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Slim Pickings for Buffett

by Chris Wright

Chris Wright interviewed Professor John Price again about his opinion on what Warren Buffett would invest in if he was looking towards Australia. The interview was in the article, "Slim Pickings for Buffett" in the Smart Money section of the Australian Financial Review 24 March, 2004.

After introducing Professor Price as executive chairman of Conscious Investing, a software developer that filters information on Australian, Canadian and US companies in a Warren Buffett style, the article continues:

"Following Warren Buffett, the sort of things we look for are strong and stable growth in earnings and sales and earnings, not too much debt, high return on equity and a clear competitive advantage," says Professor Price.

"I've talked about stocks like ARB, Harvey Norman, HNG and Westfield Holdings. It does not mean that you should buy them at any price, but you certainly should have your money ready. Every now and then Mr Market offers to sell them to you at attractive prices."

"Mr Market" is a concept first expressed by Benjamin Graham and subsequently written about at length by Buffett: it's the idea that one should imagine market quotations as coming from a person -- Mr Market -- who is your partner in a private business, who every day names a price at which he will either buy your interest or sell you his.

An emotional chap, sometimes Mr Market will see only the good side of a business and at other times be miserable about it, regardless of what's really the case.

"Mr Market is there to serve you, not to guide you," wrote Buffett in 1988. "It is his pocketbook, not his wisdom that you will find useful."

Price adds that looking at valuations isn't necessarily the whole story. "The trouble with value investing is that it is so boring," He says. "Most people like to be diving in and out of the market, trying to pick trends or market tops and bottoms. With value investing, time is taken up with quietly looking for quality companies selling at reasonable prices. Once an investment is made, then you let the price be driven by growth in sales and earnings."

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