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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41629  
Subject: Re: Debunking Stock Market Myths Date: 8/26/2007 6:19 PM
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Think about it.

MadCapitalist


Believe me, I have. Otherwise I would not have written the post. My standard procedure is to think first and write afterwards. Sometimes, after writing, I put the piece away to give me time to think about it some more before making it public. On occasion, after thinking about it a second time, I will tear up the draft or erase the file because the piece did not withstand my re-thinking.


“The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.”

Where does this quote say that you should think one way or the other, like an investor or an owner?

I have studied Buffett's management style where it comes to subsidiaries and he is, as the quote says, a very hands-off manager. But when it comes to buying subsidiaries, Buffett thinks like the owner of Berkshire Hathaway, in other words, like the master investor he is. Why do I say that? Because I'm convinced that Buffett's main goal is to accumulate "float" to use to invest in even more businesses. Buffett is hands-off in the daily running of the subsidiaries but he strips them bare of any unnecessary working capital so that he can use it to invest elsewhere. This is a lesson he learned from Berkshire Hathaway, the cotton mill. When the business went south, Buffett stripped it of working capital and used that money to make investments elsewhere. It worked so well that he has been doing it even since with every private acquisition he has made.

Interestingly enough, the buy side of the BMW Method is quite similar to the Buffett quote: "In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management." Where they part company is over the next sentence: "Thereafter, you need only monitor whether these qualities are being preserved." The BMW method, in addition, monitors the price to see when it is ripe for selling.

Denny Schlesinger
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