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Comparing BRK to the "piggyback" isn't really a rebuttal to the statement that BRK itself was never less than a 50 cent dollar. Further, it seems obvious to me that there's at least two reasons for owning BRK instead of the piggyback: (1) the leverage provided by the float, and (2) private acquisitions. If you look at returns of the piggyback with similar leverage, I'd be interested to see the numbers. I don't disagree with your main points, and you touch on something interesting. What I was trying to point out, inartfully, was that Warren thought he was buying a 50 cent dollar with great promise when he bought WPO. And, of course, he was right. The Post was stunningly cheap in relation to what it would ultimately be worth. BRK, however, was even cheaper and was the much better performer. BRK is up between 1,000 and 2,000 fold since the Post purchase. The Post is up much less, say 140 fold. When you estimate the IV of a business, you put a ruler on a trend. Back in 1973, there wasn't much of a trend on which to put the ruler. In fact, the BRK trend was crappy, so it would have been hard to argue that BRK was a dollar selling for 50 cents. The 50 cent dollar gives you one extra double over your time horizon. (You get the growth in the business, plus one extra double when the market price approaches IV). That extra double is at the core of value investing, and the reason value investors out-perform most other approaches. If you purchased BRK in the '70s or '80s, you got MORE than one extra double on your investment, so BRK was often/always priced at less than half of its intrinsic value. HOWEVER, an investor couldn't have "seen" how the extra doubles were going to materialize, so the extra double(s) weren't visible and BRK wasn't a visible 50 cent dollar where you could easily put a ruler on the trend. In other words, if you're saying BRK wasn't often a VISIBLE 50 cent dollar, we're in complete agreement.

Ahhhh....that's better. The discussion is much more fruitful when it's civil. Several riffs, in no particular order: There are many routes to heaven. The best route is the one that's best for your abilities and your personality. When Warren talks about having the right "temperament" the implication is that 20 punches isn't right for everyone. There's a reason so few investors follow anything like it. (Though I "think" Ted has done something along these lines.) 20 punches is haaaaard because it's so dependent on a circle of competence (COC) and it's not easy to develop one. If you're a beginning investor, you don't have a COC. That's because it takes a great deal of time, and effort and experience to cultivate one. It's no coincidence that so many of Warren's investments are inside a few basic circles. Coke is candy in a can. WFC, MHT, BAC are all riffs off his initial investments in the Illinois National Bank (good) and the Bank of McHenry (bad..though I'm working from memory). Ajit's operation is an outgrowth of his investments in National Indemnity, Home & Auto, and a host of other little insurance operations. Sun Newspapers led to WPO, and CCB, etc. I could go on, but you get the point. His experience with the "wholly owned" businesses created the COC. It's hard to develop anything comparable when you're standing on the outside of the industry. When you're starting out, you're best doing cigar butts, and low P/E, and other ideas that don't presume a COC. that's something you build up over time. One of my better investments is a 40-bagger that was six years in the making. Every day for six years, I worked for 5 or 6 hours learning about the industry and had ZERO to show for my efforts. Not a single investment. More than once, people wondered if I was wasting my time. Hell, I wondered if I was wasting my time, but soldiered on. As things turned out, one good idea came out of it (and two bad) but the package was quite satisfactory. Try this exercise: look at Warren's investments in terms of how much of Berkshire's book he invested in them. If he puts about 25% into the investment, it's a punch. He would have done this with WPO, but Mrs. Graham asked him to stop buying. He did do it with GEC, GF, CCB, KO and BNI. He did it even more if you do the calculation with Associated Stories and Blue Chip. When you look at his investments this way, you'll see that the better part of his excess return is from these "punches." Most of his other investments are trips to the driving range. WRT the comment about BRK not being priced below IV, here's a second exercise that is a little contradictory: compare BRK to the "piggyback." The exercise is this: Imagine that Warren calls you and says "Bob, I'm buying (fill in the stock) today because it's a fifty cent dollar." Do you buy BRK or the piggyback? I did the calculation about 15 or 20 years ago, and BRK almost always beat the piggyback. As I recall FRE was one of only two ideas that beat an equal amount invested in Berkshire. The whole world was trying to piggyback his ideas, and they would have almost always been better off just buying BRK. My point here is that people didn't "get" Berkshire well enough to see this. It's hard to spot stocks that "might" give you 10x over 10 or 15 years. It's even harder to spot them if your eyes aren't open to whether the ideas you're considering are capable of delivering that return. You only have a sense of what's possible when the idea falls inside a COC. That's enough for now.

This thread started out as an offline discussion with BenGraham. In the exchange, I mentioned that I took Warren's suggestion to "invest as though you're working from a 20 punch card" very seriously Of course, hardly anyone does this. In itself, that's interesting. The greatest investor in history tells the world, over and over, that the secret to success is 20 punches, and the world ignores him. Absolutely ignores him. Even his most ardent supporters ignore that part of the catechism. If your approach is based on 20 punches, then you'll naturally look for ideas that have the potential for quite a bit of growth, thus the thread on 10 baggers. It appears that some of the more indignant posters are unfamiliar with the charms of 10, 20, 30 and 100 baggers.

That's why the Circle of Competence is so important. Either you know the company cold, so it's inside YOUR circle of competence, or you place your faith in someone like Prem, and hope the business is inside HIS circle of competence. If you ever meet people from BPL, you'll find they're almost always the latter--they had complete and utter faith that WEB was inside his Circle of Competence.

With all due respect, you shouldn't tune out. Doubly so if you're young. Think of it this way: 10 bags is a little more than 3 doubles (2,4,8). If it's a fifty cent dollar, you'll get your first double when you close the gap between intrinsic value and market value. It doesn't always close quickly, but it always closes (in my experience). You'll get the next two doubles from a combination of improving revenues and improving margins. Buy something where the top line will grow nicely for a decade, and the bottom line will grow a little faster. The faster bottom line growth occurs when margins improve. The combination should give you a little more than three doubles, and take you to 10 bags. To see what I mean, you might play around with the DuPont ratios to see how small changes can have big impacts. My main point is this: if you start with ideas that have the potential for a 10x return, and you have a reasonable mental model, there's a good chance you'll find some names that deliver for you. Now for the punchline: it's surprisingly hard to hold on to a stock when it's up 8x or 10x. Mounting the tiger is hard. Holding on is even harder.

FWIW, I've been following Apple for a few years. (My basis is single digits). Two observations: First, Dr. Deming used to say that "every process is perfectly designed to produce what it produces." It's a tautology, but it's interesting. Apple's culture has produced one amazing product after another. Together, they form an ecosystem unlike anything we've ever seen. I can't, for the life of me, see why the ecosystem dies when Steve is out of the picture. I'm not saying the ecosystem will last forever, just that it will last for a few more doubles....and that introduces my second point. WRT Pepsi: change the argument to Coke, and consider this. Coke may be the most predictable business in the world. Over the next 20 years, units will double twice. If Coke is lucky, margins will also improve, and give investors a third double, all other things being equal. When Warren says he can see 20 years into the future with Coke, he's saying, in effect, that he can see three doubles into the future with the company. I "think" you can see three doubles into the future with AAPL; that you can see three doubles in Macs, Phones, Tablets, stores, etc. Of course, you may thing I'm all wet.

It's almost as if Henry, the editor, is serving up ideas for people who take the idea of making 20 investments over the course of a lifetime seriously. Good investment ideas arrive when they arrive. Ditto for the issues. When Henry started OID, 20 punches was a new idea, and few people had heard of Warren, or Berkshire. In those days, the value community was tiny, and it was hard for one nascent value investor to connect with another. Henry scouted young value investors and introduced them to the community. He found Bruce Berkowitz when he was still a salesman for Lehman, and Tom Russo when he was entirely unknown. OID was the house organ for Warren's brand of value investing. Every aspiring value investor subscribed to it, and cribbed from it, and the ideas generally worked. Today, the value community is large, and it's easy for like-minded investors to connect with each other on boards like this, so OID isn't as relevant as it once was.

This is an interesting question. To me, value investing means buying a dollar for fifty cents. This limits the downside, and gives you at least one double on the upside. You get extra doubles if the value of the business doubles while you're waiting for the gap between the IV and the market price to close. In my experience, stocks always return to their intrinsic values; overpriced stocks fall, and underpriced stocks rise, and it always seems to happen. It rarely happens quickly, but it always happens. It’s important to understand that value investing is dynamic; that the frontiers are always moving. Roughly speaking, there have been four approaches to buying a dollar at a discount: 1. Net cash is more than the share price. 2. Net current assets are more than the share price. 3. Book value is more than the share price. 4. NPV of future cash flows is more than the share price. The last, of course, is Warren’s big contribution to the craft. At the time he purchased See’s, most value investors were buying stocks at a discount to book value. To pay several times book, and much more than 10x EPS was heretical, and more than a few observers wondered if Warren wasn’t straying from the rules. With See’s, Warren moved the frontier of value beyond easy mechanical measures, and into more difficult-to-determine measures of value. Of course, that’s why the circle of competence is so important. It takes a great deal of industry-specific knowledge to see around the corner the way he does. IMHO, this last type of value investing is about “analysis by anecdote.” You collect a pile of stories about businesses and industries, and then apply them artfully. Collecting the stories is hard, applying them successfully is even harder. With his investment in BAC, Warren hinted at this when he explained that the BAC investment had much in common with his investments in Amex and GEICO. In each case, the customer base was solid, even if the balance sheet wasn’t. My two cents.

I presume you're trying to get rich. Here's what I'd suggest. Think in terms of 10 doubles. That's turning 1 into 2, then 4, then 8, and so on. Years ago, when I was first studying Warren, and was comparing his record to Templeton's, I noticed that the compounds were different, but each turned one dollar into about $1,024. From there, I looked at various success stories in terms of 10 doubles. At the time, Coke's market cap was 1000x what Woodruff had paid for it. McDonald's, one of the great growth stories of the '60s, was 1000x its IPO price. Same for Wal Mart. Later on, it was true for Microsoft at the dot com peak. Ten doubles is about as good as you can do. (BRK, for example, was $38 when Warren closed the partnership. At $150,000 per share, it had doubled 12 times.) A compound that gives you ten doubles is about the best you can do...as an investor, or on an investment. Once you start thinking in terms of doubles, it's pretty simple. Start with $1,000. The easiest way to double it is probably through saving. While you're saving, study investing. Ditto for the second double, from 2k to 4k. By 8k, you'll need an investment strategy, or the basis of one. You can still get another double through saving, but you'd better have the foundations of an investment approach in place by 16k. The key to investing is to know more than most. Pick a market that interests you, read obsessively and, over a period of years, you'll learn enough to find something. (I started working obsessively on Linux in 1997. I had nothing to show for it until 2003, when I realized that OSX was what Linux wanted to be when it grew up. The investment worked out OK.) Think in terms of 20 punches. Warren tells everyone that 20 punches is the key to investment success, yet just about everyone ignores him. I know a lot of value guys (my first BRK meeting was 25 people) and all of them, to a man, think it's weird. It's not. If your aim is 10 doubles, that means 10 investments that double your portfolio. If you're young, and you've got 50 years in front of you, that's finding one investment that will double your portfolio every 5 years. It's hard, but it can be done. Finally, picking a big winner is hard, but holding on to it is even harder. When you're up 8x or 16x on an investment you start to worry about giving it all back, and that sort of thing. It's surprisingly hard to hold on to a big winner. That's a good start.