Afterword 209A common thread for outperformance, whether it be for the Super-
investors of Graham-and-Doddsville, the Superinvestors of Buffettville,
or those who lead the funds that Michael’s research identif ied, is a port-
folio strategy that emphasizes concentrated bets and low turnover and a
stock-selection process that emphasizes the discovery of a stock’s intrin-
sic value.
Still, with all the evidence on how to generate above-average long
results, a vast majority of money managers continue to underperform
the stock market. Some believe this is evidence of market efficiency.
Perhaps with the intense competition among money managers, stocks
are more accurately priced. This may be partly true. We believe the
market has become more eff icient, and there are fewer opportunities to
extract prof its from the stock market using simple-minded techniques
to determine value. Surely no one still believes the market is going to
allow you to pick its pocket simply by calculating a P/E ratio.
Analysts who understand the deep-rooted changes unfolding in a
business model will likely discover valuation anomalies that appear in the
market. Those analysts will have a different view of the duration and
magnitude of the company’s cash-generating ability compared with the
market’s view. “That the S&P 500 has also beaten other active money
managers is not an argument against active money management,” said
Bill Miller; “it is an argument against the methods employed by most
active money managers.”^2
It has been twenty years since I read my f irst Berkshire Hathaway an-
nual report. Even now, when I think about Warren Buffett and his phi-
losophy, it f ills me with excitement and passion for the world of
investing. There is no doubt in my mind that the process is sound and,
if consistently applied, will generate above-average long-term results.
We have only to observe today’s best-in-class money managers to see
that they are all using varied forms of Buffett’s investment approach.
Although companies, industries, markets, and economies will al-
ways evolve over time, the value of Buffett’s investment philosophy lies
in its timelessness. No matter what the condition, investors can apply
Buffett’s approach to selecting stocks and managing portfolios.
When Buffett f irst started managing money in the 1950s and
1960s, he was thinking about stocks as businesses and managing focused