book because I wanted to know something about the driver I cheered for as a kid.

EXCERPT (from the prologue):"As we first began to talk about writing a book on his life in racing, Ruby, straight-faced, told me one book had already been written on his life.He handed me an impressive, hard-bound copy.`Here,' he said, `this may help you with some of your research.'The book was titled, How to Drive and Win the Indianapolis 500, by Lloyd Ruby.I opened it and began to thumb through the blank page after blank page.About three hundred pages in all, and all blank.He didn't say anything.Just a slow wicked grin spread across his face."

Here's a portion of a review I posted a couple weeks ago, before I completed the book.

As a kid, used to watch races on TV and at the race tracks with my parents. I didn't know much about the racers, but something about the way Ruby raced captured my imagination and he became my favorite Indy racer. The year I started paying attention was the year Mario won (1969), and Ruby was spectacular. I was rooting for Ruby and my twin brother wanted Andretti to win. Ditto in 1970 and the years that followed. From this kid's eyes, Ruby was amazing. But something always happened to keep him out of victory lane at Indy. When they interviewed him or his fans, he and they had about the strongest Texas twang I've ever heard, and sometimes he wore a giant hat. I grew up in L.A. where people don't sound like that, but I thought it was great stuff.

I was watching this year's Indianapolis 500 and hearing about Michael Andretti, who may very well be the other greatest driver never to win the race. I couldn't help thinking about Ruby. So I did a search and came up with this book. I think the idea that he was a man of character, but also a "character," sums things up nicely. And for Indy fans, he's definitely not someone to forget.

In summary...In my opinion, this is the second greatest racing book that never made it to the New York Times Bestseller list.I'd probably rate it higher, but maybe that wouldn't be consistent with the story line.



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