Once you have filled 20 holes, you can no longer make any investments

Buffett once shared a "20 holes" with young people. investment principles, he said: "I can give you a card with only 20 punching positions, so that you can punch 20 holes on it - representing all the investments you can make in your life. Once you If a card is filled with 20 holes, you can no longer make any investments." This means that you should be very cautious about investing unless you are absolutely sure.

So how did Lao Ba punch the holes? It just so happens that the book "Warren Buffett's Valuation Logic" tells 20 of Buffett's classic investment cases. It can be said that without these 20 cases, Buffett's investment performance would only be at the level of ordinary retail investors.

There are a lot of research materials on Lao Ba. Although this book is new, it is a rare and excellent work.

In the previous materials, they either focused more on Buffett's thoughts, with few examples and lack of details. For example, Chapter 4 of "The Buffett Way" lists 9 cases ( 7 of them are also in this book); or they are copy-pasting of large sections of the Pakistani shareholder letter and public remarks, lacking independent thinking and rigorous research. It is better for readers to read the letter directly than to read the book.

The unique approach of this book is to imagine that you are in the same time and environment as Buffett, and find out the public information that every ordinary investor can find at that time, including the annual reports of listed companies. etc., using relatively unified valuation methods to analyze the investment value of the target. Although the interpretation of data and the selection of indicators will inevitably be affected by the author's personal opinions, it is also possible to restore Buffett's original thinking with a high probability.

If the case descriptions in "The Buffett Way" are more about qualitative analysis, allowing readers to understand Lao Ba's investment ideas, the book "Buffett's Valuation Logic" is more about quantitative analysis. , through a clear list of cases, teach readers step by step Laoba’s valuation methods.

Part One: The Partnership Years (1957-1968)

Chapter 1, 1958: Sanborn Map Company

Chapter 2 1961: Dempster Farm Machinery Manufacturing Company

Chapter 3 1964: Texas National Oil Company

Chapter 4 1964: American Express

Chapter 5 1965: Berkshire Hathaway

Part II Mid-term (1967-1988)

Chapter 6 1967: National Insurance Companies

Chapter 7, 1972: See's Candy Company

Chapter 8, 1973: The Washington Post

Chapter 9, 1976: Government Employees Insurance Company

Chapter 10, 1977: The Buffalo Evening News

Chapter 11, 1983: Nebraska Furniture Mart

Chapter 12, 1985: Metropolitan Broadcasting Corporation

Chapter 13, 1987: Salomon Corporation—Preferred Stock Investment

Chapter 14, 1988: The Coca-Cola Company

Part Three, Recent (1989 ~2014)

Chapter 15 1989: American Airlines Group

Chapter 16 1990: Wells Fargo Bank

Chapter 17 1998: General Reinsurance Company

Chapter 18 1999: MidAmerican Energy Company

Chapter 19 2007~2009: Northern Burlington Company

Chapter 20 2011: IBM

For each case, the author answers the following questions:

1. What is the company’s history, business and financial status?

Whether it is an early or mid- to late-stage investment case, this book provides a large amount of content that is not found in other materials, which is equivalent to a complete investment research report, helping us better understand the case.

2. Why is it underestimated?

The market does make mistakes, but investors need to have the eyes to spot them, because these mistakes are always hidden in the corners. For example, for Sanborn Map Company's on-book securities portfolio, the financial report lists the cost price, but the footnote tells you that the money has exceeded the company's market value. Previous information does not clearly tell us why Buffett was able to buy such an incredibly low price.

3. What is a reasonable valuation and how to do it?

Early days: Focus on the value of assets.

Focus on profitability, total assets, and net assets, and calculate discounts on payables, inventories and other assets to arrive at a conservative value. This stage is more suitable for ordinary investors to learn.

Mid-term: Focus on value realization after holding shares.

Focus on asset quality, management, and financial data such as price-earnings ratio and EV/EBIT. At this stage, investments in listed companies such as The Washington Post, Metropolitan Radio, and Coca-Cola are suitable for investors to learn from.

Several other cases are not suitable for us. Buffett is more concerned about how to create greater utility in his own investment territory after buying the entire company. For example, insurance companies value the leverage of float; See's What Candy values ????is cash flow; the Buffalo News even suffered losses within a few years after buying it, but after defeating its rivals in the same city and forming a monopoly, the profits realized that year exceeded the buying price in previous years.

Later stage: Focus on capital allocation and cash flow return, valuation is similar to mid-term.

Lao Ba mostly buys excellent and stable large companies at reasonable prices and continues to obtain a steady stream of cash flow. When we buy a company at this stage, we basically don’t need to copy the homework, and it’s useless if we do.

4. How did Buffett do it?

1) Buying is not limited to ordinary stocks, but also bonds, convertible bonds, options, etc.

2) There are those who hold shares waiting to rise, and there are also those who are deeply involved, such as prompting management to pay dividends, split, and buy back after taking control.

3) Try to avoid taxes through exit methods, such as share exchange, private equity exit, etc.

Although it is a cliché, this book still impressed me deeply on several of Buffett’s investment principles.

First, it’s cheap to buy. Among these 20 cases, almost none has a price-to-earnings ratio of more than 15 times. Buffett's biography revealed that the cheapest stock he ever bought was priced at $3, the profit per share was $29, and the price-to-earnings ratio was 0.1 times! Buffett has a widely circulated saying: The first principle of investing is not to lose money, and the second principle is not to forget the first. "Don't lose money" doesn't mean that you can't have floating losses, but that you shouldn't have permanent losses. To do this, you must buy cheap enough and have enough safety margin, so that you can still get it even if the worst happens. Return the principal.

The second point is patience. Cheapness comes in waiting. The companies that have made Buffett the most money are all evergreen companies that are familiar to Americans and even us Chinese investors. For example, Coca-Cola, the Washington Post, GEICO, Wells Fargo, Apple, and the Burlington Northern Railway Company. But he will never buy a company quickly just because he likes it. Instead, he will choose to observe and wait for a long time until the best The moment has come. When Lao Ba bought Northern Burlington, he said, I have loved railroads since I was a child, and it was not until 70 years ago that I bought one. After a long wait, the market has provided a very loose buying window. If Laoba is researching the same target at the same time, investors have enough time to buy at the same or even lower price.

The third point is to be conservative. In fact, with Lao Ba's ability, he can understand almost all business models. But during his long investment career, he carefully stayed within his circle of competence and did not take a step easily. When there is no better opportunity, he will choose to buy more in the industry he is familiar with, or even the same company.

These three points can also be condensed into one word - safety margin. Buying cheap, exchanging time for price, and staying within the circle of competence are all in order to obtain a greater margin of safety when investing. In fact, the thinking of margin of safety is the most important point in Buffett's investment logic, which is why he said that he is the Graham of 85.

There is a long-circulated saying that Buffett was influenced by Graham in his early days and mainly focused on "cigarette butt companies". In fact, he was involved in many different types of investments, and even in those cigarette butt companies , he not only looks at the discount of assets, but also considers the quality and management of the company. When managers are not willing to realize the interests of shareholders, he also takes a strong controlling stake and promotes or even changes management. And better management will also provide a greater margin of safety for our investment targets.

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