Lessons from the Legends of Wall Street

How You Can Build and Preserve Real Wealth 237

allowing the right of invasion of principal under certain circumstances.
The remainder of the trust goes to the children upon the death of the
surviving spouse. Doing this may save substantial taxes.

Giving Gifts

Anyone can give gifts of $10,000 or less annually, per person, to as
many people as they choose without having to pay gift taxes. A gift-
ing program will reduce the value of your estate, but only make gifts
if you feel comfortable about the person receiving the gift and are sure
you will not need the money later. Generally, the management level of
corporations give gifts to charity. Buffett’s Berkshire Hathaway has
another plan—giving a sum of money to charities through share-
holder-designated contributions (this applies to Class A shares of Berk-
shire registered in the shareholder’s name).

Benefits of Life Insurance Trusts

Estate taxes are due and payable within nine months of the date of
death (certain exceptions apply). One concern of successful investors
is that their family or other beneficiaries may have to sell stocks at the
wrong time, when the market is down, to pay the estate tax. An alter-
native is to create cash to pay for estate taxes through the proper own-
ership of life insurance.

Life insurance policies may be owned by corporations, trusts, or
individuals. To find out the best form of ownership for your situa-
tion, check with a savvy estate planning attorney. Without proper
planning, proceeds from a life insurance policy may be subject to estate
taxes. When life insurance is owned by a properly drawn trust, estate
taxes on the proceeds can be avoided. However, life insurance trusts
are usually more advantageous for estates of over $3 million or with
special requirements

If you are older (some life insurance policies can be issued up to
age 90) or medically impaired, a seasoned financial professional may
be able to shepherd your case through the underwriting process and
get you a policy to help pay estate taxes.

Buying life insurance can be confusing. Even within the same
insurance company, policies can be structured to be rich in cash values
(higher premiums) or lean in cash values (lower premiums). When you

238 L e s s o n s f r o m t h e L e g e n d s

look at proposals for life insurance, be aware that the one with the
lowest illustrated premium may not always be the best. It is important
to read the insurance company guarantees, projections, assumptions,
and any footnotes. Work with a financial professional specializing in
this type of insurance who represents a number of top-rated compa-
nies. Before purchasing life insurance, you should understand the
terms and conditions of the policy.

Winning with Charitable Trusts and Foundations

People who are charitably inclined can come out as winners in the
estate planning process and benefit a charity at the same time by set-
ting up a foundation or a charitable remainder trust (CRT). Buffett
and Templeton have created private foundations to support causes
they believe in. Although the costs of setting up a foundation are higher
and the tax benefits may not be as great as those of CRTs, foundations
have more flexibility and family members may serve on the board of
directors, which encourages family involvement in philanthropy. There
are several kinds of foundations—private, operating, and supporting
(foundations can be complex and a description of each type is beyond
the scope of this book).

Foundations and CRTs are often crafted by estate planning attor-
neys in conjunction with life insurance trusts. A CRT may be appro-
priate if you own substantially appreciated stocks (or other assets)
yielding little or no income that you are considering selling. The way
the CRT works is that you name a trustee to manage the trust and des-
ignate one or more charities as the ultimate beneficiary. After the trust
is drawn by your attorney, you contribute appreciated assets, which
are subsequently sold by the trustee, undiminished by the capital gains
tax. Then, the proceeds are reinvested to give you and/or your spouse
an increased lifetime income stream. Upon the death of the surviving
spouse, the remainder goes to charity. Assets you contributed to the
CRT are out of your estate and you may be able to replace the value
of these assets for your heirs by using part of your increased income
to fund a life insurance trust. You may also be entitled to income tax
deductions.

There are a wide array of other ways to reduce estate taxes, such
as charitable lead trusts, family limited partnerships, generation skip-

How You Can Build and Preserve Real Wealth 239

ping trusts, and grantor retained annuity trusts. With the guidance of
a knowledgeable estate planning professionals, you can create an estate
plan you feel comfortable with, leave a lasting legacy to your family,
and make a wonderful contribution to humanity.

Evaluating Your Investment Personality

Answering the questions in this section may help you determine your
investment personality: conservative, moderate, or aggressive. It is
important to think about the content of the questions. For example,
question 1 deals with your values in relation to investing. If your
answer to question 12 is that in the event you lost your job you would
have to liquidate more than 25 percent of your stocks for living
expenses for the next six months or a year, that means you probably
need more cash reserves. Mark one answer to each question in the
blank box and add up the numbers that correspond to your answers.
The scoring system is at the end of the questions.

1. What word best describes the importance of having money?
□ (1) Security
□ (2) Freedom
□ (3) Power

2. Which investment is of primary interest in your portfolio?
□ (3) Individual Stocks
□ (2) Individual Bonds
□ (2) Mutual Funds
□ (2) Private Money Managers

3. What type of annuities do you own?
□ (3) Variable Annuities
□ (1) Fixed Annuities
□ (2) Both types of annuities

4. How do you research stocks?
□ (2) Study research reports and company reports
□ (2) In addition, call or visit the company and ask
questions based on your research and knowledge
□ (3) Listen to tips or follow a hunch

240 L e s s o n s f r o m t h e L e g e n d s

5. How do you make investment decisions?
□ (1) Consult with an investment professional
□ (2) Rely on your own research and judgment

6. Which of the following describes you as an investor?
□ (1) Conservative
□ (2) Moderate
□ (3) Aggressive

7. What investment objective is most important to you?
□ (1) Safety of capital with some income
□ (2) Moderate risk with some appreciation
□ (3) Growth of capital with more risk

8. If you won $100,000 in a contest, which of the following
would you do?
□ (1) Take the $100,000
□ (3) Gamble the $100,000 with a chance to win $500,000
□ (2) Gamble $80,000 with a chance to make $150,000

9. How would you react if you bought a stock based on thorough
research and judgment and it went down 20 percent?
□ (1) Keep the stock but have sleepless nights
□ (3) Buy more
□ (1) Sell the stock

10. How many years do you expect to hold your investments?
□ (1) Less than three years
□ (2) Three to ten years
□ (2) More than ten years

11. At what annual compound rate do you expect your
investments to grow?
□ (1) Less than 9 percent
□ (2) 9 percent to 15 percent
□ (3) More than 15 percent

12. If you lost your job, how much of your investment account
would you have to liquidate for living expenses for the next
six months or a year?

How You Can Build and Preserve Real Wealth 241

□ (1) Less than 10 percent
□ (2) 10 percent to 25 percent
□ (3) More than 25 percent

13. If you, or a family member dependent on you, had an
unexpected, uninsured illness, how much of your investment
account would you have to liquidate?
□ (1) Less than 10 percent
□ (2) 10 percent to 25 percent
□ (3) More than 25 percent

14. When do you expect to retire?
□ (1) In one to five years
□ (2) In five to ten years
□ (3) In more than ten years

15. What is the most important objective to you?
□ (2) Accumulating more money
□ (1) Conserving the money you have
□ (2) Distributing money to your heirs

16. What percentage of your portfolio is in international stocks
or international mutual funds?
□ (1) Less than 10 percent
□ (2) 10 percent to 20 percent
□ (3) More than 20 percent

17. What percentage of your portfolio is in small cap stocks or
mutual funds that own small cap stocks?
□ (1) Less than 10 percent
□ (2) 10 percent to 20 percent
□ (3) More than 20 percent

18. Do you own the following?
□ (2) Investment real estate
□ (3) Commodities
□ (3) Both of the above

242 L e s s o n s f r o m t h e L e g e n d s

19. Which of the following concerns you most?
□ (1) Investing and losing money
□ (2) Investing with potential for long-term gains, knowing
you could incur some losses
□ (3) Not making money when the markets are doing well

20. Do you find it easy to make decisions and act on them?
□ (2) Yes
□ (1) No

If your score is 23–34, you would be considered conservative;
35–46, moderate; and 47–56 aggressive.

How You Can Build and Preserve Real Wealth 243

PERSONAL NET WORTH STATEMENT
ASSETS
Liquid Assets
Bank Accounts

Checking _______________________________________________
Savings _________________________________________________
Bank money market accounts ______________________________
Certificates of deposit_____________________________________
Mutual Fund Money Market Accounts _________________________
U.S. Treasury Bills ___________________________________________
Other ______________________________________________________

Long-Term Assets
Individual Stocks ____________________________________________
Investment Club Accounts ____________________________________
Individual Bonds ____________________________________________
Corporate Bonds ____________________________________________
Municipal Bonds ____________________________________________
U.S. Government Bonds and Notes_____________________________
Various Types of Mutual Funds________________________________

Investment Real Estate
Partnership Interests _________________________________________
Business Interests ____________________________________________
Annuities

Fixed ___________________________________________________
Variable ________________________________________________
Life Insurance Cash Value ____________________________________
Other ______________________________________________________

Retirement Plan Assets
IRAs_______________________________________________________
401(k)s ____________________________________________________
Keogh Plans ________________________________________________

244 L e s s o n s f r o m t h e L e g e n d s

Tax-Sheltered Annuities (403-b Plans) __________________________
Other Retirement Plan Accounts _______________________________

Personal Use Assets
Home______________________________________________________
Furniture ___________________________________________________
Clothing ___________________________________________________
Automobiles ________________________________________________
Boats ______________________________________________________
Jewelry ____________________________________________________
Art ________________________________________________________
Collectibles _________________________________________________
Reserves
Education __________________________________________________
Medical Emergencies_________________________________________
General Emergencies _________________________________________
Gifts/Bequests ______________________________________________
Total Assets_________________________________________________

LIABILITIES
Mortgage(s) and Home Equity Loan(s) _________________________
Taxes (accrued but not yet paid) _______________________________
Loans

Auto ___________________________________________________
Business ________________________________________________
Credit card______________________________________________
Educational _____________________________________________
Other loans _____________________________________________
Other liabilities __________________________________________
Total Liabilities _____________________________________________
TOTAL ASSETS ____________________________________________
−TOTAL LIABILITIES_______________________________________
NET WORTH ______________________________________________

How You Can Build and Preserve Real Wealth 245

STATEMENT OF INCOME AND EXPENSES
INCOME
Salary______________________________________________________
Commissions _______________________________________________
Bonuses ____________________________________________________
Interest ____________________________________________________
Dividends __________________________________________________
Partnership Income __________________________________________
Social Security Benefits _______________________________________
Other ______________________________________________________
TOTAL INCOME __________________________________________

EXPENSES
Home

Mortgage/Rent __________________________________________
Homeowners insurance ___________________________________
Taxes___________________________________________________
Maintenance ____________________________________________
Household furnishings and appliances_______________________
Home improvements _____________________________________
Utilities
Electricity _______________________________________________
Telephones ______________________________________________
Water __________________________________________________
Cable___________________________________________________
Other __________________________________________________
Food
Groceries _______________________________________________
Restaurants _____________________________________________
Auto
Gas ____________________________________________________
Maintenance ____________________________________________

246 L e s s o n s f r o m t h e L e g e n d s

Reserve for replacement___________________________________
Other __________________________________________________
Education
Self ____________________________________________________
Children ________________________________________________
Grandchildren ___________________________________________
Personal
Clothing ________________________________________________
Body care _______________________________________________
Hobbies ________________________________________________
Books __________________________________________________
Magazines ______________________________________________
Entertainment and Travel
Vacation ________________________________________________
Theater/Movies __________________________________________
Other __________________________________________________
Contributions and Gifts ______________________________________
Insurance
Health__________________________________________________
Life ____________________________________________________
Disability _______________________________________________
Casualty/Property/Auto ___________________________________
Long-term care __________________________________________
Dental __________________________________________________
Other __________________________________________________
Medical/Dental Expenses Not Covered by Insurance______________
Taxes
Federal _________________________________________________
State ___________________________________________________
City ____________________________________________________

How You Can Build and Preserve Real Wealth 247

Professional Fees and Expenses
Attorney ________________________________________________
CPA____________________________________________________
Money manager’s fee _____________________________________
Other __________________________________________________

Dependent Support
Child care_______________________________________________
Elder care _______________________________________________

Savings/Investment __________________________________________
Other Expenses _____________________________________________
TOTAL EXPENSES _________________________________________
TOTAL INCOME − TOTAL EXPENSES_______________________

248 L e s s o n s f r o m t h e L e g e n d s

Federal Estate and Gift Taxes
(Unified Transfer Tax Rate Schedule)

If Taxable Estate Tentative Tax Is

Is Over But Not Over Tax Plus % Of Excess Over

$ 0 $ 10,000 $ 0 18 $0

10,000 20,000 1,800 20 10,000

20,000 40,000 3,800 22 20,000

40,000 60,000 8,200 24 40,000

60,000 80,000 13,000 26 60,000

80,000 100,000 18,200 28 80,000

100,000 150,000 23,800 30 100,000

150,000 250,000 38,800 32 150,000

250,000 500,000 70,800 34 250,000

500,000 750,000 155,800 37 500,000

750,00 1,000,000 248,300 39 750,000

1,000,000 1,250,000 345,800 41 1,000,000

1,250,000 1,500,000 448,300 43 1,250,000

1,500,000 2,000,000 555,800 45 1,500,000

2,000,000 2,500,000 780,800 49 2,000,000

2,500,000 3,000,000 1,025,800 53 2,500,000

3,000,000 10,000,000 1,290,800 55 3,000,000

10,000,000 17,184,000 5,140,800 60* 10,000,000

17,184,000 9,451,200 55 17,184,000

*Estates over $10,000,000 have a 5 percent surcharge until the benefit of the lower graduated
tax brackets has been recaptured.

Unified Credit

Each person has a unified credit that will reduce the amount of estate
or gift taxes that must be paid. For 2000 and 2001, this credit is
$220,550, equivalent to having $675,000 of assets not subject to fed-
eral estate tax. Over the next few years, the unified credit will increase,
as will the equivalent amount of estate assets not subject to the estate
tax (the “applicable exclusion amount”). The next table shows these
changes.

How You Can Build and Preserve Real Wealth 249

Applicable

Unified Exclusion

Year Credit Amount

2000 and 2001 $220,550 $ 675,000
2002 and 2003 229,800 700,000
287,300 850,000
2004 326,300 950,000
2005 345,800
2006 and later 1,000,000

Source: Kettley Publishing Co. and Backroom Technician Software
Note: There have been proposals to phase out or eliminate this tax.



Endnotes

Preface

1. From my conversation with Anthony Dwyer, 1999, and based
on his research.

Part I
Warren Buffett: The Super Combination Investor

Overview
1. “Berkshire Bunch,” Forbes, October 11, 1999 (America’s 400

Richest People, a special issue), p. 186.
Chapter 1

1. Tom Peters, The Tom Peters Seminar (Vintage Books, 1994),
p. 240.

2. From Wells Fargo history brochure.
3. The Post’s value per share was about four times the price Buf-
fet paid. John Train, The Midas Touch (HarperCollins, 1987), pgs.
27–28.
4. Andrew Kilpatrick, Of Permanent Value: The Story of Warren
Buffett (AKPE, Birmingham, Alabama, 1996) pgs. 27–28.

251

252 Endnotes

Chapter 4

1. Based on William K. Klingman, GEICO: The First 40 Years
(GEICO, 1994), with permission of Walter Smith, Assistant Vice Pres-
ident and Director of Communications, December 1995.

Chapter 7

1. John Train, The Midas Touch (HarperCollins, 1987), pgs. 4–5.
2. Promise to Pay (American Express Company, 1977), pgs.
208–209.

Part II
Benjamin Graham: The Value Numbers Investor

Overview

1. Irving Kahn and Robert D. Milne, Benjamin Graham: The
Father of Financial Analysis (Association for Investment Management
and Research, Charlottesville, Virginia, 1977), with permission of
Sally Callahan, 1999.

2. From my conversation with Harry Markowitz, 1999.
3. Nancy Millichap, The Stock Market Crash of 1929 (New Dis-
covery Books, N.Y. 1994), pgs. 33–34.

Chapter 8

1. These principles were also mentioned in Benjamin Graham, The
Intelligent Investor (HarperCollins 1973, 4th revised edition), p. 286.

2. Ibid., pgs. 277–286.
3. Ibid., pgs. 56–57.

Chapter 9

1. The name John Spears is used collectively in this book to include
other managing directors of Tweedy Browne, Chris and Will Browne.
Quotes and facts are from annual reports, faxes, and my conversations
with John Spears and Bob Wyckoff, Jr., of Tweedy Browne, with per-
mission, 1999.

2. See Part II Overview, note 1, Kahn and Milne, p. 33.

Endnotes 253

3. Ibid., pgs. 12–14.
4. See Chapter 8, note 1, pgs. 166–167.
5. Benjamin Graham and David Dodd, Security Analysis (McGraw-
Hill, 1934), p. 16.
6. See Chapter 9, note 1.
7. Charles D. Ellis, Financial Analysts Journal (Sept.–Oct. 1976),
p. 21, with permission, 1999.
8. John Bajkowski, “Financial Ratio Analysis.” AAII Journal,
August 1999, Volume XXI, No. 7, pgs. 3–7, with permission of Maria
Crawford Scott, 1999.

Chapter 10

1. See Chapter 9, note 1.
2. Information from transcripts of annual meetings, shareholders’
reports, faxes, and phone conversations with Lee Harper of South-
eastern Management, with permission, 1999.

Chapter 12

1. See Part II Overview, note 1, Kahn and Milne, p. 9.
2. A Brief History of the New York Stock Exchange (NYSE), Sec-
tion: 1903 to 1932.
3. See Part II Overview, note 3.
4. See Part II Overview, note 1, Kahn and Milne, p. 19.
5. See Chapter 12, note 2.
6. Share prices are from Newton Plummer, The Great American
Swindle (self-published, 1932), pgs. 36–44.
7. Facts and quotes from video and audio tapes produced by the
New York Society of Security Analysts 1994, with permission of
Wayne Whipple, 1999.

Part III
Phil Fisher: The Investigative Growth Stock Investor

Overview

1. Information based on a series of conversations I had with Fisher
by phone as well as faxes and letters from him, 1995–1997. Some of

254 Endnotes

these facts are also mentioned in Philip Fisher, Common Stocks and
Uncommon Profits and Other Writings (John Wiley & Sons 1996),
pgs. 204–205 and p. 216.

Chapter 13
1. Quote from my conversation with Fisher and a fax from him,

1996.

Chapter 14
1. Fact from Phillip Fisher, Common Stocks and Uncommon Prof-

its and Other Writings (John Wiley & Sons, 1996), p. 123.
2. Information about Texas Instruments is from company reports

and the Web site, 1999, with permission of Terri West.

Chapter 15
1. See Chapter 13, note 1.
2. Based on Harry Mark Petrakis, The Founder’s Touch: The Life

of Paul Galvin of Motorola (Motorola University Press, 1965), with
permission of Margo Brown, 1996. Fisher also helped with this section.

Chapter 16
1. From my conversation with Louis M. Thompson, Jr., 1999.

Chapter 17
1. See Chapter 13, note 1.

Chapter 18
1. See Part III Overview, note 1.
2. From my conversations with Ken and Sherri Fisher, 1999.
3. See Chapter 13, note 1.

Endnotes 255

Part IV
Thomas Rowe Price: The Visionary Investor

Overview
1. Information about Price and quotes are from “A Successful Phi-

losophy Based on the Growth Stock Theory of Investing” by T. Rowe
Price, copyright T. Rowe Price Associates 1973, and an unpublished
history of the company, with permission.

2. From my conversation with George A. Roche, 1999.
3. From my conversation with David Testa, 1999.

Chapter 20
1. From my conversation with Bob Smith, 1999.

Chapter 21
1. Information from “What You Should Know about Bonds,” Vol-

ume 1, No. 102, the T. Rowe Price Information Library, with permis-
sion, 1999.

Chapter 22
1. Information is based on T. Rowe Price Associates Insight Bul-

letins: “Investing in Science and Technology Stocks,” 1999; “Invest-
ing in Health Care Stocks,” 1999; and “Investing in Financial Services
Stocks,” 1997, with permission, 1999.

Chapter 23
1. See Part IV Overview, note 1.

Part V
John Templeton: The Spiritual Global Investor

Overview
1. Based on various media articles, information provided by

Franklin Resources, and my conversations with John Templeton, 1995
and 1999.

256 Endnotes

2. From my conversation with Don Phillips, 1999.
3. Robert Herrmann, Sir John Templeton, From Wall Street to
Humility Theology (Templeton Foundation Press 1998), pgs. 162–163.

Chapter 24

1. From my conversation with Don Reed, 1999.
2. From my conversation with Mark Holowesko, 1999.

Chapter 25

1. “An Interview with John Templeton: The Legendary Manager
Talks about His Career, His Philosophy, and Today’s Best Investment
Opportunities,” Mutual Funds Update 1992, A Thomson Financial
Company publication, with permission of Stephanie Kendall, 1999.

2. Philip Harsham, Southeast Editor, “How a Pro Invests: John M.
Templeton Searches the World for Bargains,” Medical Economics
Magazine, February 17, 1986, with permission of Jeffrey H. Forster,
1999.

3. Ibid.
4. William Proctor, The Templeton Prizes (Doubleday & Com-
pany, 1983) p. 62.

Chapter 26

1. These investment rules, written by John Templeton, originally
appeared in the Christian Science World Monitor (a monthly maga-
zine, no longer published) February 1993 and are printed in this book
with permission of John Templeton. The subtitles are written by me.

Chapter 29

1. “The Accelerating Pace of Progress,” a speech by John Tem-
pleton to The Empire Club of Canada, May 25, 1995, with permis-
sion of John Templeton.

Chapter 30

1. See Part V Overview, note 1.

Endnotes 257

2. Fact from “The Biggest Prize of All,” by Bill Lamkin, the Pres-
byterian Survey, May 1980.

3. See Chapter 25, note 1.
4. Sir John Templeton, The Humble Approach (Templeton Foun-
dation Press, 1996).
5. From my conversation with Charles Johnson, 1996.

Part VI
Creating Your Own Wealth Plan

Chapter 31
1. Richard Loth, How to Profit from Annual Reports (Dearborn

Financial Publishing 1993), p. 14.

Chapter 32
1. Parts of this section are based on, “An Estate Planning Primer,”

written by me with coauthor Joseph Ross for MoneyWorld, July 1996
(updated for this book), with permission of Don Philpott, 1999.



Index

A Annuities, 234
Applicable exclusions amount, 236
AAII Journal, 66 Argentinean stocks, 174
Accounting principles, 19 Asian markets, 174, 199
Acme, 183 Asset allocation, 148–52, 221
Aetna, 131
Albertsons, 183, 190 investor types/time horizon and,
Alcan Aluminum, 126 151–52
Alternative minimum tax, 156
American Depository Receipts Asset management, 67, 69
(efficiency) ratios, 67
(ADRs), 181, 202–3, 215, 221
American Express, 4, 7, 8, 44–45, Atlantic Richfield, 126
Auditors’ report, 19
74, 76 Average collection period, 69
American Home Products, 163 Avon Products, 131, 140, 153
American Online, 131
American Stores, 183–84, 190 B
Analysis, of companies, 57
Annual reports, 12–19, 146, 216 Bajkowski, John, 58, 66
Balance sheet, 19, 68
evaluating information, 13–19 Bank Credit Analyst Research
auditors’ report, 19
business risks, 18–19 Group, 181
buying back shares, 18 Barron’s, 181
capital resources/liquidity, Bear markets, 54–55, 178, 190
17–18 Beck, Mary, 114
corporate goals/plans, Benson, Herbert, 210
16–17 Berkshire Hathaway, 4, 45, 237
investment insights, 14–16
understanding the business, see also Buffett, Warren
16 annual reports of, 7, 15
Berlin Wall collapse, 194
gathering information, 12–13 Bernstein, Carl, 9

259

260 Index

Biogen, 163 investment returns/company
Black & Decker, 129, 131 growth rates, 27–29
Bloomberg Financial, 75, 133
Blumkin, Rose, 6 owner earnings/free cash
Bond(s), 149–50, 153–60, 233–34 flows, 22–23

buying and selling, 158–59 price-earnings ratio,
as debt securities, 153–54, variations on, 27

155–57 reasonable debt, 26
duration, 155 shareholders’ equity, 25–26
as fixed income, 154 user-friendly products and, 5–6
and interest rates, 135, 155 Wells Fargo and, 8
investor types and, 159 Bull markets, 54, 190
rating, 82, 83, 157–58 Burns, George, 41
risks, 160 Business risk, 18–19, 229
types of, 156–57 Buying back shares, 18
Book value, 8, 25, 60, 62–63, 184–85 Buy-and-hold strategy, 129
Borsheim’s, 7 Byrne, John J., 36–37
Brand name companies, 38, 64, 76
Bristol-Myers Squibb, 131, 163 C
Bronfman, Edgar, 80
Browne, Chris and Will, 52, 74 Capital Cities/ABC, 4
Browne, Howard, 74 Capital preservation, 150–51
Bubbles, 178 Capital resources/liquidity, 17–18
Buffalo News, 4, 7 Capital spending per share, 22,
Buffett, Warren, 3–46, 49, 53, 66,
87, 115, 222, 238 79–80
at annual meeting, 40–42 Cash equivalents, 150–51
annual reports and, 12–19 Cash flow, 22

evaluating information, company stock value and, 29
13–19 Cash flow statement, 60
Champion International, 62
gathering information, Change, 131
12–13 Character development, 175
Charitable lead trusts, 238
applying strategies of, 38–39 Charitable remainder trust, 238
commonsense investment rules, Charitable trusts, 238–39
Chartered Financial Analyst (CFA),
11
evolution of strategy, 9–11 87
GEICO and, 32–37 Children, naming guardian for, 236
investing rationale, 6–9 China, 194
Christian Dior, 74
buy stocks in plummeting Cisco Systems, 131, 142, 162
markets, 8–9 Citicorp, 163
Citigroup, 131
buy turnaround candidates, Coca-Cola, 4, 6, 7, 14, 15, 18, 125,
7–8
131, 142
life and career of, 43–46 book value of, 25
early investments, 44 goals of, 16–17
speeches of, 45–46 owner earnings, 23
P/E ratio of, 27
management focus, 6 profit margins, 2
stock research reports and, 20–31 restructuring of, 19
ROE of, 26
book value trend, 25 working capital and, 17–18
buying decisions, 29–31
favorable profit margins,

23–24
growing sales/earnings,

21–22

Coca-Cola Bottling, 74 Index 261
Collins, George, 168–69
Columbia College, 84–85 Dell Computer, 131, 162
Commissions, 193 Depreciation, 22
Company/companies Dessauer, John, 181
Dexter Shoe Company, 7
background information on, Dieschbourg, Michael, 205–6
214 Digital signal processing, 98
Disability insurance, 227
buy-back, of shares, 18 Discipline, 221
corporate goals/plans, 16–17 Disney, 7, 40, 129
debt level of, 26 Diversification, 59, 190–91, 232
life cycles, 141–44
profiles, 95 bonds and, 83, 160
reports, 146 global, 177–78, 195
size, 144–46 Dividends, 65, 139–40
Competition, 146 dividend yield, 65
view of company, 115 paying vs. reinvesting, 101
Compound growth, 152 Dodd, David, 61, 86
Compound interest, 28–29 Dollar-cost averaging, 56
Computerized Investing, 58 Dow Chemical, 125, 131
Conference calls, 114–15 Dow Jones Industrial Average, 86
Consumer Confidence Index, 132 from 1973–1974, 4
Consumer Price Index, 133 Dreman, David, 52
Consumer Reports, 115 DSPs, 98
Contrarian strategy, 177, 188–89 DuPont, 129, 130
Convertible bonds, 157 Duracell, 16
Corporate bonds, 156–57
ratings of, 82, 83 E
Corporate goals/plans, 16–17
Corporations. See Company/ Earnings, projecting future, 29–30
companies Earnings growth rate, 28, 141–44
Coupon rate, 154 Eastman Kodak, 129
Craig, Isabella, 165 EBITD, 137
Credit risk, bonds and, 159 Eccles, Sir John, 210
Currency rates, 18, 196–97 Economic statistics, 215
Currency risk, 196–97 EDGAR Data Service, 214
Current assets, 17 8-K report, 12, 213
Current liabilities, 17 Einstein, Albert, 152
Current ratio, 70 Eisner, Michael, 40
Current yield (bonds), 154 Emerging growth fund, 167–69
Customer satisfaction, 5 Emerging market(s), 180
Cycle time, 111 Emerging market funds, 202
Emerging Markets Strategist, 181
D Emerging nation, 196
Employee relations, 103, 108
Davidson, Lorimer, 33, 34–35 Encyclopedia of Emerging
Davis, Chris, 52
Debentures, 157 Industries, 95
Debt Engibous, Tom, 98
Estate planning basics, 235–39,
company level of, 26
long-term, 138 248–49
Debt-to-capital ratio, 26 charitable trusts and
Debt-to-total-assets ratio, 73 foundations, 238–39
documents, 236
gifts, 237

262 Index

Estate planning basics (continued) Fisher, Ken, 120–21
life insurance trusts, 237–38 Fisher, Phil, 10–11, 91–121, 217–18
tax reduction, 236–37
applying strategies of, 113–16
Estimates of future earnings, 215 buying decision, 104–5
European Common Monetary information evaluation, 96–104
information gathering, 95
Union, 194 investment strategies, 93
Executive Jet, 7 life and career of, 119–21
Executives, 102–3, 113–14 mistakes learned from, 117–18
Motorola and, 106–12
background information on, Fixed income, bonds and, 154
214 Flexibility, 188, 221
Flight Safety, 7
researching, 116 FMC, 120
Extraordinary Popular Delusions Food Machinery, 120
Ford, 185
and the Madness of Crowds, 178 Foreign currency futures contract,
197
F Foreign holdings, 18
Foundations, 238
Fabozzi, Frank J., 205 401(k), 235
Family limited partnerships, 238 Franklin Resources, 175
Fannie Mae, 163, 156 Franklin, Benjamin, 208
Fargo, William G., 7–8 Freddie Mac, 4, 7, 156, 163
FDX, 78 Free cash flow, 22–23, 79–80
Federal Farm Credit Bank, 156 Free enterprise, John Templeton and,
Federal Home Loan Bank, 156 204–5
Federal Home Loan Mortgage Fuji Photo Film, 74
Furby, 98
Corporation (Freddie Mac), 4, 7,
156, 163 G
Federal National Mortgage
Association (Fannie Mae), 156, Galbraith, John, 175
163 Gale Group, The, 95
Federal Reserve Board, 132–33 Galvin Manufacturing, 106
Financial corporations, bonds and, Galvin, Bob, 106–7, 109, 110–11
157 Galvin, Chris, 111
Financial ratio analysis, 66–73, Galvin, Paul, 106–9
98–99 GE. See General Electric
GEICO Corporation, 4, 7, 32–37, 59
asset management, 67, 69
balance sheet, 68 history of, 33–34
bottom line, 73 investment criteria, 35–37
financial risk, 71, 73 General Electric, 86, 131, 138, 139,
income statement, 71 142
liquidity, 70–71 General obligation (GO) bonds, 156
operating performance, 67 General Re, 4, 7, 32
profitability, 69–70 Generally accepted accounting
ratio analysis, 66 principles (GAAP), 19
Financial ratios, 60–61 Generation skipping trusts, 238–39
stock data services and, 20–21 Geophysical Service, 97
Financial risk, 71, 73 Gerstein, Marc H., 141
Financial services, 163 Gifts, 237
Financial situation, evaluating
personal, 226–27
Financial statements, 19, 59–60
Fisher Investments, 120
Fisher, Clay, 120

Index 263

Gillette, 4, 6, 7, 15, 18, 22, 131 H
book value of, 25
products held by, 16 H.H. Brown Shoe Company, 7
ROE of, 26 Hammerstein, Oscar, 87
Harshram, Phillip, 184
Ginnie Maes, 156 Hawkins, Mason, 52, 53, 55–56, 66,
Global funds, 201–2
Global and international markets 78–81
Health care, 162–63
compared, 196 Hedging techniques, 18–19
Global investing, 180–81, 194–200,
and currency risk, 197
230 Helzberg’s Diamond Shops, 7
challenges of, 196–97 Hickey, Matt, 106
emerging markets, 197–200 Hitachi, 183, 190
global diversification, 195 Holowesko, Mark, 178, 179, 180,
market categories, 196
mutual funds, 215 185
Home Depot, 145
Goals, financial, 227–28 Homestake Mining Company, 126
Gold, 168 Hoover’s, 95
Golub, Harvey, 76 How to Profit from Annual Reports,
Goodwin, Leo, 33–34, 35
Government bonds, 156 216
Government interference, in Humble Approach, The, 210
Humbleness, 192
business, 134, 141, 146 Hutchins, Stilson, 8
Government National Mortgage
I
Association bonds (GNMAs), 156
Graham, Benjamin, 10, 25, 33, 34–35, IBM, 131, 138, 139
Income statement, 19, 71
44, 49–87, 177, 220, 221–22 Index funds, 83
applying strategies of, 82–83 Indonesia, 199
core investment principles of, 53 Industrial companies, 65
Hawkins, Mason and, 78–81 Industry publications, 115
life and career of, 84–87 Inflation, 126, 168
Margin of Safety and, 10, 30
regular investments/dollar-cost S&P 500 index and, 27
averaging and, 56 stocks and, 77–78, 133
Spears, John and, 74–78 tax risk and, 229–30
undervalued stocks and, 52–53, Infotrac, 116, 133
57–73 Initial public offering, 193
buying decision, 65–66 Innovation, 97–98
evaluating information, Insider buying, 74, 75–76, 214, 217
58–65 Insurance, 227
financial ratio analysis, Insurance companies, 32
66–73 GEICO, 32–37
gathering information, Intel, 131, 162
57–58 Intelligent Investor, The (Benjamin
value/growth and, 51–52 Graham), 10, 60, 78, 86
Interest, compound, 152–53
Graham, Donald, 9 Interest rate(s), 133, 168
Graham, Katherine, 8 bonds and, 135, 155
Graham, Philip, 9 company debt, 26
Grantor retained annuity trusts, 239 Interest rate risk, 229
Gross profit margin, 69, 136, 137 International Dairy Queen, 4, 7
Growth investing, 10
Growth stocks, 52, 125
Guardian, for minor children, 236
Gulf Canada Resources, 78

264 Index

International markets, and global Legg, John, 165
compared, 196 Levering, Robert, 108
Life cycles, of companies, 141–42
International Monetary Fund, 174, Life insurance trusts, 237–38
199 Lipper Analytical Services, 174
Liquidity, 17–18, 70
International Paper, 126 Long-term care insurance, 227
Internet, 140, 161 Long-term debt, 138
Intrinsic value, and P/E ratios, 134 Loth, Richard, 216
Inventory turnover, 17, 61, 67 Lowe, Janet, 87
Investing/investment Lowell Shoe, 7
Lucent Technologies, 162
businesslike approach to, 53
monitoring, 191, 220–21 M
personality, evaluating, 239–42
regularity of, 56 McDonald’s, 74
rules (John Templeton), 187–93 Macay, Charles, 178
value investing, 190 Malaysia, 199
Investment-grade corporate bonds, Malcolm Baldridge National Quality
157
Investors’ World, 181 Award, 109
IPO, 193 Management, 80, 102–3, 113–14
IRAs, 235
background information on,
J 116, 214

J.C. Penny, 131 evaluation, 15–16
Jackson, Thomas Penfield, 141 focus on, 6
Japan, investment in, 182–83 importance of innovation in,
Japanese businesses, 109–10
Japanese stocks, 174 97–98
Johnson, Charles, 210 Management, of investments, 39
Johnson & Johnson, 163 Margin accounts, 86
John Templeton Foundation, 175 Margin of Safety, 10, 30, 53–54
Jonsson, Erik, 97 Marine Insurance of Japan, 78
Junk bonds, 82 Market Guide, 133, 219

K profit margins and, 137
return on investment (ROI) and,
Kahn, Irving, 87
Kansas Bankers Surety Company, 32 138
Kennard, Mark, 205–6 Market risk, 228–29
Keoghs, 235
Kidd, Walter, 165, 166, 170 bonds and, 159
Kmart Corporation, 74, 142 Market saturation, 146
Markowitz, Harry, 50
L Marriott International, 78, 79–80
Matsushita Electric Industrial
Labor, Department of, 133
Labor costs, 146 Company, 110, 183
Laddering maturities, 83 Mavrinac, Sarah, 96
Latin America, 194 MCI Worldcom, 131
Laws of Life Esssay Contest, 175 “Measures That Matter,” 96
Mexico, 197–99
Meyer, Eugene, 9
Microsoft, 116, 138, 139, 141, 142,

145, 162
Minnesota Mining (3M), 125, 131
MoneyCentral, 219
Money market fund, 169

Index 265

Monitoring investments, 220–21 Operating peformance, 67
Moody’s bond ratings, 157 Operating profit margin, 69,
Moreland, Jonathan, 217
Morgan, John Pierpont, 84 136–37
Morgan Stanley Dean Witter, 163 Oracle, 162
Morningstar, 57, 181 Owner earnings, 22
Morris, Charles, 161
Mosaic concept, 102 P
Moskowitz, Milton, 108
Motorola, 102, 106–12, 131, 142, PepsiCo, 24
Performance, measuring and
162
Munger, Charlie, 7, 10, 44 comparing, 28
Municipal bond funds, 169 Personal History (Katherine
Municipal bonds, 156
Mutual funds, 39, 125–26, 166–69, Graham), 8–9
Personality, evaluation of, 239–42
181, 201–2 Personal net worth statement,
global, 215
Mason Hawkins and, 81 243–44
municipal bond funds, 169 Peterson, Robert, 5
Pfizer, 131, 138, 139, 163
N Pharmaceutical companies, 162
Philippines, 199
National Association of Investors Phillips, Don, 173
Corporation (NAIC), 49, 57, 114 “Portfolio Strategy,” 120
Prayer, 192
National Indemnity Company, 32 Pretax profit margin, 136, 137
Nebraska Furniture Mart, 6, 7 Price, Thomas Rowe, 125–70, 221,
Net current assets per share, 63
Net (after-tax) profit margin, 69–70, 226
applying strategies of, 148–60
136, 137 buying decision, 145–46
Net worth, 25, 60 company growth and life cycles
Net worth statement, personal, and, 132–45
investment trends and, 161–63
243–44 life and career of, 164–70
New York Society of Security Emerging Growth Fund,
167–69
Analysts, 87 legacy, 170
New York Stock Exchange, 85, 86 success strategies, 129–31

web site, 181 Price-to-book value ratio, 61, 63
Newman, Jerome, 85–86 Price-to-earnings ratio, 27, 61, 62,
Nicely, Tony, 37
Nicholson, George, 49 101, 182
Nippon Television, 183 intrinsic value and, 134
Nissan Motors, 183, 190
Noble, Dan, 109 Price ratios comparisons, 63–64
Nokia, 131 Price-to-sales ratio, 61–62, 101
Northern Pipeline, 59 Procter & Gamble, 131
Novell, 162 Producer Price Indexes, 133
Product
O
knowledge, 115, 218
Odd-lot statistics, 10 lines, multiple, 143
100 Best Companies to Work for in Profitability, 69–70
Profitability ratios, 67
America, The, 108, 116 Profit margin, 14, 23–24, 99–101
evaluating levels of, 135–38
Protective Life, 76

266 Index

Proxy statement, 12–13, 213–14 Scuttlebutt, 218
Publications, 95, 115 Seagram Company, 80
Purchasing power, protecting, Sears, 129
Securities and Exchange
231–32
Commission, 12, 13, 50, 85
Q–R web site of, 214

Quality, 189–90 Security analysis, 49
Quarterly reports, 18 Security Analysis, 61
Quick ratio, 70–71 See’s Candies, 7
R.C. Willey Home Furnishings, 7 Semiconductors, 110
Ralston Purina, 79 Shaeffer, Charles, 165, 166, 170
Ratio analysis, 66 Shareholders’ equity, 25–26, 60. See
Raw materials, 146
Rayonier, 78 also Return on shareholders’
Real estate, estimating value of, 77 equity (ROE)
Receivables turnover, 67, 69 Shares, company buy-back of, 18
Record-keeping, 235 Shepherd, Mark, 97–98
Reed, Don, 177, 200 Siesfeld, Tony, 96
Research services, 57, 219 Silver, 4, 7, 41
Retirement plans, 126, 235
Return on assets (ROA), 139 Warren Buffett and, 4, 7
Return on investment ratio (ROI), Simpson, Lou, 37
Skaggs, L. S., 183
138 Skaggs, Sam, 183, 184
Return on shareholders’ equity Smith, Bob, 131, 141
SmithKline Beecham, 202
(ROE), 14, 25–26, 60, 70, 138 Software screening programs, 215
Return on total assets, 70 Sony, 202
Revenue bonds, 156 South Korea, 199, 200
Rhea, Cleaves, 34 Southeastern Asset Management, 78
Richard, Carl, 8 Soviet Union, 194
Risk, 228–32 Speak & Spell, 98
Spears, John, 52, 53, 57, 62, 74–78,
bonds and, 159–60
business, 18–19 217
diversification and, 232 Speculation, 188
RMA Industry Surveys, 24 Spirituality, 175–76
Robert Morris Associates, 24 Squibb, 131
Roche, George A., 125, 170 Standard & Poor’s, 57
Rockefeller, Lawrence, 210 Standard & Poor’s bond ratings, 157
Royal Dutch Petroleum, 202 Standard & Poor’s Industry Surveys,
Rukeyser, Louis, 173
95, 133
S Standard & Poor’s Stock Reports, 78
Star Furniture Company, 7
S.S. Kresge, 142 Statement of cash flows, 19, 60
SAINTS, 197 Statement of income and expenses,
Sales, 142–43, 146
Scale buying and selling, 146–47 245–47
Schloss, Edwin, 44 Stock(s)
Schloss, Walter, 44, 87
Scott Fetzer Companies, 7 ADRs and, 202–3
Screening programs, 215 book value, 25, 184–85
brand name recognition, 38
company debt and, 26
company size and, 143–45
comparison shopping for,

180–86
evaluating, 216–20

Index 267

foreign, 202 comparison shopping, for
vs. U.S., 195 stocks, 180–86

growth, 125, 149 on free enterprise and stock
holding and selling, 30–31 market future, 204–7
inflation and, 77, 133
investment returns/company global investing and, 194–200
life and career of, 208–10
growth rates, 27–29 spirtual investments, 175–76
owner earnings/free cash flows, success strategies, 177–79
Templeton, John Jr., 210
22–23 Templeton, Vella, 208
price, evaluating, 219–10 Templeton Foundation Press, 175
price-earnings ratios, 27, Templeton Mutual Fund
Organization, 173
134–35 Templeton Prize, 210
profit margins, 23–24 10-K report, 12, 18, 213
projecting future earnings/stock 10-Q report, 12, 213
Testa, David, 126, 144
prices, 29–30, 222–25 Texas Instruments, 97, 126, 131,
quality, 189–90 141, 162
sales and earnings, 21–22 Thailand, 199
screening, 57–58 Thompson, Louis M., 114
selling policy, 65–66 Thomson Investor Network, 75
shareholders’ equity, 24–26 Times interest earned, 71
undervalued, 52–53 Total asset turnover, 67
Stock market crash of 1929, 85, 179 Trailing P/E, 27
Stock markets, foreign vs. U.S., 195 Travelers Group, 163
Stock options, 42 Travelers Insurance Company, 36
Stock research service reports, 146, Treasury bonds, 154–55, 156, 158
214 Trends, 161–63, 215
Sumitomo Trust and Banking, 183 Tropicana, 80
Sun Microsystems, 144 Trusts, 166, 237–38
Suppliers, 103 Tulip market, 178–79
Turkey, 197
T Tweedy Browne, 74

T. Rowe Price Associates, 163, 166 U
Tax-deferred annuities, 234
Taxes/tax planning, 147, 233–35 U.S. Steel, 86
Unified credit, 248
bonds and, 156, 160 Unilever, 74
buy-and-hold strategy, 235 Union Street Railway, 25, 44
estate planning, 235–39 United Dental, 76
retirement and, 235 United Health Care, 78, 163
tax-deferred annuities, 234 United States, gross domestic
tax-exempt vs. taxable bonds,
product of, 199
233 Unit sales, 142–43
Tax Reform Act of 1976, 169 Universal Entertainment Group, 80
Tax risk, and inflation, 229–30 USAir, 15
Technical analysis, 9–10 USA Networks, 80
Technology, 38, 161–62 User-friendly products, 5–6
Utility companies, 65
company analysis and, 57
Templeton, Harvey, 208, 209 bonds and, 157
Templeton, John, 173–210, 226, 238

applying strategies of, 201–3
commonsense investment rules,

187–93

268 Index

V goal setting, 227
investing risks, 228–31
Value investing, 10, 49, 51–52, 190 investment management
Value Line Investment Survey, 13,
decisions, making, 232–33
14, 20–21, 57, 78, 79, 133, 181, investment personality,
219
evaluating, 239–42
industry composite statistics, 24 personal net worth statement,
operating profit margin and,
243–44
136–37 purchasing power, protecting,
P/E reports and, 27
return on investment (ROI) and, 231–32
statement of income and
138
Verne, Jules, 125 expenses, 245–47
Volatile markets, 54–56 tax planning basics, 233–35
Web sites, company, 115
W Wells, Henry, 7–8
Wells Fargo, 7–8, 74, 131, 163
W.T. Grant, 142, Wills, 236
Walker, Andrew, 114 Wireless communication networks,
Wall Street City, 116 161
Wall Street Journal, The, 181 Woodward, Bob, 9
Wall Street Journal Interactive Woolworth, 142
Working capital, 17
Edition, 116 Wright Aeronautical, 61
Wall Street Week, 173
Walper, Marie, 165 X–Y–Z
Warner-Lambert, 131, 163
Washington Mutual, 163 Xerox, 126, 144
Washington Post, 4, 7, 8–9 Yahoo!, 133
Wealth, building and preserving, Yasuda Fire and Marine Insurance

226–49 Company, 78, 185
estate planning basics, 235–39, Yield-to-maturity, 154
248–49 Zack’s Investment Research, 75, 219
financial situation, evaluating, Zwieg, Martin, 49
226–27

Author’s Acknowledgments
Continued

IN ADDITION TO those mentioned on pages xii and xiii, I am grateful
to the following people who contributed to this book: James B. Stack
and Lisa Gorton of InvesTech; Lisa Gallegos, Franklin Templeton;
Steve Sanborn, Value Line; Sally Callahan, AIMR; James Bianco,
Bianco Research; Wayne Whipple, New York Society of Security Ana-
lysts; Tony Siesfeld, Ernst & Young Center for Business Innovation;
Louis M.Thompson Jr., CEO, National Investor Relations Institute;
Ramy Shaalan, Wiesenberger, A Thomson Financal Company; Marc
Gerstein, Market Guide; Ron Cherry, Morgan Stanely Capital Inter-
national; Michael Dieschbourg and Mark Kennard, Consulting
Group, Salomon Smith Barney; Brenda Locke, Bailard, Biehl & Kaiser;
Michelle Berberet and Don Philpott, MoneyWorld; Don Phillips,
Morningstar; Bill Davanport, Kitty, and Peter of Kettley Publishing;
Jamie Ruiz and Ellis Traub; and Phil Keating, Mary Beck, Wanda
Burke, members of the NAIC.

I would also like to thank Susan, Sylvia, and Rosario of the
Northeast Branch and Micky, Lou, and Christina of the Main branch
of the Dade County Library System, and Charlotte and others at the
University of Miami writing center. Phil Swigard, Mamie Radar, Bar-
bara Dee, Susan Reiter-Greenbaum, Shirley Tydor, and Jim Zimmer-
man were part of a focus group, Laurie Harper provided assistance;
Nancy Kline helped with the typing; and Susan Mann assisted with
editing.

269