I was privileged to receive this book for free after winning the May contest over at valueinvestingnews.com. Before continuing the book, review I would like to say thank you to George and Bud for giving the book away at no cost.
First of all, before I received this book I knew it would have to be really special in order for the book to receive a 10 out of 10. Value Investing is a subject that is constantly written about and any new book would really have to be unique in some sort of way to really make an impact on someone who is constantly reading about it. With that in mind, I would like to break down the review into sections, Presentation, Content, Readability, and Commentary.
Presentation
Apparently, Bud had an offer to have the Four Filters published but the publisher wanted to make changes that bud was not too fond of and so Bud decided to publish the book himself. Upon receiving the package, I was a bit surprised as to how the book was presented. It looks like a college research paper which has its positives and negatives. The negatives, the obvious being it does not look professional. In addition, it does not fit in very well if I set it in my library. I found several small errors but nothing too big that will take the value of the book to zero. On the other hand, the material was easy to read with Bud using regular 12 pt. Times New Roman Font. The tables of contents were clearly laid out in the beginning and were followed throughout the book. Overall, I liked the presentation. Although it the book might not look too good in my library, Bud’s willingness to stand up for his work more than makes up for the minor nuisances. Plus, I will take a. easy to read book that is not published over a published book that I have to squint my eyes to read the pages any day. Overall grade on presentation B-.
Content
Now for the meat of the book, the content. Regular readers of Value Investing will nothing new hear. Throughout the book, bud points out Warren Buffett and Charlie Munger’s “Four Filter” system that will eliminate inferior investments and filter out quality investments that will provide both good returns with little downside. The four filters as mentioned in the book are
1. An understandable business
2. Competitive Advantage
3. First Class Management
4. Available At Bargain Prices
Filled with numerous quotes and historical references Bud makes his case on how the four filter system came about and how Warren Buffett are implementing it today. I found several new quotes in the book that I have not seen such as Charlie Munger calling EBITDA “Bullshit Earnings” and Bud’s S.O.A.P process on how to evaluate management. It is obvious Bud did his homework. Nevertheless, a novice investor looking to start out on the right foot will benefit from Bud’s work. The quotes were approved by Warren Buffett and are integrated well into the book. I will try not to give away too much from the book, but Bud does a heck of a job in analyzing Kraft using the four filter system. The book could have been further expanded by adding more examples of the four filter system and possibly expanding certain chapters such as the chapter on management. Overall Grade, B. Nothing unique but the implementation of quotes was great and author did due his due diligence.
Readability
Bud’s style of writing is easy to read and no one should have a problem implementing the four filters. Bud went straight to the point and made his ideas very clear. Overall, A.
Commentary
As mentioned above the book will not be a huge eye opener to someone who constantly reads material on value investing. The book will get someone started in value investing on the right foot. If the book would have been published it would make a nice addition to a value investing library, but given the circumstances it loses a bit of value. Overall I give it 7.5 out of 10. I find it hard paying $40 for a book that is not professionaly published and its content is not really an eye opener.
The book and audio CD are available through Bud’s website http://www.frips.com/. Bud Labitan can be contacted at
budlabitan@aol.com
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Of course I have not read everything that has been written on the subject of value investing. But I tend to want to read everything I can get my hands on. One common theme that tends to stand out is that there are some basic principles of value investing that seems to be consistent in most of what I have read so far. The difference lies in how they are presented and the reader response they solicit. I think any writer who is able to communicate these true and time tested principles in such a way that motivates, incites, encourages, and challenges the reader/investor to become more diligent, faithful, and focused on producing better investment results, has the edge.
Be well.
Alisa,
As WEB says “Value Investing is simple but not easy”. As stated above, Bud does a great job of explaining value in vesting’s basic principles.
Thanks to all of you who have provided feedback on my book.
As for my own views, “The Four Filters Invention of Warren Buffett and Charlie Munger” is designed to be the next “Intelligent Investor.” If a young Buffett was 19 years old now in 2008, what would such a young person read?
“Four Filters Invention” is intentionally a small book at 98 pages, and it concentrates mainly on the sequential process outlined by Warren Buffett.
Think Framing. “Successful Practitioner Framing.”
How do the best “frame” their investing decisions? The Four Filters cluster around the important business variables of Products, Customer-Sustainablility, Managers, and Price/Value. The book also strives to prove that Buffett and Munger invented a Behavioral Finance Formula composed of three qualitative steps and one quantitative step, that is underappreciated by the business and academic communities. In that respect, Buffett and Munger will have a greater long term impact on academics than the Efficient Market Hypothesis.
While my book is concentrated on Munger and Buffett’s approach to framing, this book contains the best of Graham, Carret, Fisher, Buffett and Munger. Read the summary a few times, and you will be motivated into thinking about ways you “frame” your other important decisions. This is a subtle peek into sensible and optimal thinking within Behavioral Finance.
Thanks again to all of you who have provided feedback on my book. I appreciate the time and thoughts you provided. I will use your ideas and make the next edition even better.
Bud Labitan
http://www.frips.com
AlexG,
Thanks for your positive words and review of my book. I appreciate yours and all the feedback I get. If possible, kindly mention to your readers that I intended to make this book a small and highly distilled look into this amazing invention within “Behavioral Finance.” In my view, the genius of Buffett and Munger’s for filters process was to capture all the important stakeholders in a “multi-variable” equation or formula.
Imagine…Products, Enduring Customers, Managers, and Margin-of-Safety… all in one mixed “qual + quant” formula. That is the real genius of the Munger and Buffett collaboration.
And perhaps Munger does not get enough credit for this amazing formula because he enjoyed some of the profits and distributed some to family and charities along the way. However, their record speaks for itself.
And, Buffett is always ready to mention that “Time is the friend of the wonderful business, the enemy of the mediocre. You might think this principle is obvious, but I had to learn it the hard way. In fact, I had to learn it several times over… I could give you other personal examples of “bargain-purchase” folly but I’m sure you get the picture: It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner.”
So, my book, “The Four Filters Invention of Warren Buffett and Charlie Munger” is really a subtle tribute to their collaborative genius in Behavioral Finance.
And, let me be the first in line to nominate both men for a Nobel Prize in Economics.
Sincerely,
Bud Labitan
“Before continuing the book, review I would like to say thank you to George and Bud for giving the book away at no cost.”
You are welcome Alex. Thank you for being such a valuable member of the Value Investing News community.
http://www.stockpickr.com/members/showforums/1/5121/
A few people have said that we cannot boil down the Buffett and Munger process and skillset down into one formula. I agree. I have never claimed that the 4 filters defined the limits of their investing process.
My assertion is that Munger and Buffett invented something very special in Behavioral Finance, and Behavioral Finance did not seem to notice.
In my view, the genius of Buffett and Munger’s four filters process was to “capture all the important stakeholders” in one multi-variable equation.
Imagine…Products, Enduring Customers, Managers, and Margin-of-Safety… all the important stakeholders for business success in one mixed “qual + quant” formula…The genius of the Munger and Buffett collaboration.
Buffett mentions the Four Filters this way: “Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.”
The genius of this, let’s call it “equation,” is that it includes all the major stakeholders to a successful business. Plus, Ben Graham’s Mr. Market and Margin of Safety are in filter number four. The contributions of Fisher and Munger are captures in filters 2(Sustainable Competitive Advantage) and 3(Able n Trustworthy Managers). And, that third filter is a tale of “competence and morality”
Find me one other “equation” or “formula” that captures so much in so few words… a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.”
It is the ( E=MC squared ) that Behavioral Finance has been searching for, but hardly anyone noticed the “intellectual achievement” of their collaboration.
Certainly, the skills and knowledge that Munger and Buffett possess go beyond four filters. My assertion is that these two partners invented the most significant process since DCF and “Margin of Safety” and nobody in academic finance has taken notice until they read my book.
“The Four Filters Invention of Warren Buffett and Charlie Munger” by Bud Labitan