Novel Investor

Buffett’s Partnership Letters hold a number of lessons for everyone. Some stand out more than others because Warren Buffett repeats them throughout the letters. Those lessons are worth repeating again.

It is always startling to see how relatively small differences in rates add up to very significant sums over a period of years.

Exponential growth doesn’t come naturally to everyone. Mostly because it’s hard to imagine the huge amount of growth that happens on the backend based on what we see on the frontend.

To help his partners understand it, Buffett wrote three versions of alternate history to explain it. He rewrote the history of Christopher Columbus, da Vinci’s Mona Lisa, and the sale of Manhattan. His stories offer a fun way to rewrite historical outcomes and show the power of compounding. Continue Reading…

Warren Buffett used a three-bucket approach in his portfolio during his partnership days. It’s a nice example of how to think about portfolio construction.

Each of Buffett’s buckets filled a role in meeting his long term objective. That objective can be broken down into two parts:

1. Beat the Dow by 10% over the long term.
2. Outperform in bear markets while matching performance during bull markets.

The only way he achieves either objective is by building a portfolio that looks nothing like the Dow. How did he do it?

First, he used a conservative deep value strategy. Stocks selling at a deep discount, with a wide margin of safety, offered a lot of room to be wrong on valuation but still make money.

With that strategy as a base, the three buckets did the rest — what he called Generals, Workouts, and Controls: Continue Reading…