science

The Warren Buffett Way

The Warren Buffett Way is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand The Warren Buffett Way rather than just read about it. In short: The Warren Buffett Way, a book by author Robert Hagstrom, which outlines the business and investment principles of value investing practiced by American businessman and investor Warren Buffett. Accolades The first edition, published in 1994, sold over a million copies and spent 21 weeks on the New York Times Hardcover Nonfiction Best Seller list.

Key takeaways

The Warren Buffett Way belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect The Warren Buffett Way to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of The Warren Buffett Way from memory before moving on to harder problems.

Reference excerpt

The Warren Buffett Way, a book by author Robert Hagstrom, which outlines the business and investment principles of value investing practiced by American businessman and investor Warren Buffett.

Accolades The first edition, published in 1994, sold over a million copies and spent 21 weeks on the New York Times Hardcover Nonfiction Best Seller list. A decade later, Hagstrom issued a second, expanded edition.

Chapters The world's greatest investor The education of warren buffett "Our main business is insurance": The early days of berkshire hathaway Buying a business Investing guidelines: business tenets Investing guidelines: management tenets Investing guidelines: financial tenets Investing guidelines: value tenets Investing in fixed-income securities Managing your portfolio The psychology of money The unreasonable man

Principles The principles included:

Purchase businesses with excellent long-term prospects Purchase businesses at a large discount to their intrinsic value Purchase businesses with a high return on invested capital Purchase businesses with honest managers

See more Look-through earnings Phil Town Charlie Munger Warren Buffett Benjamin Graham The Snowball: Warren Buffett and the Business of Life Security Analysis (book) The Intelligent Investor Value investing

References

Worked examples

Example 1 — a first encounter with The Warren Buffett Way

Start with the simplest possible case. Write down what The Warren Buffett Way claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to The Warren Buffett Way before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about The Warren Buffett Way ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of The Warren Buffett Way

In research: The Warren Buffett Way appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses The Warren Buffett Way in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: The Warren Buffett Way is common in secondary-school and first-year university syllabi. It links to neighbouring topics 1994 non-fiction books, Books about investing, Buffett family, so understanding it makes those chapters shorter.
In everyday life: Look for The Warren Buffett Way outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study The Warren Buffett Way in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what The Warren Buffett Way means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain The Warren Buffett Way out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is The Warren Buffett Way in simple terms?

The Warren Buffett Way, a book by author Robert Hagstrom, which outlines the business and investment principles of value investing practiced by American businessman and investor Warren Buffett. Accolades The first edition, published in 1994, sold over a million copies and spent 21 weeks on the New…

Why does The Warren Buffett Way matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study The Warren Buffett Way?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on The Warren Buffett Way.