Over the past few decades, Warren Buffett (Trades, Portfolio) has declared that two main investors have had the most influence on his investing style.
One of these is Benjamin Graham, who, as most value investors will know, is widely considered to be the godfather of value investing. Buffett has said many times in the past that Graham's book, "The Intelligent Investor," and his first publication, "Security Analysis," were instrumental in shaping his investment style, particularly in the early years of his investing career, when he was managing money for partners at the Buffett Partnerships.
The other investor who has shaped his style over the years is lesser known but has probably had a bigger impact on the Oracle of Omaha's strategy: Phil Fisher. Here's Buffett describing how he first stumbled across Fisher's work:
"One of the best books on investment was written in 1958. I think I read it in around 1960 by Phil Fisher called "Common Stocks and Uncommon Profits" ... it talked about the importance or the usefulness of what he called the scuttlebutt method. And you know that was something I didn't learn from Graham but every now and then it's turned out to be very useful."
Berkshire Hathaway's 2004 annual meeting of shareholders was held a few months after Fisher passed away and during the Q&A session, one shareholder asked Buffett and his right-hand man, Charlie Munger (Trades, Portfolio), what they had learned from this investor and why they believe his thoughts on investing are so fundamentally important.
Buffett on Fisher
Buffett says that he met Fisher only once and "It was great. I enjoyed it, I loved it. He was nice to me." The chairman of Berkshire Hathaway went on to say that he learned most of what he has about Fisher's style from his books, which was the same with Graham.
"They were such good writers, and their thoughts were so clear, that you didn't need to meet them personally," Buffett said. But it was Charlie Munger (Trades, Portfolio) who really loved Fisher's style, and he pushed it on Buffett.
"I met Charlie in 1959, and Charlie was sort of preaching the Fisher doctrine, also, to me. Little different form, but his ideas paralleled those of Phil. So I was sort of getting it from both sides. It made a lot of sense to me."
At this point, Buffett handed the discussion over to Munger, who added:
"The basic idea of that it was hard to find good stocks, and it was hard to find good investments, at that you wanted to be in good investments. And therefore, you just have to find a few of them that you knew a lot about, and concentrate on those. It seemed to me such an obviously good idea."
He continued:
"It's proved to be an obviously good idea. Yet, 98% of the investing world doesn't follow it. That's been good for us. It's been good for you."
Buy good businesses and hold
Fisher practiced and preached the style of investing that Buffett now follows for years before the Oracle of Omaha caught up. His basic investment style was to invest in a small number of companies with tremendous outlooks and do nothing. He was following this approach since the 1930s. As he described in an interview with Forbes in October 1987:
"Let me go back to the 1930s. The company I really started my business on was FMC Corp. (FMC), then called Food Machinery. Two-thirds of its business was in selling to fruit and vegetable canners. So I started learning a fair amount about the canning business. Three different times in the thirties I bought California Packing--that's the Del Monte line--at a low price, when the outlook for canning looked poor, and sold it at a high price. I also bought, for any client who I could get to buy it, as much Food Machinery stock as they would let me. Then in 1940 or 1941 I reviewed the bidding and found that the effort I had put into the timing of buying and selling California Packing shares considerably exceeded the time I had spent learning about and watching Food Machinery stock. Yet already by 1940, my profits in Food Machinery dwarfed the ins and outs of California Packing. That episode finally made me decide not to follow the almost accepted policy at the time that you should buy low and sell high and make a profit and bring it in. This just isn't valid."
Buffett learned a lot from this approach, and it is not unreasonable to say that he would not be where he is today without Fisher's advice. This shows that no matter where you are in your investing career, it is never too late to learn, and Fisher's books could be a great place to start.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
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Charlie Munger: Liquidity Is Not Needed for Good InvestmentsÂ
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