How to invest like Warren

May 4th, 2007|| · No Comments ·

Warren Buffet is the world’s second richest man. He is Chairman and CEO of Birkshire Hathaway Inc. And is considered the world’s best investor.

The numbers do not lie. If you invested $10,000 in Birkshire Hathaway in 1965 you would have $51 Million now. Compared to $497,431 if the money were invested in the Standard & Poor’s 500 stock index.

Value Investing

Buffet is a value investor.

Value investing essentially looks for stocks and investment options that are undervalued by the market.

This is Buffet’s hallmark strategy. Together with his perfection of patience. Buffet will wait until he can buy top quality companies at a discount price.

Buying Whole Companies

Warren Buffet will buy your whole company. Unless you are McDonalds, in which case he will only need around 4% to make a big impact.

However, Buffet prefers to buy the whole company to passive minority share positions.

Simple Tastes and Frugal Habits

Buffet, although know for a slight addiction to luxury air travel, is also known to be a man of simple taste and frugal habits. He famously draws a meager salary, as CEO and Chairman of one of the most successful US companies, a company other mega wealthy individuals, like Bill Gates, invest their fortunes.

Buy Wonderful Businesses

A concept Buffet learned from his long time Vice-Chairman at Birkshire Hathaway, Charles T Munger. For Buffet investing is more than just the numbers. When he and Munger came together in 1972 to for the $25 Million acquisition of See’s Candies Buffet started to clarify some of the key aspects of what makes a business “wonderful”.

1. Sustainable competitive advantage.
Think Coca-Cola. Think Gillette. Buffet needs to know the company will be around in 20-25 years and he needs to know what it will earn him for that period. Companies that he can experience, that he can see a tangible link to his daily life and everyone elses, he likes. (GOOGLE?).

2. Quality Management. In Buffets investing world view, quality management is integral to its value as a business. ‘What I must understand is why someone will continue to get out of bed in the morning once they have all the money they could want,” Buffett says. ”Do they love the business, or do they love the money?” “John F. Welch, CEO of General Electric Co., considers Buffett a superb judge of managerial talent. Buffett and Welch have gotten to know each other over the years as golf partners and as rivals in auto insurance and other businesses. ”Take 20 people you know quite well but Warren has just met casually,” Welch says. ”If you ask Warren his opinion about them, he’ll have each one nailed. He’s a masterful evaluator of people, and that’s the biggest job there is in running a company.”

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