If you had put $10,000 in Buffett's original investing partnership at its inception in 1956, you would have collected about $293,738 by the time he dissolved it at the end of 1969. He had never suffered a down year, even in the severe bear markets of 1957, 1962, 1966, and 1969. When the partnership was wound up, you could have elected to stay with Buffett as a shareholder of Berkshire Hathaway, Inc., which was spun off from the partnership and became Buffett's investing vehicle. In that event, your $10,000 would by the end of 1986 have turned into well over $5 million.
So, John Train introduces the remarkable story of Warren Buffett in his classic text, The Midas Touch. First published in 1987, The Midas Touch was one of the first books to recognise Warren Buffett's spectacular record, and to attempt to explain how he achieved his success. It is short, lucid and written with style and wit. A worthy testimony to its remarkable subject.
From the back cover of the book:
This is the book that tells readers how to invest like the man known as 'the Wizard of Omaha' (Forbes) and the investor with 'the Midas Touch' .
Warren Buffett is the most successful investor alive - the only member of the Forbes 400 to have earned his fortune entirely through investing. Bestselling author John Train analyzes the strategies, based on the value approach, that have guided Buffett in his remarkable career, strategies that work even though Buffett operates a thousand miles from Wall Street.
'The Midas Touch 'traces the highlights of Mr Buffett's life and career from his childhood in Omaha ... to his spectacular coups in the market over the past 30 years.' New York Times
'The Midas Touch is definitely not for a total beginner as it assumes a certain basic level of knowledge. If you don't know what a PE ratio is then you need something more basic. But if you think that you are going to double your money in two months because you have just bought a stock on a PE of 35 after it was tipped in Shares magazine you need to read on. Advanced Buffettologists won't learn much from this book - they have probably read it already. But if you know that Warren Buffett is a legend but not why this is a concise and easy to ready way of finding out.'
Tom Winnifrith
'Provides an excellent glimpse into Buffett's life, ideas, and background as well as detailed discussions of Buffett's investment philosophy and techniques.'
Dow Theory Letters
'The Midas Touch is a fabulous value ... imparts a wealth of lessons for any investor to emulate, no matter how skilled.'
The Market Chronicle
'John Train has a global vision of investing. He understands men and markets. He is an outstanding market forecaster. He writes elegantly. Like the Midas of his title, the things he touches turn to gold.'
Lewis E. Lehman, Morgan Stanley
As I write this, the man dubbed Britain's Buffett (Nigel Wray) has just invested in his second Ofex stock. As editor of a site dedicated to Ofex, I cannot help but wonder what he is thinking as he doles out 1 million pounds to Oakdene Homes having only just put two million pounds into English Wines. Wray is a man who unashamedly quotes Warren Buffett - the greatest living investor - as a prime source for his own investment thinking and practices. Of course Buffett - because of the size of his Berkshire Hathaway company - invests in large companies these days but Wray would argue that the principles behind Buffett's extraordinary success (an average return of 23% per annum of half a century) are - in many cases - equally applicable to small caps. I find myself comparing - in many ways - English Wines with Nebraska Furniture Shop - an early Buffett star.
The Midas Touch book goes a long way towards justifying this thesis. Detailing the life of Warren Buffett, it describes how the world's greatest investor made his millions entirely through investing in long term securities with growth potential. John Train in about 100 pages, packs 18 principles and 8 methods to explain the master investor's methods while picking the right stocks.
One of the first ever written records of Buffett's spectacular success with the stock market, Train is economical with his description of Buffet's
history and in two pages, manages to sum up how he was attracted to the world of stocks and shares along with an analysis as to why Buffett
considers himself 85% Benjamin Graham (his mentor) and 15% Phil Fisher. The book was published in 1987 so it misses out the nonsense of the dot.com era but it is not hard to see why WB managed to pass on www - almost all dotcom companies fail almost all of his investment criteria.
The main chapters of this short book provide neat summaries of each of the investment principles of Buffett. They are well written with lucidity and style and move smoothly into section four which offers a 'How to invest like Buffett' package: a do it yourself version of the same investment principles. Just when you think you have reached the end, you find a last section with a detailed introduction to all of Buffett's investments, including background and performance since he put his money in. Of course this ends almost two decades ago but it is the principle that matters. Buffet's principles just don't change.
What makes a Master Investor?
A break down of all the principles reveals how the 'value investor' is not affected by conventional indicators like indices, news flow and market scares. As Buffett himself says, keep investing as simple as possible, if you can't get your head around it, then don't put your money in it. Understand the figures and do your own research. Invest in industries you understand. Concentrate on one industry or one investment approach. This might seem like a statement of the obvious but every day I receive dozens of
emails promoting some trading system or software package which can maximise my short-term returns. And at least twice a day I am prevailed upon to "alter my strategy to suit today's market conditions or to switch from stock A to stock B because of some breaking news." If you don't already junk every single e-mail of that variety, you need this book as a handy (and concise) reminder of why you should! If you think short-termism is the way to make money page 105 (The Secret: Steady Compounding) is a must-read.
Would Warren Buffett invest in Ofex stocks?
This is of course a purely academic exercise although one close to my heart. I suspect he would reject 90% of Ofex constituents out of hand. But then I find myself rejecting the bulk of Ofex stocks in the same way. This is a market which offers real gems but you have to search hard. Buffett is not one who discourages hard work! In the section "Good Businesses and Bad Businesses", Train outlines Buffett's strict separation of the two. Good companies he says are characterised by ' virtual monopoly', high returns on invested capital, ability to generate profits translating into cash, rapid turnover of inventory and good management. Bad businesses on the other hand are lead by dishonest management, bring in profits at the operating level, have high debt position, changes focus and reinvents itself constantly and are capital intensive.
Of course Ofex is heavily weighted towards start-ups and it simply is not the Buffett style to back an enterprise until it has a proven record. On the other hand the unfashionability of Ofex stocks should excite a Buffet follower - perhaps that explains Wray's dabblings. Train says that the perfect reaction amongst the cognoscenti when you enquire about a stock in your portfolio is "It seems cheap, but I can't see it doing anything for at least six months" - if you hear that you may be on the right track. If your stock is deemed "hot" - (i.e. every man and his dog already owns it) it is a bad sign. That fact that no-one currently takes Ofex seriously while all the "hot" rubbish is rushing to an overpriced IPO on AIM is something that, as a Buffett follower, I find interesting.
Midas Touch is definitely not for a total beginner as it assumes a certain basic level of knowledge. If you don't know what a PE ratio is then you need something more basic. But if you think that you are going to double your money in two months because you have just bought a stock on a PE of 35 after it was tipped in Shares magazine you need to read on. Advanced Buffettologists won't learn much from this book - they have probably read it already. But if you know that Warren Buffett is a legend but not why this is a concise and easy to ready way of finding out.
Gm Trembecka
Contents of The Midas Touch
1. A Master Investor
Starting early
Influences: 85 percent Ben Graham, 16 percent Phil Fisher
2. Some Favourite Investing Principles
Good Businesses and Bad Businesses
The Market and Fair Value
Nothing Exceeds Like Success
Pricing the Whole House
The Part Is Better Than the Whole
Risk and Reward
The Margin of Safety
Zigging When You Ought to Zag
The Efficient Market Hypothesis
The Out of My League Dilemma
The Leverage in Insurance Companies
The Cash Magnification Effect
The 12 Percent Equity Bond
Goodwill - the Gift that Keeps Giving
3. Buffett's Methods
Keep It Simple
Networking
Gold Is Where You Find It
Corporate Stock Repurchase Programs
Special Distributions
Stock Options
Corporate Philanthropy
4. How to Invest Like Buffett
Understand the Figures
Apply Your Own Business Experience
Go and Look
Know the Values
The Secret: Steady Compounding
Avoid Risk
What It Takes to Be a Good Investor
What Makes a Bad Investor
About John Train
John Train founded Train Smith Investment Counsel and is the chairman of Montrose Advisors. He has written hundreds of columns for the Wall Street Journal, the New York Times, Forbes magazine, Harvard Magazine, and the Financial Times. Apart from The Midas Touch, his bestselling books include The Craft of Investing, The Money Masters and The New Money Masters.
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