Common Stocks and Common Sense

EDGAR WACHENHEIM III is Founder, Chairman, and CEO of Greenhaven Associates and one of Wall Street’s preeminent investors. Greenhaven manages approximately $8.5 billion in funds for wealthy families, college endowments, and charitable foundations. Wachenheim is a graduate of Williams College and Harvard Business School and is a former securities analyst at Goldman Sachs.

• Introduction ix1 My Approach to Investing 12 The Brief Story of My Life 173 IBM 31Successful investing is about predicting the future more accurately than the majority of other investors; we predict a change in IBM’s cost structure4 Interstate Bakeries 49Successful investing often is heavily dependent on the capabilities and incentives of corporate leadership5 U.S. Home Corporation 63Investors can become frustrated when their swans are priced as if they are ugly ducks6 Centex Corporation 67Large profits can be earned by successfully predicting a major positive change in the fundamentals of a company or an industry7 Union Pacific (Railroad) 79Investors often do not adequately differentiate between shortterm discrete problems and long-term systemic weaknesses8 American International Group (AIG) 91I went to bed with Miss America and woke up with a witch; this can happen to even the most careful of investors9 Lowe’s 101Using 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 probabilistic10 Whirlpool Corporation 113Extraordinary patience is required when a deeply undervalued stock continually remains deeply undervalued11 Boeing 137Opportunities can occur when great companies develop temporary problems12 Southwest Airlines 157When tight markets lead to sharply higher prices for goods or services, earnings and share prices can become buoyant, even for normally unattractive businesses13 Goldman Sachs 169Large profits can be earned when perceptions temporarily differ from realities14 General Motors 187One must rely on judgment and a sixth sense when the fundamentals of a company become unclear15 A Letter to Jack Elgart 221A letter that summarizes my approach to investing and that includes a number of do’s and don’ts I found useful in my careerAbout the Author 233Index 235