When I began my journey as a Value Investor, I started by reading books to acquire the proper knowledge. One of the best author in my opinion is none other than Mary Buffett. Her books were not only inspiring as she shares the story of Warren Buffett, it was practical and applicable.

While there are many other good books I enjoyed, I would find myself not being able to implement most of its ideas. Mary’s books are different in the sense, I found so many gems which I can immediately apply.

Last year, when I met Mary Buffett face to face to discuss investment ideas, I was again taken to a whole new level of understanding the investment philosophy held by Warren Buffett.

Some key lessons anchored what I already knew by reading. But I am also going to share some lessons which I gleaned that is not written in books.

1) Warren Buffett buys Businesses

One story Mary shared was that at one point of time, Warren owned shares of Philip Morris. And when it was announced in the news that tobacco caused cancer, the share price fell sharply. Mary then asked Warren if he was worried, and his replied was that he isn’t worried at all. In fact Warren was glad that the share price fell because this means he can own more of the shares at an even more affordable price.

Lesson: Once we identify a great business, we should see it as our goal to own as many of its shares as possible so that we own more of the business. And when the share price falls, we should take the opportunity to buy even more once we are sure that the Profitability of the business is not affected.

2) Patience and Discipline

Warren Buffett rejected a $2 bet on a golf game. His rationale is that if he does stupid things with small amount of money, it would translate to stupid decisions in bigger amount of money. That is discipline.

And patience – Mary shared that Warren wanted to buy Diary Queen years back, but the price wasn’t right. So he wanted for decades. He waited patiently (and this again shows discipline).

3) Continuous Improvement as an Investor

Warren Buffett was quoted to have said that “derivatives are financial weapons of mass destruction”. But as some of you may already know, he wrote options on Burlington, Coka Cola and in his recent letters to his shareholders, it was stated that Berkshire wrote options on indices. Is he contradicting his philosophy? No. The idea that he goes for has not changed. The way he uses options is in support of his investment methods. The fact that he uses options shows that he is not “stuck” with only one fixed way of thinking and investing. As long as the investment makes sense to him, he does it. An apparent one example was when he broke away from Graham’s method of picking undervalued business to incorporating Munger’s (or Fisher’s) idea of buying great business at a fair price. This makes the mark of a billionaire.

4) Diversification is protection against ignorance?

Warren says that he likes to put all his eggs in one basket then watch the basket. But looking at his personal portfolio in 2012, we can identify 9 different sectors with 32 stocks. On first look, we may think that this dude is not practicing what he preaches. But of course we must understand that Warren does have to allocate billions and just a few businesses cannot contain that amount of capital he has. But why 32 stocks?

Well, Buffett’s warning about diversification, as Mary explains, is not to blindly diversify. Like some investors will go for counter – cyclical sectors where when one sector goes up, the other goes down. This kind of see-saw investors get your portfolio an average returns. So while we invest, we can meaningfully put our capital into areas which makes most sense at the point of having the capital. So if the allocation happen to be in different areas, so be it. But we do not diversify for the sake of diversifying.

Well, these are just some of the lessons I learnt from her.

Now, a piece of good news from investors who want to learn from Mary Buffett Face to Face. She will be here in Singapore on the 8th Sept 2012 at Marina Bay Sands for a one day conference (a 1 day course on Buffettology) which is jointly organized by Phillip Capital and myself (Value Investing Academy).

Would you like to accelerate your training on investments? Click here to join our Free Value Investing Masterclass In Singapore :

Hope to see you there!

Mind Kinesis Research Team