The World's Most Successful
"Price is what you
pay. Value is what you get." ~
Warren Buffett is
the world's most successful investor and
a self-made billionaire. He
is consistently ranked among the world's Top 3 wealthiest people. Buffett
generated an average annual return of about 31%.
Key To Investing
Warren Buffett was once asked what is the most
important thing he looks for when
evaluating a company to invest in.
hesitation, he replied,
The Power of Focus
Warren Buffett says his companies ability to generate large profits is the
result of being
able to focus on
what is important,
and not paying attention to things that would distract the company.
Buffett's Teachings on
Warren Buffett is the world's most successful investor. "Buffett's teachings
on investment sound deceptively
simple. But there is no deception. They
simple. Do not allow investment advisers to persuade you that investment
is a complex matter needing great expertise. Instead, learn how to assess
the fundamental and financial values of a business
yourself, and invest according to your convictions."
Warren Buffett believes that
the conventional approach to investment makes it difficult to beat the
market and easy to do worse. If you wish to invest well you must be prepared
go against the prevailing wisdom and ignore conventional investment
guidelines. You can increase your chances of finding winning stocks by
adhering to Buffett's contrarian principles.
Using the Probability
Buffett is a master at the
art of fast
making and arbitrage. The probability theory is essential to Buffett's
theory of investment: "Take the probability of loss times the amount of
possible loss from the probability of gain times the amount of possible
gain. That it what we're trying to do. It's imperfect, but that's what it is
Buffett uses essentially the
same approach to investment strategy and arbitrage. In both cases "he buys
into situations where the probability is that shares are undervalued and
that this undervaluation will be corrected. The difference is time-scale;
the arbitrage position will be closed out as soon as possible, while the
investment will be kept "indefinitely so long as we expect the business to
increase in intrinsic value as a satisfactory rate." That answers the
question about how long Buffett believes a share should be held: possibly
Bill Gates, Founder of
Microsoft Corporation and a Berkshire director, praises Buffett's
hard-to-imitate management style. "It's baffling to think who else could do
it," he says.
Warren Buffet spends most of
his day alone in an office with no computer. His desk isn't littered with
stock research. "I don't use analysts or fortune tellers, " Buffett says.
"If I had to pick one, I don't know which it would be." He deliberately
keeps the outside world at bay, believing it is the best way for him to
remain "rational" as an investor. If he is interested in investing in a
company, he studies the financials himself. "All I have to do is think and
by others," he says. Warren Buffett "spends the better part of most workdays
thinking and reading. He fields a handful of phone calls, and on most days,
he confers with the chiefs of of a few Berkshire subsidiaries. He seldom
Making Fast Decisions
Warren Buffett "makes swift
investment decisions, steers clear of meetings and advisers, eschews set
procedures and doesn't require frequent reports from managers. Occasionally
he picks up the phone, calls his broker and trades $100 million or more of
When Buffett is buying
stock, he pays little attention to some factors that shape other investors'
decisions, such as economic climate. He doesn't wait to see what government
is doing to make a trade. Buffet also can move more quickly than his
competitors. He has no investment committee, and that allows him to make
Case in Point
Smart & Fast
Buffett believes that
managers of the companies he is investing in ought to be left to run their
businesses without interference from him and without having to hew any to
any unifying corporate strategies or goals. "We
delegate to the point of
abdication," Buffett says in Berkshire's Owner's Manual.
Despite its investment size,
Berkshire Hathways has a tiny staff. It's headquarters is staffed by just 17
employees. The company has no public-relations, human-relations,
investor-relations, legal departments, or investment committee. It holds no
quarterly earning calls for investors and analysts, has no asset allocation
guidelines, and gives no guidance on future earnings. Warren Buffet tells
the chiefs of his business units not to produce any special reports for him.
On occasion, when severe
arise, Buffett abandons his hands-off management approach however.