The Platonic Form of Modern Investing
The forklift nearly backed over my daughter when the Amish kid turned off the light. His dad drawled out a sharp yet polite demand that he turn it back on. The 500-pound slab of walnut wobbled slightly on the forks in the dusty air of the now lit barn.
It was a beautiful fall day that had grown too warm for a sweatshirt but not hot enough to take it off. We had come to an old wood mill off of Hicksville Road in western Maryland. We were in search of a table. Well, not a table, exactly. More the stuff a table might be made out of...
I believe it was Plato who came up with the theory of Forms, which holds that non-physical forms or ideas represent the most accurate reality. That is, the idea or form of a perfect table is more real than a table itself. After all, you can break a table, and then it is only scraps of wood.
We had Plato's idea of a table, or I should say, my wife did in that beautiful mind of hers. For non-Platonians, there was a 14-foot-long, three-foot-wide slab of walnut resting on the forks of a rusted yellow Caterpillar. Alas, it wouldn’t fit in the Dodge, we all agreed sagely.
Football and Scotch
The adventure that may or may not have started with an out route and football thrown across the living room has led us to the discovery of live-edge walnut tables — we liked them. And the prices, $5,000, which we didn’t. This in turn led us to an Amish man in suspenders, a black hat, and a big slice of tree...
This idea of tables somehow leads us back to the stock market. If there is a perfect form for investing in the stock market, it must come from the world's greatest investor, Warren Buffett.
Warren has developed ways in which you can invest in a market with a certain degree of confidence that not only will you get your money back, but you’ll grow it as well.
Like when J.P. Morgan in the 1907 Panic stood resolutely on a desk in the NYSE pits and bought up large chunks of banks and railroads, Warren Buffett waded hip-deep into the financial chaos of 2009 and screamed “buy” so loud they wrote about it in the New York Times:
When so many others were running scared last autumn, Mr. Buffett invested billions in Goldman Sachs — and got a far better deal than Washington. He then staked billions more on General Electric. While taxpayers never bailed out Mr. Buffett, they did bail out some of his stock picks. Goldman, American Express, Bank of America, Wells Fargo, U.S. Bancorp — all of them got public bailouts that ultimately benefited private shareholders like Mr. Buffett.
If Mr. Buffett picked well — and, so far, it looks as if he did — his payoff could be enormous.
Here is my favorite chart:
You can see that in 2009, at the absolute bottom, Buffett was spending his cash and buying stocks. You’ll notice that the grey line was cut in half. And now he has huge amounts of cash.
Just like he did in 2007, before the crash.
You do that for five or six market cycles, and you end up the richest man in the world.
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The Master’s Master
What you may not know is that Warren, like Plato, was taught by a master. In this case, it was a professor at Columbia Business School named Ben Graham. Old Ben was a Wall Street tycoon who had beat the market, returning an average 14.7% a year, from 1936 to 1956 before retiring.
With his friend Professor David Dodd, he wrote the famous book Security Analysis. In this book, Graham excoriated Wall Street for its focus on earnings trends and encouraged investors to value the operating business that lay behind the security.
Graham’s next book was called The Intelligent Investor, which Buffett read at 19 and loved saying, “It was by far the best book about investing ever written.” Buffett has written the preface to the more recent copies, writing:
To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions, and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the intellectual discipline.
If you haven't read The Intelligent Investor, you are selling yourself short. Do it. It is the Platonic idea you should use to measure all investment ideas. And then come back and pick up a membership to Bubble and Bust Report.
All the best,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor's page.
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