Warren Watch: New investing book has roots in 1996 letter from Buffett

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Posted: Sunday, January 26, 2014 12:00 am | Updated: 1:52 am, Tue May 20, 2014.

Warren Buffett is cited 38 times in a new book on investing, and it's no coincidence.

One of the authors of “Strategic Value Investing” (McGraw Hill, 330 pages, $30) is Creighton University finance professor Robert Johnson, a fellow Omahan. It's the first book with the name of Creighton's Heider College of Business on the cover.

The book can be traced partly to a letter Buffett wrote in 1996 after he lectured a portfolio management class Johnson taught at Creighton. Johnson was moving to the CFA Institute in Virginia to work on the curriculum for training certified financial advisers.

Johnson had asked for advice, and Buffett wrote that the key to investing is to learn how to evaluate businesses. To succeed, Buffett wrote, investors need to understand what makes one business earn high returns on capital while others fizzle out.

Johnson framed the letter and hung it on his wall. “That was kind of my true north,” he said. “In this book, I believe we've done a lot of what Warren suggested. We don't oversimplify, but the goal was to make it intelligible to the average investor.”

Besides Buffett, the chairman and CEO of Berkshire Hathaway Inc., the book describes the value investment techniques of Berkshire Vice Chairman Charlie Munger and Omaha investment manager Wally Weitz, among others.

Not all of them follow Buffett's example of holding onto investments for long periods of time. You can pick a value investing style that fits your temperament, Johnson said. Not everyone is as patient as Buffett, but you need the discipline to stick with your style.

“If you look at the stock market and it goes down and you have a sinking feeling in your stomach,” he said, “it's pretty tough to be a value investor. The key is that you recognize your psychological characteristics and don't compound your mistakes by ignoring them.”

If you can't do that, Johnson said, investing in stock index mutual funds is “perfectly acceptable.”

The book's co-authors are fellow CFA Institute teachers Stephen Horan and Thomas Robinson. A Creighton class on investing already has adopted the new book as a text.

Johnson, a University of Nebraska, Creighton and Central High School graduate, is based in Charlottesville, Va., and is an acquaintance of Ted Weschler, one of Berkshire's investment managers.

In case you haven't noticed, Buffett's ownership of Berkshire Hathaway has been sliding lately, although he still has what you would call controlling interest.

In 2005, before he started annual donations of Berkshire shares to foundations, Buffett owned 32.7 percent of Berkshire. That has slipped below 22 percent, a little faster than 1percentage point a year.

Since 2006, Buffett has donated or pledged the equivalent of 640 million Class B shares of Berkshire stock to five foundations: the Bill & Melinda Gates Foundation, 500 million shares; the Susan Thompson Buffett Foundation, 50 million shares; and about 30 million shares to each of his three children's foundations.

He donates 5 percent of the remaining pledged shares each summer. His estate is to distribute the remaining pledged shares to the foundations when the time comes.

If Buffett doesn't raise his pledges or make other donations, by our calculation that would leave about 115 million unpledged shares, worth about $13 billion these days. If he had held onto his shares instead of donating them, they would be worth about $86 billion today.

He has instructed those foundations to spend proceeds from the stock and eventually go out of business so that a new generation of philanthropists can decide where their wealth is needed.

Time to sign up for the spring session of “Giving With Purpose,” an online course on philanthropy that features Buffett and his sister Doris, among other speakers.

The course, open to anyone 13 and older, has weekly lessons on how donors can invest in high-performing community nonprofit groups. Last year the first such course had more than 10,000 participants and distributed $130,000 to 40 nonprofit groups.

Participants decide how to award money from the Learning by Giving Foundation, which Doris Buffett funds from her Sunshine Lady Foundation, in turn funded by her brother.

The noncredit course is offered through Northeastern University in Boston, which will offer a for-credit version of the course in the fall.

Berkshire's Brooks Running Co. is opening its first retail store, in its corporate hometown of Seattle, and is moving its Europe-Middle East-Africa regional headquarters to Amsterdam from Muenster, Germany.

The retail store will be located in the company's new “deep green” corporate headquarters near the Burke-Gilman Trail, which runs along Lake Washington, Lake Union and Puget Sound.

The new international headquarters is intended to deepen ties with runners across that region. David Bohan, president of Brooks, will be president of the region, which the company considers its most significant growth opportunity.

Brooks said its revenue was up 17 percent, including a 27 percent increase in Europe. The company also has regional offices in Asia and Latin America.

We probably should let Quicken Loans do its own advertising for the $1 billion prize it promises for correctly predicting all 63 games in the NCAA's men's basketball tournament this spring.

But the connection with Warren Buffett and the dollar amount proved too big to ignore. Buffett's insurance company is backing up the grand prize, which isn't likely to be awarded because of the long odds against a perfect “bracket.”

So here's a link to a Facebook page for the loan company to start your quest for the billion, since you have to fill out your bracket online to enter.

Here's hoping you'll cash in.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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