Value Investing News

I just want to briefly share with you my review of The Four Filters: Invention of Warren Buffett & Charlie Munger by Bud Labitan. Bud Labitan was kind enough to send me a copy of his book a few weeks ago, and he even agreed to sponsor the May Contest here at Value Investing News.

I enjoyed reading the final version of Dr. Labitan's book. I was lucky enough to get a chance to read part of an earlier draft of his book back in March. I found it interesting to see how much further developed and more readable the final version of the book has become.

The Four Filters is ideal for readers with some basic familiarity with investing and Warren Buffett. Hardcore followers of Warren Buffett might find this book a bit basic, but many will find its focus on Buffett's core investment approach to be valuable. Labitan does a great job weaving in Buffett and Munger quotes while explaining the fundamental behavioral process that these two undertake when evaluating investment opportunities.

What are these four filters? The book lists the filters for businesses as: 1) understandable, 2) sustainable competitive advantage, 3) able and trustworthy managers, and 4) bargain price. Labitan carefully tracks the evolution of this "invention" by carefully quoting Buffett's past mentions of these criteria. The language Buffett uses has changed slightly over time, but as The Four Filters notes, the concept has remained relatively unchanged as far back as the earliest reference in the 1977 Berkshire Chairman's Letter to Shareholders. The Four Filters is well organized and carefully footnoted. Each of the four filters is discussed in a separate chapter and concluding with a summary chapter.

Labitan did a fairly good job collecting examples of how each of these four filters is used. I think he succeeded best at this in the chapter on sustainable competitive advantage. I, however, finished the chapter able and trustworthy managers knowing what they are but still having little understanding on how to evaluate ahead of time whether a manager is trustworthy. Buffett  hasn't really explained how he does this except by saying he meets with a managers and knows within a short time whether they are trustworth, so this may be why this chapter wasn't as instructive. I also didn't really buy into to the use of medical S.O.A.P. process as a method for evaluating management, but that might be due to my own lack of understanding regarding this process. Finally, I think Labitan made a good decision in demonstrating several techniques for valuing companies when discussing the multiple examples in the chapter on bargain price and margin of safety.

The Four Filters comes in both a spiral bound format and an audio format. I've only used the spiral bound version. I found it great to use when reading in the gym and on the metro. However, now that I would like to put it on my book shelf, I wish it was more solidly bound hardcover version. That maybe just my issue, since I've become sort of a value investing book snob and like to show off my smart looking book shelf.

Overall, I found The Four Filters to be a good overview of the Buffett & Munger investment process. I think this book would be great for those who haven't read too many book on Buffett but want to learn more about how he invests. Please share your thoughts and reviews regarding The Four Filters on this thread.