A friend gave me a book about Warren BuffettÕs investment philosophy called Buffettology. ItÕs the fourth book, and hopefully the last, I will read, about how Mr. Buffet makes his investment decisions.

The most important concept repeated about Mr. Buffet's investment style relates to his buying of companies with growing earnings at modest multiples. He employs great patience waiting for a buying opportunity and rarely sells his holdings once discovered.

His caution in making stock commitments at low multiples saves him from major losses, while his instinctive desire to avoid capital gains taxes makes Mr. Buffett resist selling the stocks he holds.

He is a long term investor.
WarrenÕs investment philosophy would be incomplete however, without mentioning a list of industries he avoids. He eschews commodity plays where identical products sell at very competitive prices. Companies in the textile, steel and oil industries, are examples. He has never owned a high tech company even though he considers Bill Gates a friend and one of the nationÕs most brilliant executives. He never invests in products he does not understand, especially those emanating from technologyÕs progress. He probably will never own a company in medical research or molecular technology.

Unfortunately, the constant praise heaped upon Mr. Buffett, makes his investment style difficult to evaluate in full.
His list of holdings, to me, is an ominous reflection of his forward view of our economy. It suggests economic stagnation or worse. Soft drinks, razor blades, cowboy boots, candy, financial and insurance services are hardly components of a risk taking portfolio in a growing economy. His philosophy doesnÕt suggest strong productivity improvement for industrial America nor a promise of better things to come. It is rather an image of overweight citizens lacking energy or initiative to risk innovation.

I hate to think what would occur if Buffettology became the only acceptable method of investing the wealth of our nation. Coca Cola, Gillette, Acme Boots and SeeÕs Candy are hardly components of a high tech, growth economy. They suggest a debt laden country in need of strong leadership.

In this critical month of presidential elections, the candidates present ideas of deficit laden programs for medical assistance and guaranteed retirement benefits to win votes. Self reliance of the electorate is no longer assumed a strength of our working population.

Mr. BuffettÕs skepticism may be a correct assessment of the industry of our citizens and our deteriorating balance sheet, but his investment style is not the basis for confidence in our future prosperity.

Large numbers of Warren BuffettÕs admirers are now attempting to follow his investment style running funds they manage for the public. Like earlier investment managers who adopted index investing to avoid the risk of underperformance, a cult of Warren Buffett admirers, like Bill Ruane and Mario Gabelli, tail gate Berkshire HathawayÕs stock selections, while others attempt to copy his portfolio holdings. Each spring, the annual meeting of his investment company, (Berkshire Hathaway), becomes a public celebration of WarrenÕs investment performance where Wall Street followers and the press gather to bask in the wisdom of the prophet of Omaha.

The American stock market is influenced too strongly by Warren Buffett, whose investment style has so little respect for the American entrepreneur, and the innovative history of our economy.

In this Halloween season, ghost stories of falling markets are easily believed.
Richard E. McConnell October 31, 2004