Warren Buffett, born in Omaha in 1930, is an American investor and businessman known as the Oracle of Omaha. President of the investment firm Berkshire Hathaway, he is one of the richest and most influential men in the world, not to mention his important philanthropic work.
From an early age he showed great interest in economics and investments. Such have been the successes achieved by Warren Buffett in the world of investments that he is considered the best investor of all time. Due to his sound investment advice and guidance, he earned the nickname The Oracle of Omaha.
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| Warren Buffett |
Now, despite having an immense fortune, Buffett is characterized by living in an austere way, without showing opulence.
The beginnings of an investment genius
Warren Buffett was born in the city of Omaha in 1930. At that time, the United States was going through a terrible economic context, since it had just suffered the crash of 29 and the country was plunged into the Great Depression .
Buffett's father, as a stockbroker, was one of the great victims of that stock market and economic catastrophe. All this caused his son Warren to have to face a childhood marked by certain deprivations. However, from a very young age, Warren Buffett had an investment acumen and an entrepreneurial spirit. Thus, Buffett began his business career selling chewing gum and, later, soft drinks.
Buffett, fascinated by investments, read investment books when he was only 10 years old while following the stock market with interest. Not long after, at just 11 years old, he made his first investment, from which he drew important lessons. It all started when Warren Buffett bought shares of Cities Service Company valued at $38 a share . Initially, the price plummeted to $27, and Warren ended up selling the shares for $40. However, if he had waited a little longer, he could have sold them for $200 a share.
Thanks to this experience, he learned to invest rationally, trying to keep emotions out of the picture and being patient enough to find the right moment to sell. After dedicating himself to selling newspapers, he invested his money in land in Nebraska, which allowed him to acquire several sources of income.
Later, he made a living in a pinball machine business, which brought him an interesting income and made him doubt whether he should start his university studies. Despite his doubts, he entered The Wharton School to finally finish his studies at the University of Nebraska.
Buffett's great mentor
If there is anyone who has had an influence on Warren Buffett's view of investing, it is Benjamin Graham, who taught at Columbia University. His figure led Buffett to enroll in said university.
Buffett had read the book The Intelligent Investor by Benjamin Graham and shared his ideas of value investing , although later they had differences regarding the size and depth of the investments. In short, both agreed to buy shares at a low price that, in the future, when the market discovered their potential, would increase in value.
Buffett's landing in the world of investments
After earning his master's degree from Columbia University in 1951 and having excelled in Benjamin Graham's classes, Buffett returned to Nebraska. There he decided to create his own investment firm, called Buffett Associates. For this, he used the capital contributed by family and friends, while he only contributed the symbolic amount of 100 dollars.
Buffett was looking for a certain permanence from his investors, so he did not allow them to withdraw the capital until December 31. He also did not tell them what he invested in and his source of income was 25% of the profits as long as they were above 6%. Buffett's philosophy was clear, since he applied the so-called value investing.
Over time, Buffett Associates grew from being a small investment company with 7 partners to, in 1962, managing up to 7.2 million dollars and having 99 partners.
Berkshire Hathaway, the turning point
Warren Buffett considers his worst investment to be the purchase of shares in the textile company Berkshire Hathaway, which he took control of in 1966. Since the textile company showed poor economic performance, Buffett chose to transform Berkshire Hathaway, doing of it an investment vehicle. Buffett ended up closing Buffett Associates and using Berkshire Hathaway as an investment company.
At his side was his loyal adviser and friend Charles Munger. Both sought to acquire companies at a low price, but with great potential for the future. Together they invested in American Express, Blue Chip Stamps, and See's Candy Shop. They also bought shares of the Washington Post, the newspaper that Buffett himself had curiously distributed when he was young. Subsequently, Buffett's actions were directed towards investing in banks and insurers or in brands such as Coca-Cola.
The best investor in history
Initially, Warren Buffett was criticized for not investing in technology companies. The reason was that Warren was not a fan of investing in overly complex products. In any case, Buffett's decision not to invest in technology companies kept him safe from the dot-com bubble and made him the richest man in the world and the best investor in history.
Later, big names from the business world such as his friend Bill Gates would join his investment firm. Precisely, in 2006, Buffett declared that up to 99% of his fortune would go to the Bill and Melinda Gates Foundation, all for the sake of philanthropy.
Buffett did not stop and in 2009 he carried out his most important operation. Through a takeover bid , he bought the Burlington Northern Santa Fe railroad company for $44 billion. After overcoming prostate cancer in 2012, Buffett has continued his philanthropic work, leading a simple life without excessive luxuries, while still leading Berkshire Hathaway, one of the most powerful companies in the world.
Warren Buffett's Investment Strategy
Knowing a little more about his success, many investors are curious to know what the supposed secret formula of Warren Buffett's investment strategy. However, it should be noted that this methodology is neither secret nor that difficult.
In this sense, contrary to what one might imagine, Warren Buffett's investment decision methods are not that complex. In fact, they can be used by anyone who has a basic understanding of the primary principles of financial mathematics. As an investor, Buffett is an active practitioner of the so-called Value Investing , an investment modality whose main characteristic is the long-term association of investors with companies of great value, but whose shares are currently being traded at prices below what they actually are worth.
In other words, the purpose of value investing is to find securities on the stock market that are priced below value. That is, that they are trading at a price below what they should value, taking into account fundamentalist criteria. Several characteristics are directly associated with Value Investing, and consequently become useful for Buffett's investments. However, certainly the most significant are the safety margin and the patience factor .
It is no wonder that the Oracle of Omaha is a living example of how successful an investor's journey can be when thoughtfulness and the long term are used consistently in their applications. Combining this patience and focus on the long term, Buffett was able to practice not only value investing, acquiring companies considered cheap, but also Buy and Hold. This strategy has been practiced by keeping stocks in your portfolio for long periods of time.
Warren Buffett and the Buy and Hold
As Buffett himself often says, “The market was made to transfer money from the impatient to the patient”. Apparently, once again, he is right in his arguments, as his results speak almost for themselves. Investor patience is placed by many experts as one of the main factors of their success. After all, Buffett was never in a hurry to get rich or to get rid of his positions once they went up on the stock market.
That's why Warren has become a reference for the Buy and Hold strategy , an investment methodology that consists of buying companies and keeping them in the portfolio for a long time. This is justified by the fact that, in practice, most investors fail to make money in the long term for two main reasons:
- Hastily selling stocks that have risen, before making even greater gains;
- Hastily selling stocks that have fallen, not getting the return on their recovery.
The hasty sale is commonly identified as a major bottleneck in investors' results, causing most of them to obtain returns below market benchmarks. So, practicing Buy and Hold, this problem is solved, since the investor practically does not sell his positions, but keeps them.
Below are some of the oldest positions in Warren Buffett's investment portfolio:
- American Express – 1963 (over 50 years);
- Coca Cola Company – 1988 (over 30 years);
- Wells Fargo – 1989 (over 30 years).
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