The Warren Buffetts Next Door, a book worth read twice

by admin on June 17, 2011

The Warren Buffetts Next Door BookI have read a lot of investment books, but one of the most valuable ones for me has been “The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard Of and What You Can Learn From Them” by Matthew Schifrin. I’m really new in investing but and even though I consider myself a very good stock picker, this book have definitely opened my eyes in so many different ways.

The book is just a highlight of 10 different unknown investors (like you and me), that have achieved outstanding results even though every single one of them have taken a totally different approach on investing.

Three of the profiles highlighted on this book have been particularly useful for my investment strategy; the style of these three individuals and have definitely helped me to make smarter and much more profitable decisions. The three profiles I loved the most from the book are:

I like Christopher Rees and Randy MacDuff because they use very simple valuation methods, easy to understand and use. I personally use these two methods today and they have helped me identify stocks quicker and more accurate than ever before. I have to say they are not the only methods I use, but they give me a pretty clear picture on what is worth the research and what is not.

Here I have described the valuation method of Randy MacDuff whose key strategy metric is EV/Ebitda (Enterprise Value/Ebitda); based on this valuation method (and of course considering other financial signs) I recently have invested in Sprint (S) which EV/Ebitda is 5.20, well below the 10 Max value recommended by Randy MacDuff.

Sprint Nextel Corporation EV / EBITDA Stock Chart

Sprint Nextel Corporation EV / EBITDA Stock Chart by YCharts

Here I have described the valuation method of Christopher Rees, whose key strategy metric is Deep Value (low debt, high shareholder equity, and earnings per share and book value appropriate to the stock price); based on this valuation method (and of course considering other financial signs) I recently have invested in Intel (INTC).

Intel Corporation Long Term Debt Stock Chart

Intel Corporation Long Term Debt Stock Chart by YCharts

The last profile I like on the list is the one for Bob Krebs, the reason I like his profile if because have showed me the good side of investing in options (without really risking anything). To be honest I never believe this would be possible but the techniques used by Bob Krebs and described on this book are just common sense and more secure than you may think. Based on Bob Krebs strategies I just placed my first covered call option on etrade, which is looking pretty good so far. According Bob Krebs 80% of the time these options expire without being exercised; even if the option is exercised I don’t lose, I’m still doing a very good profit, it is kind of difficult to understand in theory so here you can read more about this strategy.

I highly recommend this book to any individual investor, you can learn so much and you can always apply something for your own investment strategy. Thanks Matthew Schifrin for creating such a great book, I’m very glad I found it.

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