Snowball's chance

TO HAVE a book written about you that runs to 838 pages, not including 89 pages of endnotes, you'd want to be pretty fascinating.

Warren Buffett is and his biography, The Snowball, written by Alice Schroeder, doesn't disappoint.

Actually it was released ages ago but I'm a slow reader.

Buffett is the manager of US-based fund Berkshire Hathaway, whose shares trade at $110,166 each, the result of 22 per cent price increases annually for 40 years.

About indisputably the world's best investor, you can see why I read it cover to cover.

Only a few pages in, you discover he's a natural showman and he'd be the first to say that selling himself has had a lot to do with his success.

But it's how he does dumb things, too, that I love because they're kind of reassuring.

And they're usually when he ignores his own rules of investing. What's more, he knows he's doing it.

He'll ignore on a whim his aversion to borrow, has a weakness for newspaper companies that aren't exactly goldmines and, despite his rule to never buy "things with wings", made a disastrous investment in US Air.

Most of all, he's ignored his most famous and proven rule of always having a margin of safety, where you buy a stock at a substantial discount to what it's really worth (which may not be what it's trading at either).

Isn't that a relief?

Hmm, maybe not. If Buffett finds it hard to stick to the financial straight and narrow, there can't be much hope for the rest of us.

Besides, he's an unrepentant tightwad on the grounds that $1 saved today is really $50 down the track if invested.

But there are some great insights in The Snowball, usually hidden in one of many lengthy anecdotes about family, friends or another entrepreneur.

He warns the sharemarket can go nowhere for an awfully long time. One Wall Street drought lasted 17 years.

Another is never listen to brokers, even though he once was one. And in a takeover, buy the target's shares and sell the buyer's.

Don't sell a good stock unless it's become expensive - that is, more than it's worth - and you can replace it with a cheaper one.

By the way - and this could prevent a lot of arguments - he says clothes hold their value better than jewellery.

The most instructive point is how he started out, buying tiny undervalued stocks that nobody else wanted.

Mind you, this says a lot about how the market has changed over the years.

Buffett could find stocks trading at only half or even one-third of their asset value nowadays, a cheap stock may as well be one that trades only one-third above its asset backing.

Anyway, if $110,166 is a bit steep for one share, there's a B-class version that sounds a steal at $3688.

Only Buffett thinks anybody buying them is "foolish and said so privately and often".

There goes that idea.

But what if you could get an A share on the cheap?

Hmm, now I'm talking. The Sydney-based Global Masters Fund (ASX code GFL) invests purely in Berkshire Hathaway A-class shares and holds a bit of cash on the side.

The odd thing is that its holding is worth 86 cents a share but it's trading at 69 cents, a 20 per cent discount. Not even the stronger dollar can explain that one away.

You can just imagine Buffett swooping, finding it irresistible to pick up his own shares more cheaply than he could at home. That must pass the margin of safety test.

Only you'd be wrong.

For one thing, its shares have never done well, probably because it doesn't make a decent profit.

More to the point, Buffett bought his shares when they were dirt cheap.

So somehow I doubt a discount off a mark-up is going to meet his margin of safety.

Still, I'm no Warren Buffett.

And sometimes he isn't either.