The first edition of this book was written between 2003 and 2004. We had just gone through the great market advance of the late 1990s, with 1999 being the absolute best year for our stock selection method in my market history. The rest of the stock market also roared and soared. Everyone seemed to be an expert or at least had tips on the next stock that would gain 100 percent over the next six months. The Internet gave everyone free research on company data, and people quit their jobs to become day traders.
Then there was Warren Buffett. Many of the new brokers and new investment advisers of that time had never heard of him. To all the younger folks, he was a relic of the past. In the late 1990s, fundamental analysis was not important because everything went up in price. Then the bubble blew. The tech bubble began to break in 2000, and the culmination of the market decline took place in 2002. By then, billions of dollars had been lost, especially in those companies that had no earnings. Enron happened and stock analysts were exposed because of their conflicts of interest. Wealth managers began scratching their heads. What happened?
The market came back to life in 2003 with our model portfolio gaining a bit over 52 percent, doubling the S&P returns. During the next four years we saw a housing boom turn into a housing bubble followed by the eventual bubble burst in 2008. We are still feeling the effects of that disaster, and some folks will never recover as the market and housing prices declined 50 percent and more by the end of February 2009.
Even before the dust began to clear, Warren Buffett came to the forefront to help try and put a calm on the markets. There he was, buying various securities while blood was running in the streets. Helping to save good companies while their stock prices seemed to be going to zero was a Buffett specialty. We all prayed that Buffett would come through and help us as he had in the past and, yes, our prayers were answered.
As the dust settled, Buffett began to be sought after for investment advice once again. Of course, by this time, Buffett had already purchased what he needed for the next decade. Yes, buying growth stocks at a good value was coming back into style. The problem was that very few people really understood how Warren Buffett selected his stocks and even fewer had any clue whatsoever how he selected his all-important purchase price.
Even by 2015 many investors continued to stay away from the market and no longer had money to purchase real estate (at good or fair prices) due to losses in the stock market during the 2008 debacle. Those who stayed in the stock market to weather the 2008 storm (Buffett, myself, and those of you who read the first edition) are very happy we did. We already had the very best companies gracing our portfolios, and we relied on good, sound management to keep adding value to these companies even though their stock prices were falling. Always remember that during panic sell-offs, value and price diverge tremendously.
A very important addition to this second edition shows you how we generate cash when the market goes through one of its very nasty declines. It is called—yes, you guessed it—portfolio insurance. Portfolio insurance allows you to keep your portfolio value mostly intact during those adverse economic market cycles. When the insurance pays off, it pays off in cash. And it pays off in cash when you need it most in order to buy stocks at or near market bottoms.
Another new addition to this second edition is developing a dividend income and growth portfolio using the Buffett and Beyond stock selection method. There are several chapters covering this topic, and it just may be the answer to your investment future. You must read these chapters.
Now that the investing world has regained some semblance of sanity after a rather nasty 10 years since our last edition, you’ll find out why the timeliness of this book will be so very important to your financial future. This book will show you the little-known stock selection methods of Warren Buffett. In addition, this book will show you my latest research, which, in turn, will take you one very important step beyond.