Deep insight and candid discussion from one of Wall Street's best investors Common Stocks and Common Sense provides detailed insight into common stock investing, using a case-study approach based on real-world investments.

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 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 79 Investors often do not adequately differentiate between short-term discrete problems and long-term systemic weaknesses. 8 American International Group 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 113 We conclude that the company s earnings and share price are being depressed by cyclically low demand for appliances and by abnormally high costs for raw materials; successful investors should purchase their straw hats in winter. 11 Boeing 133 Opportunities can occur when great companies develop temporary problems. 12 Southwest Airlines 153 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 165 Large profits can be earned when perceptions temporarily differ from realities. 14 A Letter to Jack Elgart 181 A letter that summarizes my approach to investing and that includes a number of do s and don ts that I found useful in my career. About the Author 193 Index 195

PRAISE FORCOMMON STOCKS &COMMON SENSE “Ed Wachenheim has been an extraordinarily successful value investor for decades, and in this well written and engrossing book, he explains his investment approach through case studies, including investments that went well but also some that went badly. The key takeaways are that success requires intense commitment to research, a probabilistic mindset, and the temperament to remain rational in the face of market irrationality.”—ROBERT E. RUBIN, Former U.S. Secretary of the Treasury “Ed Wachenheim often emphasizes the great value of using one’s ‘common sense’ as an investor. But after he describes how he has analyzed every imaginable dimension and variable of several organizations before deciding whether to buy their stock, we quickly realize that there is nothing even remotely ‘common’ about his ability to be both prescient and wise. This is a fascinating and enlightening book that is completely accessible to the layman, and should be required reading for professionals.”—NEIL L. RUDENSTINE, Former President of Harvard University “Ed Wachenheim is a very successful investor who has never sought the limelight. He has written a book on investing which is a kind of confessional, talking openly about his stock picking experiences with humor and candor. Reading about his odyssey over the past several decades will prove to be a useful apprenticeship for both the novice and the experienced investor. I learned a lot and I’ve been doing it longer than he has.”—BYRON R. WIEN, Vice Chairman, Blackstone Group LP

Common Stocks and Common Sense by Edgar Wachenheim III, chairman and chief portfolio manager of Greenhaven Associates, is a delightful book. Part memoir, part case study, part advice, it sheds light on a stellar investing career.- Brenda Jubin, Seeking Alpha"Ed Wachenheim has been an extraordinarily successful value investor for decades, and in this well written and engrossing book, he explains his investment approach through case studies, including mostly investments that went well but also some that went badly. The key takeaways are that success requires intense commitment to research, a probabilistic mindset, and the temperament to remain rational in the face of market irrationality." —ROBERT E. RUBIN, Former U.S. Secretary of the Treasury "Ed Wachenheim often emphasizes the great value of using one's 'common sense' as an investor. But after he describes how he has analyzed every imaginable dimension and variable of several organizations before deciding whether to buy their stock, we quickly realize that there is nothing even remotely 'common' about his ability to be both prescient and wise. This is a fascinating and enlightening book that is completely accessible to the layman, and should be required reading for professionals." —NEIL L. RUDENSTINE, Former President of Harvard University "Ed Wachenheim is a very successful investor who has never sought the limelight. He has written a book on investing which is a kind of confessional, talking openly about his stock picking experiences with humor and candor. Reading about his odyssey over the past several decades will prove to be a useful apprenticeship for both the novice and the experienced investor. I learned a lot and I've been doing it longer than he has." —BYRON R. WIEN, Vice Chairman, Blackstone Group LP