Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett the World's Most Famous Investor

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Without some predictability of future earnings any calculation of future value is mere speculation.

HMRC believes that from April 2013 rebates of annual charges (such as loyalty bonuses) paid on funds held in nominee accounts, such as our Fund & Share Account, should be subject to income tax. Loyalty bonuses paid on funds in ISAs and SIPPs are unaffected, and they remain tax-free. With the help of Munger, Buffett seriously improved upon Graham. The key realization was that if you only focus on getting something for the cheapest possible price, you will end up with crappy companies in your portfolio which never realize their value, or even worse, see their value decline over time, because many of these cheap companies are cheap for a good reason! Tax rules can change and benefits depend on individual circumstances. Please remember loyalty bonuses received on funds held in the Vantage ISA or Vantage SIPP are exempt from tax. I have to say, Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay. The main author – Mary Buffett is the former spouse of one of Warren Buffett’s sons. Nothing like making a little bread off the ex-father-in-law’s name…Keith Ashworth-Lord: Very rarely. I mean, our portfolio turnover currently, if you exclude where we've had to sell things, say, for meeting redemptions or whatever, it's currently 7.5%, and that's high by historic standards. So no, we don't chop and change the fund. Like Buffett, our ideal holding period is forever.

The intrinsic value of an investment is the projected annual compounding rate of the return the investment will produce. Kyle Caldwell: And that rotation into value, which has benefited certain value sectors, such as oil and the miners in particular. If that were to persist for a long time, would you change your approach at all? I had also read by then a couple of other books from Mary Buffett (The Oracle’s ex-daughter in law, his son’s Peter ex-wife). She wrote several. This one will remind you, that when buying great businesses, it’s all about having a durable competitive advantage, a long product life ahead, with little change, little disruption probability, little capex requirement, so in other words tons of free cash flow. If you can buy this business when the price is fair or even better, when it’s cheap, then you never need to sell. Notice that Buffett and Munger prefer companies which do not pay a dividend. This is because dividends lower retained earnings and therefore limit future growth. A company should only pay a dividend, according to the authors, if it has no better way of allocating the money, for example if a company has grown to the size of Apple (AAPL) and therefore has limited room for growth left.

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If loyalty bonuses are taxable then the value of our ongoing saving to you could be reduced, depending on the rate of tax you pay. The below table gives an indication of how this may affect you. Because of that, our companies tend to have very strong balance sheets, this focus on cash flow. And, to give you the median interest cover for companies in the fund is currently about 28 times. We've got 14 of the 27 companies with net cash and another 11 with modest gearing. So those are the sort of financial metrics we're looking at, but the key thing is management, management that acts with the owner's eye and behaves like an owner of the business, not a sort of hired hand. In this case, the ongoing saving is 0.00%, of which 0.00% is paid by loyalty bonus. The tax that could be payable on this loyalty bonus, and therefore the value of this saving to you, is shown below. Graham was an absolute pioneer in the field of value investing, and Warren Buffett soaked up all of his knowledge and started applying this strategy himself. At least, until Buffett's brilliant business partner Charlie Munger convinced him that it is more important to buy a good business than a cheap business. Kyle Caldwell: 2022 is a year that most investors will want to forget. Your fund, it was a tough year. It was down 23% in 2022. Was this primarily down to the macro rather than the micro?