Before going to write about His letters, I was again reading them. There I realize that there are some terminology and some references which are essential before learning about them. Primarily they are known in the investor community, but not all the readers of this blog are aware of the abutting terminology used by Warren Buffett as Generals. So I am going to write about it.

One thing that shocked me about Mr. Buffett is that he often broke his own rules. For example, he said that invest in companies that pay dividends. But he never pays any dividend except one. So even after keeping one of the highest cash and cash equivalent, The company produced only one dividend in 1967, and Buffett later joked that he must have been in the bathroom when the decision was made.

In his many letters to the shareholder, he called futures and options ( I am not talking about the future as Time but some financial position which allowed you to make more return with less capital needed. ) Weapons of Mass destruction. But his company itself found using them. Charlie Munger, his business partner, openly talked good about them.

Warren Buffett many times talked about his views on IT stocks. He spoke about watching IBM stock. But failed to invest at the right time. However, he invested in Apple Inc. But the reason is different. Warren Buffett invested in it as a Moat and general.

Apple computer stock is mainly undervalued and has some good brands with it. The price-to-earnings ratio is one of the lowest even after the humongous market capitalization. He invested in amazon in a small amount, but the reason was the Economic moat and Management skills of Jeff Bezos.

He always talked good about good Index funds and Stocks. But found investing in Bonds heavily.

So here come the terms—generals, Controls, workout, Moat.

  • Generals -Relatively Undervalued. There could be any reason for being undervalued. There are not many things to do with it. Just keep them in the portfolio, and it is done. They are good quality of business just undervalued. In a 1965 letter, Warren Buffett wrote.

We have recently begun to implement a technique that gives promises of very substantially reduce the risk from an overall change in valuation standards; e.g., we buy something at 12 times earnings when comparable, or poorer quality companies sell at 20 times earnings, but then a significant revaluation takes place. Hence, the latter only trades at ten times earnings. The risk has always bothered us enormously because of the weak position in which we are left compared to the “Genrals -Private Owner” or” Workout” ty” es. With this risk diminished, we think this category has a promising future.

  • Moats- The Best example is GOOGLE. You can’t compete with Google even if you kept some deep-pocket investors and decided to compete. In simple words, businesses’ses’lity to maintain competitive advantages over their competitors to protect their long-term profits and market share from competing firms.

Workouts” – “these are the securities with a timetable. They arise from corporate activity – sell-outs, mergers, reorganizations, spin-offs, etc. In this category, we are not talking about rumors or “ins” de information” petraining to such developments, but to publicly announced activities of this sort. We wait until we can read it in the paper. The risk pertains not primarily to general market behavior (although that is sometimes tied into a degree), but instead to something upsetting the applecart so that the expected development does not materialize.