I have been having some entertaining conversations lately (in email and elsewhere) about super-investor Warren Buffett. The main reason? The release last weekend of his annual letter to investors in the Berkshire Hathaway report.
Rather than diving into his over-dissected letter, however, I’d like to hit the high points of my recent discussions with various smart folks. The essence? That Buffett is a fine and wealthy fellow, not to mention a great investor, but his story only gets half-told. He is, for example, a much more active trader than the value-investing mythos around him would suggest. He is also a more active user of options than his periodic anti-option rants about the subject would make you think.
Buffett is, in other words, a mess of contraditions. While that is interesting, it also means he gets something of a free ride, including being allowed to “talk his book”. For example, rather than thinking he is a fine fellow for complaining every year that stocks are over-valued, it would be more useful if reporters and others pointed out that Buffett just might be trying to talking stocks down because he has a multi-billion stash of cash and wants to invest it. If he could convince people to sell then he’d have more luck investing.
Instead of hitting every one of these examples, I’d like to point people to an interesting new book out by James Altucher (obDisclosure: A friend) on the subject of the real Warren Buffett, called “Trade Like Warren Buffett”. There is a chapter here, and the following is an excerpt on how Buffett really traded and made his money:
Buffett achieved much of his early success from arbitrage techniques, short-term trading, liquidations, and so on, rather than using the techniques that he became famous for with stocks like Coca-Cola or Capital Cities. In the latter stages of his career he was able to successfully diversify his portfolio using fixed income arbitrage, currencies, commodities, and other techniques.