In May 1984, Warren Buffett laid out everything you need to know
about his investing philosophy.
In a speech at
Columbia Business School, later adapted into an essay, Buffett
introduced what he called, "The Superinvestors of
"The common intellectual theme of the investors from
Graham-and-Doddsville is this: they search for discrepancies
between the value of a business and
the price of small pieces of that business in
And that's pretty much it: Buffett doesn't think about
buying a stock; he thinks about buying a business.
chaos in markets seen on Monday — when the Dow fell
as many as 1,000 points before snapping back to nearly unchanged
— this longer-term view on valuing companies based on their
business, not the price of their stock, is worth keeping in
The essay's title "Graham-and-Doddsville" comes from
Benjamin Graham — who Buffett studied under at Columbia — and
Dave Dodd, with whom Graham literally
wrote the book on security analysis.
essay, he asks readers to consider a group of investors who
outperformed the S&P 500 year in and year out.
"In this group of successful investors that I want to consider,"
Buffett writes, "there has been a common intellectual patriarch,
Ben Graham ... They have gone to different places and bought and
sold different stocks and companies, yet they have a combined
record that simply can't be explained by random chance."
Buffett explains that the investors of Graham-and-Doddsville
don't care when they buy stocks, or worry about a stock's beta or
the "covariance in returns among securities."
Buffett argues that these investors are businessmen
buying pieces of businesses, not traders buying
And the strategy seems to be working out OK: On Monday, Class A
shares of Buffett's Berkshire Hathaway were trading right around
$200,000, and $1,000 invested with Buffett in 1984 would've been
(Over the last year, however, Berkshire stock is down about 1%
against a roughly 2.5% decline for the S&P 500.)
Since 1969, the book value of Berkshire Hathaway — which Buffett
acquired in 1964 — has beaten the S&P 500
44 out of 45 years on a five-year rolling basis. Said more
simply, the relative value of Berkshire Hathaway shares have been
worth more than the S&P 500 collectively every year but
we featured a chapter from Cullen Roche's book "Pragmatic
Capitalism" which debunked the myth that "you too" can be
like Buffett. You can't, of course. But Roche's point isn't
that Buffett's ideas about investing aren't sound, just
Many think Buffett is a simple "buy and hold" stock
investor, but his investing is about way more than that — or way
less, depending on how you look at it.