Book review: Even Buffett Isn't Perfect

I wrote a new book that you and others can review from www.frips.com

"The Four Filters Invention of Warren Buffett and Charlie Munger" by Bud Labitan

What we view as tough times may soon be viewed as "buying opportunities" for Warren Buffett and other value investors. After all, some of their best purchases were made during the stagflationary period of the 1970's.

I think Buffett and Munger invented an amazing Behavioral Finance Formula or Process that is underappreciated by the business and academic communities. On paper as early as the 1977 BRK annual letter, their work in designing a mixed qualitative + quantitative formula may be worthy of a Nobel Prize in Economics and Behavioral Finance. So, in my new self-published book "The Four Filters Invention of Warren Buffett and Charlie Munger" ( www.frips.com ) I examine each of the basic steps they perform in "framing and making" an investment decision. I made this book a small and focused look into this amazing invention within "Behavioral Finance."
Buffett mentions the Four Filters this way: "Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag."

In my view, the genius of Buffett and Munger's four filters process was to "capture all the important stakeholders" in one "multi-variable" equation. Imagine...Products, Enduring Customers, Managers, and Margin-of-Safety... all the important stakeholders for business success in one mixed "qual + quant" formula...The genius of the Munger and Buffett collaboration. And, quality bargains at 50 cents on the dollar may soon appear; Use the Four Filters!

Thanks for your interest in my book and helping to promote awareness of my book. Here is a 10 minute audio book summary: http://www.frips.com/4fsummary.mp3

Best Regards,

Bud Labitan
www.frips.com

Steve Forbes could of wrote this book (He wrote the forward). This is a right wing attack on Buffett ideas. I think Buffett is the smart person in the world, these guy think he all of a sudden got stupid. Buffett doesn't have opinions on things he doesn't understand.
www.theinvestingspeculator.com

Bud-- I don't think you can really reduce Buffett's approach to the 4 principles you list-- there is a lot more to it than that.

Zac-- I took a look at this book several weeks ago and it does have limitations- even though the author is certainly qualified to write about Warren Buffett it does seem, as you write, that not much is really added here. Losing a small amount of money on Pier One was a mistake but what about missing, until recently, the whole boom in oil which every investor worth his salt should have seen (as implied of course in the NYT article on our oil crisis today)? Warren Buffett did score with PetroChina but in missed a huge move in the entire energy sector over the passed decade and he only recently got involved with Conoco Phillips and the related railroad plays. I hold Warren Buffett in high regard but what he is doing right isn't batting a thousand in stock selection or nailing the big economic trends of our times-- what is interesting though is that he has done so well in spite of those misses. I think part of his success is that he thinks for himself and sticks with things he believes in without trying to imitate other investors too much.

Michael-- I have never claimed that the 4 filters defined the limits of their investing process.

In my view, the genius of Buffett and Munger's four filters process was to "capture all the important stakeholders" in one "multi-variable" equation.

Imagine...Products, Enduring Customers, Managers, and Margin-of-Safety... all the important stakeholders for business success in one mixed "qual + quant" formula...The genius of the Munger and Buffett collaboration.

Buffett mentions the Four Filters this way: "Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag."

The genius of this, let's call it "equation," is that it includes all the major stakeholders to a successful business. Plus, Ben Graham's Mr. Market and Margin of Safety are in filter number four. The contributions of Fisher and Munger are captures in filters 2(Sustainable Competitive Advantage) and 3(Able n Trustworthy Managers). And, that third filter is a tale of "competence and morality"

Find me one other "equation" or "formula" that captures so much in so few words... a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag."

It is the E=MC squared that Behavioral Finance has been searching for, but hardly anyone noticed the "intellectual achievement" of their collaboration.

Certainly, the skills and knowledge that Munger and Buffett pocess go beyond four filters. My assertion is that these two partners invented the most significant process since DCF and "Margin of Safety" and nobody in academic finance has taken notice until they read my book.

"The Four Filters Invention of Warren Buffett and Charlie Munger" by Bud Labitan

Bud- Okay, I'll grant that you didn't say explicitly that the 4 filters were the only items to consider. You do emphasize the 4 filters though so I think it does risk missing other things which i guess is what I was trying to say. Moreover, there is always the question of how you assess whether a management is able and trustworthy-- in some cases you have well known top managers or you can look at the company's performance but it isn't always that clear. When Warren Buffett bought PetroChina I don't know that there was much of a way to say that the management was good for example-- it is a mystery how he saw that-- if he did (I bought the stock before he did but I didn't really try to assess the management there)-- a Wall Street Journal article soon after he bought in did not show high regard for the company at all and reflected puzzlement about what he was doing.