Common Stocks and Common Sense

Introduction ix

1 My Approach to Investing 1

2 The Brief Story of My Life 17

3 IBM 31

Successful investing is about predicting the future more accurately than the majority of other investors; we predict a change in IBM's cost structure

4 Interstate Bakeries 49

Successful investing often is heavily dependent on the capabilities and incentives of corporate leadership

5 U.S. Home Corporation 63

Investors can become frustrated when their swans are priced as if they are ugly ducks

6 Centex Corporation 67

Large profits can be earned by successfully predicting a major positive change in the fundamentals of a company or an industry

7 Union Pacific (Railroad) 79

Investors often do not adequately differentiate between shortterm discrete problems and long-term systemic weaknesses

8 American International Group (AIG) 91

I went to bed with Miss America and woke up with a witch; this can happen to even the most careful of investors

9 Lowe's 101

Using common-sense logic, we conclude there is a high probability that the U.S. housing market will improve markedly in the near future; investing is logical and probabilistic

10 Whirlpool Corporation 113

Extraordinary patience is required when a deeply undervalued stock continually remains deeply undervalued

11 Boeing 137

Opportunities can occur when great companies develop temporary problems

12 Southwest Airlines 157

When tight markets lead to sharply higher prices for goods or services, earnings and share prices can become buoyant, even for normally unattractive businesses

13 Goldman Sachs 169

Large profits can be earned when perceptions temporarily differ from realities

14 General Motors 187

One must rely on judgment and a sixth sense when the fundamentals of a company become unclear

15 A Letter to Jack Elgart 221

A letter that summarizes my approach to investing and that includes a number of do's and don'ts I found useful in my career

About the Author 233

Index 235