Subscribe NowJoin over 30,000 other Vintage Value investors today!

The 16 Most Popular Articles of 2016!

This post is sponsored by Audible. Get your 30-day free trial here (or sign up for a Gold membership here) and help support Vintage Value Investing!

most popular articles vintage value investing

As 2016 rolls to a close, I thought it would be a good idea to reflect on the past year.

To that end, here are the 16 most popular Vintage Value Investing articles from 2016! Enjoy!!!


1. How to Invest in Water Like Dr. Michael Burry from the Big Short

One of the eight films that was nominated to win the Oscar for Best Picture at the 88th Academy Awards in 2016 was The Big Short.

The movie, based on Michael Lewis’s book The Big Short: Inside the Doomsday Machine, tells the story of four investors who predicted the credit and housing bubble collapse in 2008 and decided to bet against Wall Street, earning billions of dollars in the process.

The first of these investors that predicted the housing bubble was Dr. Michael Burry, who is portrayed in The Big Short by Christian Bale.

While the movie does a great job explaining how Michael Burry was able to make nearly $1 billion betting against the housing market in 2008, it left many viewers very puzzled about a completely different issue – the last line of the movie, printed on a placard, is:

“Michael Burry is focusing all of his trading on one commodity: Water.”

This is a perplexing statement, because unlike other commodities like oil, cotton, or silver, there is no market to trade water.

So how can someone invest in water? Should you just buy a rain bucket?

Well, you have 3 different options if you want to invest in water. [Read More]

2. Warren Buffett’s and Charlie Munger’s Top 7 Tips for the Class of 2016

  • Work for the person or company you admire the most.
  • Copy the habits of the most successful people you know.
  • Invest in yourself first.
  • Become a life-long learner.
  • Treat your body like you’d treat your car.
  • Pretend that you only have a “20 slot punch card” for financial decisions.
  • Develop your own “inner scorecard”. [Read More]

3. A Unique Behind-the-Scenes Look into Warren Buffett’s Investment Process

In 2009, the U.S. government established the Financial Crisis Inquiry Commission, a ten-member commission that was assigned the task of investigating the causes of the 2007-2008 financial crisis. The Commission had the power to subpoena documents and witnesses (businessmen and women, academicians, government officials, etc.) for testimony.

One person the Commission questioned was Warren Buffett.

The interview covered Buffett’s investment in Moody’s, his thoughts on the causes of the financial crisis, his views on financial policies and regulations, and a whole host of other topics. Although the interview took place in 2010 and the Commission reported its findings in 2011, the transcript was not released until 2016.

You can read all 103 pages of the interview right here (it’s really fascinating).

But in just the first few pages of the transcript, Warren Buffett gives a unique behind-the-scenes look into his investment process. [Read More]

4. The 11 Best Investment Books for Beginners

5. The 4 Warren Buffett Stock Investing Principles

A lot of people assume that Warren Buffett‘s investment strategy is a big secret – but it’s really not a secret at all.

In the 1977 Berkshire Hathaway Shareholder Letter, Buffett gives us one of our first glimpses into what he looks at when he evaluates a stock:

  • One that we can understand,
  • With favorable long-term prospects,
  • Operated by honest and competent people, and
  • Available at a very attractive price. [Read More]

6. Why Is Berkshire Hathaway Stock So Expensive?

$245,500.

That’s the price for one share of Berkshire Hathaway stock.

It’s also a lot of money.

For $245,500, you could pay for 4 years of a college education, make a down payment on a $1 million house, or buy yourself a Lambo.

You could also buy about 310 shares of Google stock and about 2,150 shares of Apple stock.

So what gives?

Why is Berkshire Hathaway stock so damn expensive? [Read More]

7. How to Determine a Discount Rate

This article is part of the Vintage Value Investing Value Investing 101 series.

In this article, I explain how to calculate a discount rate for your DCF analysis. If you don’t know what that sentence means, be sure to first check out How to Calculate Intrinsic Value.

Interest rates are determined by a combination of: the asset’s risk, the asset’s liquidity, the asset’s maturity, the expected inflation rate, and the “risk-free rate”.

It’s easy to see how – academically – these five determinants can drive interest rates, but how can we actually determine the interest rate (that is, discount rate) we use in our Discounted Cash Flow analysis?

A business school professor would tell you to use the Weighted Average Cost of Capital, or WACC.

If WACC seems very complicated to you, don’t worry because (a) it is and (b) it has several key flaws, so you don’t have to use it (Warren Buffett doesn’t).

What flaws? [Read More]

8. What’s an Index Fund & What’s an ETF?

I know a lot of people – beginning and advanced investors alike – have questions about index funds and ETFs (which, by the way, are great investment options for passive investors, especially when combined with a dollar-cost averaging strategy.)

In summary:

What is an index fund? A fund is simply a group of smaller investments you buy in a single package. An index is just a measure of a financial market. So an index fund is a fund that mirrors a certain index. For example, the S&P 500 Index measures the stock performance of the 500 biggest companies in the U.S. You can buy an S&P 500 index fund from firms like Vanguard, Fidelity, or Charles Schwab that tracks the S&P 500 – giving you exposure to the stock performance of the 500 biggest companies in the U.S.

What is an ETF? An ETF, or exchange traded fund, is a fund that trades on a stock exchange – just like the stock of Google or AT&T. As a consequence of being on an exchange, ETF’s offer more liquidity than index funds (you can buy and sell ETFs during the day; you can only buy and sell index funds at the end of the day), which is perhaps the biggest difference between index funds and ETFs.

ETFs also offer lower minimum purchase requirements (you can buy as little as one share of an ETF; index funds sometimes have minimum purchase requirements of $3,000-$50,000 or more) and sometimes have lower expense ratios. There is also a more diverse universe of ETFs that you can choose from. [Read More]

9. Warren Buffett’s “Not To Do” List

Warren Buffett is the 3rd richest man in the world and he’s considered to be the greatest investor to have ever lived.

But what’s funny is that Buffett has achieved all of his success NOT by doing MORE than his peers… but by doing LESS!

Seriously.

For example, Warren Buffett:

Don’t confuse Warren’s passiveness for laziness, however.

Buffett works incredibly hard. But he works incredible hard on things that matter and that are most important to him.

This is called focus. [Read More]

10. The Bill Gates Summer Reading List

11. How Warren Buffett Thinks About Risk

What is risk?

According to modern portfolio theory – which is taught in business schools everywhere – an asset’s exposure to systematic risk is measured by its beta (β).

Warren Buffett says “Don’t worry about risk the way it is taught at Wharton. Risk is a go/no go signal for us – if it has risk, we just don’t go ahead.

According to Buffett, risk is exactly as the Merriam-Webster dictionary defines it:

“The strategy we’ve adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it. In stating this opinion, we define risk, using dictionary terms, as ‘the possibility of loss or injury.

So to Buffett, risk has nothing to do with volatility. Risk is simply the probability of losing your initial investment. If there is a chance that he might lose money on an investment, then Buffett simply doesn’t invest.

But where does risk come from then? Certainly not from stock prices.

The answer is simple: “Risk comes from not knowing what you’re doing.” [Read More]

12. The Secret behind Charlie Munger’s Success: Work For Yourself an Hour Each Day

Warren Buffett and Charlie Munger are two of the greatest investors in the world, and are undoubtedly very successful and incredibly smart. And while some of their skill is certainly natural talent, they didn’t exactly develop into multi-billionaires over night.

In Warren Buffett’s biography The Snowball: Warren Buffett and the Business of Life, Buffett explains how Charlie Munger became successful long before the duo ever even met each other:

“Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.”

As Munger explains:

“I have always wanted to improve what I do, even if it reduces my income in any given year. And I always set aside time so I can play my own self-amusement and improvement game.”

Think about it. What could YOU accomplish if you sold yourself an hour every day? [Read More]

13. Charlie Munger’s Value Investing Principles Checklist

Charlie Munger is a famously reticent man. At Berkshire Hathaway Annual Meetings, Munger’s usual catch phrase is “I have nothing to add.”

But Poor Charlie’s Almanack proves that Munger has a lot to add. The book contains a bio of Charlie Munger, a synopsis of his approach to life and investing, a collection of his most famous quotes (or “Mungerisms” as they’re sometimes called), and transcripts of ten of his most insightful talks.

Kaufman also summarizes Munger’s approach into a ten-point value investing principles checklist. Here it is:

  1. Measure risk
  2. Be independent
  3. Prepare ahead
  4. Analyze rigorously
  5. Allocate assets wisely
  6. Have patience
  7. Be decisive
  8. Be ready for change
  9. Stay focused [Read More]

14. What Warren Buffett Has to Say About Seizing Big Opportunities

Warren Buffett has often said that the average investor should practice diversification by investing in index funds.

I’ve written several times (here, here, and here) about index funds and how investing in an S&P 500 index fund and using a dollar-cost averaging strategy is a great way to make money in the stock market over the long-run – and this point has been well documented by both research and results.

Part of the magic in this strategy is that an investor who doesn’t have much experience and who doesn’t know how to analyze or calculate the intrinsic value of a stock… doesn’t have to.

Instead, he or she can invest in all of the stocks in the stock market – thereby diversifying risk while earning the average return of the entire stock market (which has historically been ~9.5% over the long-run). And Warren evidently agrees with this.

However, Warren Buffett sings a very different song for investors who want to beat the average stock market return.

Warren does not believe an investor who wants to generate an above-market return should diversify his or her holdings. [Read More]

15. Benjamin Graham: The Father of Value Investing and His Family

Benjamin Graham is often referred to as “the father of investing” – and for good reason.

Warren Buffett was one of Graham’s students at Columbia University (and the only one to have ever received an A in his class). Many other value investing legends, like Bill Ruane, Irving Kahn, and Walter Schloss, were also disciples of Benjamin Graham.

Although Graham started working at Columbia Business School in 1928, his works and teachings – which include Security Analysis (published in 1934) and The Intelligent Investor (published in 1949) – remain as relevant and useful today as they did 65+ years ago.

And yet, as Andrew Hunt (portfolio manager and author of Better Value Investing) points out, Ben Graham’s works and teachings were not the last word on value investing.

Since Graham’s classic books were first published, many investors, researchers, and writers have taken up his ideas and developed them in ways even the Dean of Wall Street could not have imagined.

Therefore, to really understand Benjamin Graham, you have to meet the whole family. [Read More]

16. The 14 Most Recommended Investing Books of All Time

Help support Vintage Value Investing by sharing this article or one of the other 16 articles mentioned above! And don’t forget to get your Audible free trial here (or sign up for an Audible Gold membership here)!