Buffett's Investment Principles

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Buffett is an advocate of Graham’s investing principles. He uses his purchase of Washington Post Company to illustrate those principles. Buffett and others estimated the intrinsic value at between $400 and $500 million while the market price was $100 million. The key thing that Buffett takes from Graham’s principles is the practice of buying good businesses at market discounts compared to the underlying value. A common misconception is that the market provides the most accurate price.
Buffett maintains the same buying principles whether it is a public or private company. In making a purchase, three things are considered: 1. Economic prospects 2. Management 3. Asking price. An actively traded business provides a good flow to evaluate. Buffett
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Arbitrage is taking advantage of differences in markets by speculating. Arbitrage has multiple elements: the time commitment of money, competing events likelihood, and unexpected outside events. He uses an example of Arcata-KKR in 1982 to illustrate arbitrage. He concludes that arbitrage is good for extra cash when the odds are good.
Buffett uses his experiences to criticize efficient market theory. He states that just because it’s efficient sometimes doesn’t mean it is always efficient. Buffett then talks about how CEOs would view his portfolio decisions differently and would make decisions to gain more capital. A portfolio of good stocks may have a lower risk when considering it “possible loss or injury” rather than “beta.” He says all of this and brings it back to the Mr. Market analogy saying that they don’t pay attention to the daily changes they focus on the bigger
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Buffett tries to play both sides. He tries be greedy when people are fearful and vice versa. He begins with talking about Berkshire shares about to be traded on the NYSE. He goes into talking about how new firms have to have 2,000 shareholders with 100 shares. However, Berkshire was granted an exception because 10 shares of Berkshire was much more valuable than any other 100 share value firm. This listing had no effect on their policies of selling. It actually helps stockholders reduce transaction costs. Buffett wanted to close the difference between the bid and ask price not increase the share price. As he stated earlier he wants to trade on a narrow range that stays around the intrinsic

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