BUFFETTOLOGY The Previously Unexplained Techniques That Have Made WARREN BUFFETT the World’s Most Famous Investor MARY BUFFETT & DAVID CLARK 1230 Avenue of the Americas New York, NY 10020 www.SimonandSchuster.com Copyright © 1997 by Mary Buffett and David Clark All rights reserved including the right of reproduction in whole or in part in any form First Fireside Edition 1999 FIRESIDE and colophon are registered trademarks of Simon & Schuster Inc Designed by Jenny Dossin Manufactured in the United States of America 10 Library of Congress Cataloging-in-Publication Data is available ISBN 0-684-83713-7 ISBN 0-684-84821-X (Pbk) eISBN-13: 978-0-6848-6778-6 To my children ACKNOWLEDGMENTS We wish to thank first and foremost our publisher, Eleanor Rawson She is simply the most amazing person either of us has ever worked with Every ship has a captain, and she was ours We will be forever grateful to her We wish also to thank the staff at Scribner They have a reputation for being the best We can tell you that they far surpass their reputation We owe a very special thank you to Cindy Connolly, who suffered with us through our early drafts She is a gifted journalist, who with just the simple stroke of her pen, solved many a literary conundrum that perplexed your authors We also wish to say thank you to Dan Mountain for being a dear friend and a rock of support in the most trying of moments To Erica and Nicole for their wise and learned counsel To Sam for being patient with both of us To James Haygood, a beloved friend and wonderful father To Valerie Schadt for running everything, including our lives To Patti, who thirty-five years ago sat a small child down on the desk of a stockbroker and said, “You can either invest in the company where your father works or the company where Mickey Mouse works.” (The child chose the mouse and the mouse paid for college.) To the late and great Benjamin Graham for being the most gifted of teachers To the late Benjamin Franklin for teaching the Commodore about compounding sums of money To Tim Zweiback for being a guiding light in a dark forest To Brian Belefant for being infinitely the most creative and witty of our myriad manuscript readers To Vincent Waldman and Alan Morelli at Manatt, Phelps & Phillips for always putting their clients’ interests first To Kitty O’Keefe for being a brilliant diamond in a world of junk jewelry To our NYC research assistant, Andy Clark, who at times dug so deep into the stacks at NYU that we thought he’d end up in China To our Omaha research assistant, Monte Lefholtz, who somehow managed to get government employees to find historical records they still maintain don’t exist To Richard Oshlo for taking the time to answer carefully all our questions about banking To the brilliant British painter Helen Brough, whose stunning pastel drawings and paintings brought relief to tired eyes To NYC artist Terry Rosenberg, who showed us how to get up every morning and attack an empty white canvas with gusto To Beatrice Bonner, a dear friend from beginning to end To John Johnson, our guardian angel To Susie, who every day unselfishly and most graciously shares her heart with the rest of the world And last but not least, to W.B for his generosity and genius CONTENTS Disclaimer PART I: THE ART OF BASIC BUFFETTOLOGY Before You Begin This Book How to Use This Book Roots Investing from a Business Perspective What Is Businesslike Investing? Warren’s View of Earnings The Price You Pay Determines Your Rate of Return The Corporation, Stocks, Bonds—a Few Useful Explanations Valuing a Business 10 The Only Two Things You Need to Know About Business Perspective Investing: What to Buy— and at What Price 11 What We Can Learn from Warren’s Secret Weapon: The Magic of Compounding 12 Determining What Kind of Business You Want to Own 13 The Theory of an Expanding Intrinsic Value 14 The Mediocre Business 15 How to Identify the Excellent Business—the Key to Warren’s Good Fortune 16 Nine Questions to Help You Determine If a Business Is Truly an Excellent One 17 Where to Look for Excellent Businesses 18 More Ways to Find a Company You Want to Invest In 19 What You Need to Know About the Management of the Company You May Invest In 20 When a Downturn in a Company Can Be an Investment Opportunity 21 How Market Mechanics Whipsaw Stock Prices to Create Buying Opportunities 22 Inflation 23 Inflation and the Consumer Monopoly 24 A Few Words on Taxation 25 The Effects of Inflation and Taxation on the Rate of Return, and the Necessity to Obtain a 15% Return on Your Investment 26 The Myth of Diversifications Versus the Concentrated Portfolio 27 When Should You Sell Your Investments? 28 Warren’s Different Kinds of Investments PART II: ADVANCED BUFFETTOLOGY 29 The Analyst’s Role in Ascertaining Earning Power 30 The Mathematical Tools 31 Test #1, to Determine at a Glance the Predictability of Earnings 32 Test #2, to Determine Your Initial Rate of Return 33 Test #3, to Determine the Per Share Growth Rate 34 Determining the Value of a Company Relative to Government Bonds 35 Understanding Warren’s Preference for Companies with High Rates of Return on Equity 36 Determining the Projected Annual Compounding Rate of Return, Part I 37 Determining the Projected Annual Compounding Rate of Return, Part II 38 The Equity/Bond with an Expanding Coupon 39 Using the Per Share Earnings Annual Growth Rate to Project a Stock’s Future Value 40 How a Company Can Increase Its Shareholders’ Fortunes by Buying Back the Company’s Stock 41 How to Determine If Per Share Earnings Are Increasing Because of Share Repurchases 42 How to Measure Management’s Ability to Utilize Retained Earnings 43 Short-Term Arbitrage Commitments 44 Bringing It All Together: The Case Studies Gannett Corporation, 1994 Federal Home Loan Mortgage Corporation, 1992 McDonald’s Corporation, 1996 45 How Warren Got Started: The Investment Vehicle 46 Fifty-four Companies to Look At 47 Waiting for the Perfect Pitch Epilogue Index DISCLAIMER This publication contains the opinions and ideas of its authors It is not a recommendation to purchase or sell the securities of any of the companies or investments herein discussed It is sold with the understanding that the authors and publisher are not engaged in rendering legal, accounting, investment or other professional services Laws vary from state to state and federal laws may apply to a particular transaction, and if the reader requires expert financial or other assistance or legal advice, a competent professional should be consulted Neither the authors nor the publisher can guarantee the accuracy of the information contained herein The authors and publisher specifically disclaim any responsibility for any liability, loss or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book Buffalo Evening News, 123 Buffett, Howard, 16 Buffett, Peter, 15, 16, 17 Buffett, Susie, 16, 284 Buffett, Warren: as collector, 18 lectures by, 17, 27, 108 personal life of, 15–17 wealth of, 21 Buffett, Warren, investment strategy of: advanced methods of, 185, 189–278 analysis of, 19, 80, 102, 189 Graham’s influence on, 17–18, 21, 27, 28, 29, 30, 32, 39, 77, 82, 83, 133, 173, 284, 285 philosophy of, 21, 27–30, 32, 55, 77, 80 Buffett Associates, Ltd., 279–83 Buffett Partnership, Ltd., 144, 253, 255, 283 BuffettWatch Web site, 311 Burlington Industries, 90 business cycles, 139–40, 143, 147, 150 Byrne, Jack, 144 Campbell Soup, 291 capital: allocation of, 74, 100, 108–9, 112, 115, 136, 165, 183, 239, 243, 245, 248–50, 253, 261, 268, 275 expenditure of, 88, 89, 90, 124, 270 formation of, 46–47, 48, 49, 50–51, 52, 95, 97 paid-in, 56, 57 structuring of, 21, 113, 249, 258, 263, 274 working, 78, 285 Capital Cities, 103, 105, 113, 123, 136, 140, 143, 145, 199, 205, 216, 233–36, 294 capital gains tax, 70, 75, 83–84, 176, 178, 235, 257 cash equivalents, short–term, 181, 185 cash flow, 62–63, 96 certificate of limited partnerships, 280–83 Chanel Corporation, 129, 130 Chicago Board of Trade, 155–56 chief executive officers (CEOs), 51 circle of competence, 132, 133, 261, 263, 268, 274, 276 Circuit City Stores, 291–92 Clark, David, 16 Coca-Cola Company, 85, 94, 95, 96, 101, 103, 105, 120, 121, 127, 128, 144–45, 155, 178–79, 183, 193, 196–97, 199, 202–3, 213–14, 216, 244–45, 249, 251, 292–93 commissions, 50, 65, 177–78 commodities, 153, 154 commodity-type corporations, 87–92, 94, 96, 97, 103–4, 113–14, 128–29, 132, 140, 193 Common Stocks and Uncommon Profits (Fisher), 132 Common Stocks as Long–Term Investments (Smith), 28, 107 communications industry, 119, 122–24, 136, 140 competition, 88, 89–90, 91, 94–97, 102, 113, 114, 120, 123, 130, 131, 132–33, 273 compounding, 69–76 annual rate, 23, 25, 32, 33, 37, 40–41, 58–60, 71, 74–79, 111, 143, 175, 201, 215–28, 233–36, 244, 255, 262, 265, 266, 271–72, 277–79, 285 dividends, 109–10 earnings, 107–8, 111, 179, 210, 211, 212, 213 mathematics of, 69, 70–71 price, 75–76 projections of, 215–28, 271–72, 277–78 return, 212–14, 217–20, 221 taxation, 69–75, 226, 228, 278 value, 78–79, 84–85 conceptual test, 94–95 consumer monopolies, 18, 24, 28, 87, 93–97, 101–4, 114, 128–29, 132, 140, 143, 145, 165–67, 177, 179, 183, 193, 214, 216, 260, 267, 273, 287, 288–305 consumers, 87–90, 123 convenience stores, 120–21, 125, 129, 134 convertible preferred investments, 183 corporations: analysis of, 55–63, 77–85, 129–34 bonds of, 59, 71, 72–75, 165 case studies of, 259–78 categories of, 119–25 commodity–type, 87–92, 94, 96, 97, 103–4, 113–14, 128–29, 132, 140, 193 consumer-monopoly, 18, 24, 28, 87, 93–97, 101–4, 114, 128–29, 132, 140, 143, 145, 165–67, 177, 179, 183, 193, 214, 216, 260, 267, 273, 287, 288–305 current operations of, 100, 108–10, 165, 179, 247, 263, 276 excellent, 87, 93–97, 99–125, 174, 176–77, 181, 185, 193 financing of, 99, 103–4, 117, 260, 268, 274 growth of, 83, 89, 137 history of, 45–48, 97 incorporation of, 50–53, 55 management of, 37, 89, 90–95, 100–104, 112, 128, 132, 135–37, 143, 177, 181, 193, 208, 210, 211, 243, 244, 247–51, 261, 269, 275, 297, 309 market value of, 62–63, 100, 115–16, 175–76, 201, 241, 254, 256–57 mediocre, 83, 87–92 ownership of, 22, 33, 34, 36–37, 49–50, 53, 111, 127 “pinball machines” example of, 55–60, 111 start-up, 55–57, 66 taxation of, 73, 166, 169–70, 217, 222, 226, 269 underlying value of, 35, 62–63, 66, 205–6 coupons, bond, 229 Cox Communications, 293 Cray Research, 250 credit card companies, 124, 288–89 currency, 157–60 Davidson, Lorimar, 133 De Angelis, Anthony, 144 Dean Witter, Discover & Co., 124, 293–94 debt, 49, 53, 56, 73, 96, 103, 104, 109, 274 see also bonds; loans deflation, 162, 163, 172 depressions, 163 desirable purchase, 77 devaluation, 160 discounting to present value, 40, 58, 206, 215 discount window, 141 Walt Disney Company, 101, 105, 140, 294 dividends: compounding, 109–10 earnings and, 208–9, 214, 217, 248 profits as, 108, 109–10, 145, 169–70 taxation of, 169–70, 228 yield of, 36, 37–38, 71, 73, 107, 183, 184, 222, 265, 271–72 dollars, 157–60, 162–63, 164 double-entry bookkeeping, 46 Dow Jones Industrial Average, 17, 21, 152, 253 drugs, prescription, 121–22, 289 Dutch West Indies Company, 47–48, 160 earnings: actual vs projected, 224 compounding, 107–8, 111, 179, 210–13 current, 210, 231 dividends and, 208–9, 214, 217, 248 future, 23–24, 28, 39–44, 107, 132, 191, 192, 202, 210–13, 215–17 growth of, 35–38, 74, 195–97, 233–36 interest rates and, 72–73, 209–12, 216–17 net, 51, 73, 103, 144, 166, 169–70, 182, 239–40, 244, 245 per share, 41, 51, 74, 82–83, 92, 102–3, 131, 140, 169, 179, 193, 201–3, 223–26, 233–36, 238, 243–45, 261, 262, 264, 265, 269, 270–75, 277 predictability of, 38, 66, 67, 79, 80, 83, 132, 193, 195–97, 199, 207, 224 price vs., 34, 38, 82–83, 167, 213, 225–28, 234, 239, 240, 241, 265, 271, 272, 277–78 profits and, 37–38, 67, 83, 111–12 retained, 28, 30, 35–38, 56, 57, 58, 83, 84, 100, 105, 107–16, 128, 136, 177, 201, 208–9, 230, 231–32, 247–51, 261–62, 269, 274–75 trend in, 99, 102–3, 140, 195–97, 224, 228, 231–32, 261, 268, 270, 274 East India Company, 47 economics, business, 28, 56–57, 77, 80, 81, 84, 87, 93, 128, 135, 177, 181, 183, 193, 248, 250, 285 Edison, Thomas A., 97 Efficient Market Theory, 17 equity: base of, 144, 208, 211, 212 bonds and, 199, 207, 222–32, 264–65, 266, 271, 272, 276, 277 return on, 104, 105–6, 111, 121–22, 124, 125, 131, 136, 207–14, 231, 262, 269, 275 shareholders’, 24, 53, 56, 73, 74, 99, 104–6, 239, 261, 269, 274 value and, 217–20, 221, 223–26 fast food industry, 273 Federal Home Loan Mortgage Corporation (Freddie Mac), 266–72, 294 Federal National Mortgage Association (Fannie Mae), 267 Federal Reserve Bank, 141, 143, 156, 158, 159 financing, 99, 103–4, 117, 260, 268, 274 Fisher, Philip, 28, 32, 77, 80, 81, 82, 85, 132, 134, 173, 176–77, 178 Fitzgerald, F Scott, 15 fixed-income securities, 181, 182–85 “float,” 285 Ford Motor Company, 309 foreclosure, 163 futures, 153–54 Gabelli, Mario, 294, 299 Gabelli Equity Trust, 294 Gallaher Tobacco Limited, 288 Gannett Corporation, 105, 250–51, 259–66, 295 gasoline, 128–29 Gates, Bill, 132 General Dynamics, 254 General Electric, 97, 295 General Foods, 42–44, 81–83, 105, 112, 127, 201 General Motors, 96, 97, 109, 110, 165, 245, 250 Gillette, 97, 103, 290, 295 Goizueta, Roberto, 193 gold, 157, 158–60, 161, 163, 164 Golub, Harvey, 289 government bonds, 43, 73, 81, 82, 166, 183, 205–6, 209–13, 264, 270–71, 276 Government Employees Insurance Company (GEICO), 85, 133, 139, 143–44, 145, 177 Graham, Benjamin, 17–18, 27, 28, 29, 30, 36, 107, 172, 191–92, 233, 255 arbitrage formula of, 255–58 Buffett influenced by, 17–18, 21, 27, 28, 29, 30, 32, 39, 77, 82, 83, 133, 173, 284, 285 investment strategy of, 17–18, 19, 21, 27–32, 39, 63, 66–67, 77–85, 107, 115, 131, 133, 139, 172–77, 191–92, 196, 199, 216, 223, 235–36, 253, 284, 285, 309 Graham-Newman, 27, 284 Grand Metropolitan, 18 Greeks, ancient, 45–46 Guide to Business Periodicals, 130, 132, 273 Hammurabi, 45 H & R Block, 124, 125 Harriman, E H., 148–50 hedge funds, 152 Hershey Foods, 105, 121, 127, 296 Hill, James, 148–50 holding companies, 27 Horace, 307 housing prices, 269 Hudson’s Bay Company, 47 income, see earnings; profits incorporation, 50–53, 55 Industrial Age, 158 inflation, 157–67 bonds and, 162, 163, 165, 182 consumer monopoly and, 165–67 deflation vs., 162, 163, 172 government policy on, 158–60 hedges against, 172 history of, 157–60 prices and, 100, 113–14, 117, 160, 161–64, 262, 269 rate of, 162, 171, 172 returns and, 162, 166, 217 roots of, 161–64 taxation and, 165, 171, 172 infrastructure, 124, 147, 148 initial public offerings (IPO), 50, 52 insurance industry, 143–44, 163, 285, 297, 298 Intel, 88 Intelligent Investor, The (Graham), 17–18 interest rates: for bonds, 72–73, 84, 170, 209–12, 229, 298 earnings and, 72–73, 209–12, 216–17 trends in, 32, 43, 48, 58, 61, 140, 152 Internal Revenue Service (IRS), 71–73, 74, 176, 255, 284–85 International Business Machines (IBM), 309 International Flavors & Fragrances, 296 Internet, 287, 311 Interpublic, 123–24, 296–97 investment: types of, 181–85 see also specific topics investment banks, 49, 52, 65–66, 134, 152, 290–91 “Investment Value of Good Will, The” (Bloomberg), 94 joint-stock companies, 46–47, 48 joint ventures, 46, 47, 56 Justice Department, U.S., 256, 257 Keynes, John Maynard, 28, 174 KKR, 62–63 Knight-Ridder, 297 Krupp, 97 Kuhn, Loeb & Company, 148 Kuwait, 47 Leucadia National, 297 leveraged buyouts, 62–63 liabilities, 51, 56, 57, 104–5, 207 limited liability, 51 liquidation, 253, 254, 255, 257, 258, 301 literature, business, 130–32, 273 litigation, 62–63, 115–16, 144–45 loans, 48, 60–61, 141, 142, 150, 155, 162–63, 165 Loews Corporation, 298 low-cost providers, 88–90 McDonald’s Corporation, 122, 273–78, 298–99 manufacturing, 96–97, 120–22, 163 margin of safety, 67, 79, 83, 176 Marlboro cigarettes, 95, 96, 101, 120, 121, 127, 134 MBIA Inc., 298 Media General Inc., 299 Mercury General Corp., 299 Merrill Lynch & Company, Inc., 299 Metz, Tim, 156 Microsoft, 129, 132 money-center banks, 141, 142 money market funds, 58 money supply, 141, 160, 162, 163 Moody’s Guide, 131, 195 J P Morgan and Company, 148, 149–50 Morgan Stanley Group, 299–300 mortgages, 163, 165, 266–72 multiple producers, 91 Munger, Charles, 28, 32, 69, 71, 77, 80, 81, 82, 85, 173, 176–77 municipal bonds, 298 Murphy, Tom, 113 mutual funds, 61, 152 My Own Story (Baruch), 137, 174 National Indemnity Insurance Company, 285 Nestle SA, 300 net-tangible-asset base, 167 networks, television, 101, 113, 123, 216 net worth, 56–57, 71, 74, 78, 115, 116, 142, 174 Newman, Howard, 284 newspapers, 93, 110, 123, 140, 259–60, 262, 263, 295, 297, 300, 305 Newsweek, 305 New York Stock Exchange, 49, 50, 53, 131, 154, 155–56 New York Times, 300 Nixon, Richard M., 160 Northern Pacific Railroad, 148–51 Norwest, 245 Office Depot, 41 Orkin, 124 over-the-counter (OTC) stocks, 131 Pacioli, Luca, 46 Panamerican Beverages, 300 Panic of 1901, 148–51 Panic of 1987, 151–56, 178–79 paper money, 158 partnerships, 25, 46, 47, 69, 112, 253, 279–83 pension funds, 152, 153 Pepsi-Cola Company, 121, 301 periodicals, business, 130–31 pharmaceuticals industry, 121–22, 289 Philip Morris Company, 44, 75–76, 81, 105, 112, 115–16, 121, 127, 134, 245, 290, 301 Phoenicians, 45 Pillsbury, 18 pinball machines, 55–60, 111 pooled mortgages, 270 portfolio insurance, 147, 151, 152, 153, 154–55 portfolios: concentrated, 28, 30, 173, 174 diversified, 29–30, 32, 77, 79, 173–74 fixed-income, 185 program selling and, 152–56 Premier Industrial Corporation, 301 Presidential Task Force on Market Mechanisms, 152, 156 price(s), 28, 30 auction, 50, 53 competition in, 89–90, 91, 120 compounding, 75–76 determination of, 18, 19, 65–68, 88, 174, 264–66, 270–72, 276–78 inflation and, 100, 113–14, 117, 160, 161–64, 262, 269 product, 87–88, 91, 113–14 returns vs., 24–25, 38, 39–44, 68, 77, 199 see also stock, price of price-to-earnings ratio, 34, 38, 82–83, 167, 213, 225–28, 234, 239, 240, 241, 265, 271, 272, 277–78 production costs, 88–91, 96, 113–14 products, 89, 96, 125 brand-name, 91, 92, 101, 119, 120, 122, 128, 260, 267, 273, 298 consumption of, 119, 120–22 obsolete, 110, 124–25, 128 price of, 87–88, 91, 113–14 profits: calculation of, 33–34 competition and, 89 as dividends, 108, 109–10, 145, 169–70 earnings and, 37–38, 67, 83, 111–12 long-term, 83, 179 in manufacturing, 120–22 margins of, 89, 90, 91, 96, 103, 122, 123, 179, 181 net, 140, 142, 144, 145, 282 taxation and, 58, 80, 83–84, 169–70 Progressive Corp., 302 Property Capital Trust, 301–2 property taxes, 96 purchasing power, 162, 163, 165, 171, 172 railroads, 148–51 Ralston Purina Group, 302 ranching, 114 Raytheon, 244 real estate, 60–62, 140–43, 163 recessions, 140, 141, 143, 150, 261 return(s): annual compounding rate of, 23, 25, 32, 33, 37, 40–41, 58–60, 71, 74–79, 111, 143, 175, 201, 212–14, 215–28, 233–36, 244, 255, 262, 265, 266, 271–72, 277–79, 285 on arbitrage, 255, 256, 257 on bonds, 36, 38, 72–75, 205–6, 212–13, 215, 264, 270–71, 276 on equity, 104, 105–6, 111, 121–22, 124, 125, 131, 136, 207–14, 231, 262, 269, 275 fixed, 74, 165 inflation and, 162, 166, 217 price vs., 24–25, 38, 39–44, 68, 77, 199 rates of, 34, 35–38, 90, 91, 96, 99, 104–6, 121, 166, 176, 177, 178, 207–14 taxation and, 30, 34, 37–38, 84, 171–72, 182, 208, 217 revenues, 57, 58 Rilke, Rainer Maria, 32 risk, 255 RJR Nabisco, 62–63, 112, 127, 253, 258 Rollins, 124, 125 Roman Empire, 157 salad oil scandal, 139, 144 salaries, 163 sales, 120–22, 123 Salomon Brothers, 183–85 S&P 100 Index, 153, 154 S&P 500 Index, 152–56 Sara Lee Corporation, 112, 127, 129 Schloss, Walter, 17, 29–30 scuttlebutt approach, 132–34 Seagram Co., 302 Securities and Exchange Commission (SEC), 36, 149, 151, 279, 283 Security Analysis (Graham), 17–18, 27, 28, 29, 30, 36, 107, 172, 191–92, 223, 255 See’s Candy, 165–67 selling short, 149–51 Service Master’s, 105, 124, 125 services, consumer, 119, 124–25 shareholders’ equity, 24, 53, 56, 73, 74, 99, 104–6, 239, 261, 269, 274 silver, 157, 158 Skoal chewing tobacco, 120 Smith, Edgar Lawrence, 28, 107, 108 speculation, 60, 61–62, 63 Standard and Poor’s Stock Reports, 131, 287 start-up companies, 55–57, 66 steel industry, 97, 166, 167 stockbrokers, 50, 53, 63, 127–28, 177–78, 308 stock market, 49, 50, 53 bear vs bull markets in, 177–79 fluctuation of, 17, 31, 115–16, 139–45, 147, 209 investment vs speculation in, 60, 61–62, 63 mechanics of, 147–56 1929 crash of, 152 1987 crash of, 151–56, 178–79 panic in, 147–56, 178–79 regulation of, 36, 149, 151, 279, 283 valuation by, 62–63, 100, 115–16, 175–76, 201, 241, 254, 256–57 stocks: capital formation and, 50, 51, 52 common, 36, 207, 272, 278 earnings and, 41, 51, 74, 82–83, 92, 102–3, 131, 132, 140, 169, 179, 193, 195–97, 201–3, 223– 26, 233–36, 238, 240, 243–45, 261, 262, 264, 265, 270–76, 277 as equity/bonds, 199, 207, 222–32, 264–65, 266, 271, 272, 276, 277 market valuation of, 62–63, 100, 115–16, 175–76, 201, 241, 254, 256–57 offerings of, 50, 51, 52, 109 over-the-counter (OTC), 131 as ownership interest, 22, 33, 34, 36–37, 49–50, 53, 111, 127 performance of, 94, 139–45 preferred, 183–85 price of, 32, 35, 36–38, 61–68, 74, 75–76, 79–83, 109, 115–16, 139, 142–45, 148, 176, 177, 178, 193, 235–36, 239–40 repurchase of, 112, 117, 136, 179, 237–41, 243–45, 261, 268 sale of, 149–56, 175–79 as shareholders’ equity, 24, 53, 56, 73, 74, 99, 104–6, 239, 261, 269, 274 undervalued, 62–63, 175–76 voting, 285 Suntrust Banks, 303 supermarkets, 120–21, 125, 127 supply and demand, 114, 160 takeovers, 62–63, 148–51, 152, 253, 255 taxation: bonds and, 209 capital gains, 70, 75, 83–84, 176, 178, 235, 257 compounding, 69–75, 226, 228, 278 corporate, 73, 166, 169–70, 217, 222, 226, 269 of dividends, 169–70, 228 income, 71–72, 73, 74, 75, 169–70, 172, 227, 284–85 inflation and, 165, 171, 172 legislation on, 152 profits and, 58, 80, 83–84, 169–70 property, 96 returns and, 30, 34, 37–38, 84, 171–72, 182, 208, 217 technology, 113, 127–28, 129 television, 101, 113, 123, 140, 216, 260, 262, 290 10-Ks, 267, 287 Texas Instruments BA-35 Solar calculator, 19, 40, 41, 58–59, 76, 189, 193, 202–3, 218, 266, 278 textile industry, 88, 90, 285 Theory of Investment Value, The (Williams), 28, 215, 216–17 Thomson Publishing, 108, 303 Tiffany & Co., 303 Times Mirror, 303 Tisch, Laurence, 284, 298 tobacco industry, 62–63, 112, 288, 301 “toll bridges,” 93, 119, 123, 124, 125, 141, 142, 287, 288–305 Torchmark Corp., 304 trade deficit, 152 Treasury, U.S., 141, 158, 159 Treasury bonds, U.S., 43, 73, 81, 82, 166, 183, 205–6, 209–13, 264, 270–71, 276 United Paramount Network, 290 USA Today, 101, 259–60, 295 UST, 96, 103, 105, 121, 304 value: compounding, 78–79, 84–85 equity and, 217–20, 221, 223–26 expanding, 80, 81–85, 177 future, 23–25, 58–59, 89, 132, 202, 203, 218, 219, 223, 226, 233–36, 266, 272, 278 intrinsic, 22–23, 77–78, 81, 82, 84–85, 115, 131, 175, 176, 177, 206, 215 market, 62–63, 100, 115–16, 175–76, 201, 241, 254, 256–57 objective, 191–92 present, 40, 58, 76, 201–3, 206, 215, 216, 218, 219, 226, 234, 235, 266, 272, 278 range of, 77 realization of, 78–79, 176, 258 standards for, 131, 191–92 static, 84 underlying, 35, 62–63, 66, 205–6 zero, 217 Value Line, 73, 129, 131, 195, 260, 267, 273, 287, 288 Venice, 46, 97, 216 Vietnam War, 160 Wall Street Journal, 17, 18, 33, 95, 128, 177, 234, 236, 308 Wal-Mart Stores, 304 Warner-Lambert Company, 304–5 Washington Post, 55, 84–85, 177, 243, 259, 305, 310 Washington Public Power Supply System (WPPSS), 182–83 wealth, 21, 160, 162, 163, 171, 172, 209 Weinstein, Meyer H., 255 Wells Fargo Bank, 139, 141–43, 145, 305 Wiese, Robert F., 215 Williams, John Burr, 28, 215, 216–17 Windows 95, 129 “workouts,” 253 World War I, 158 World War II, 159, 162 Wrigley’s chewing gum, 95, 69, 103, 120, 121, 127 ... BUFFETTOLOGY The Previously Unexplained Techniques That Have Made WARREN BUFFETT the World’s Most Famous Investor MARY BUFFETT & DAVID CLARK 1230 Avenue of the Americas New York,... from the concepts and mathematical equations that assist him in making his investment decisions to the actual companies that have captured his interest Warren Buffett did not participate in the. .. they had any investment ideas They looked up and replied, “Pillsbury,” and then rattled off a list of consumer monopolies that Warren had taught them Pillsbury owned The most fascinating to them