"Warren E Buffett is Worth Over
$90 Billion - Accumulated Using
'Value Investing' Techniques - He First
Identifies When Shares Are Under-Valued, Waits Patiently, And Buys At The Right Price"
Introduction
Warren E BuffettWarren E Buffett was born in 1930 in the state of Omaha, USA and was the son of a Republican Congressman.
He learned all about money at an early age having run paper rounds and published a racing tip sheet before he was even in his teens.
Then, at the age of 15, he purchased a pinball machine and installed it in a local barbers. The machine earned him 20% of his investment on day one, and all the money he made of this little enterprise was enough to buy a 40 acre farm and pay for his college tuition.
In 1949, he studied 'The Intelligent Investor' by Benjamin Graham, and he was so impressed by this value based approach that he enrolled for an M.B.A. under Graham.
At
the age of 26, Buffett started his own company. His philosophy was to
invest in companies based on their value and buying stocks at the
largest possible discount to their true value.
"Warren E Buffett's Methods"
An investment of $10,000 in Warren E Buffett's original partnership back in 1956, would have grown to around $300,000 when the partnership was dissolved in 1969 (Buffett knew that the market was getting over-heated).
Not too shabby a performance! See the table below:
Year Dow Jones % rise (fall) Buffett Partnership % rise
1957 (8,4) 10,4
1958 38,5 40,9
1959 20,0 25,9
1960 (6,2) 22,8
1961 22,4 45,9
1962 (7,6) 13,9
1963 20,6 38,7
1964 18,7 27,8
1965 14,2 47,2
1966 (15,6) 20,4
1967 19,0 35,9
1968 7,7 58,8
1969 (11,6) 6,8
a.p.r. +7,4 +29,5 compounded
Pretty impressive!
But ... had you stayed with Buffett and invested in his Berkshire Hathaway company that $10,000 would today be worth over $30 million.
There are dozens of folk in Omaha who became millionaires by investing in Buffett's original partnership.
And the criteria of investing in companies with a low p/e, high dividend yield, large discounts to book value, and strong balance sheets, is as true today as it was then.
This is known as 'Value Investing' a technique he first learned from his mentor Benjamin Graham.
"The Rules of Warren E Buffett"
Here are just a few of the secrets to Buffett’s success:
1. Fundamental Analysis
Warren E Buffett spent 5 years analysing companies before he set up his original partnership and in his early days of the partnership spent most of his time studying the reports and accounts of hundreds of companies.
He firmly believes in detail analysis.
2. He looks for companies with a good "Business Franchise."
A business with a good franchise is a business that is difficult to compete with. This is certainly true of all businesses that Buffett purchases.
They all have good brand names, quasi-monopoly positions of some sorts, or good cash floats, like insurance companies.
3. Leverage
With
Berkshire Hathaway, extensive use of leverage has been made within
insurance companies, and one of its main and most successful holdings
has been GEICO (Government Employees Insurance Company).
Bought at an average cost of $6 per share in the late 70s, by 1992 GEICO was quoted at $210. A thirty bagger!!
What
Warren discovered is that insurance companies could invest premiums
that they collected on top of investment of shareholders' funds, before
they paid out on claims.
That was the kind of leverage Warren liked. Between 1977 and 1985, GEICO's return on equity averaged 33%.
4. Buy Value
Warren E Buffett reckoned that value will always be reflected in market price.
He learned this from Benjamin Graham. Graham and his sidekick David Dodd taught that investors should "look for value with a significant margin of safety relative to prices."
This statement became famously known as "buying a dollar for sixty cents."
Here are a two examples:
Buffett always looks to buy (in true Benjamin Graham fashion) value. He looks for value with a significant margin of safety relative to prices. He likens it to “buying a dollar for sixty cents.”
Berkshire Hathaway bought both American Broadcasting Company (for $24,70/share in 1978) and General Foods (for $31,40/share in 1981). Both companies were trading on extremely low P/Es, and both companies had low debt/equity ratios (less than 30%).
Both had good brands and solid balance sheets.
In 1985 both companies were taken over at $120 a share netting Buffett a very tidy profit.
"Berkshire Hathaway is Born"
Warren E Buffett knew when he dissolved his original partnership that the market was getting over-heated. And he was right.
Stocks were selling on crazy high P/Es.
The great Bear Market of 1970-74 ensued. Some shares in this period more than halved.
It was during this time that Buffett formed his own investment vehicle, Berkshire Hathaway.
People panicked, and guys like Warren Buffett filled their boots. With companies like Interpublic, Media General, Ogilvy and Mather, Washington Post, and others, Warren Buffett bought these all at rock bottom prices (some on P/Es as low as 2 times).
He was recorded as once saying he felt: "like a sex-starved guy in a harem."
He has a way with words!
Warren E Buffett is well known for buying stock in Bear Markets and during market pull-backs.
Here are a few of Berkshire Hathaway's core holdings:
Washington Post
Originally purchased in 1973 it owned "The Washington Post," "Newsweek" and several television stations.
Back then, Buffett reckoned a monopoly daily newspaper had a good business franchise. The share price rose many, many fold since he purchased it.
His logic was that people get used to a particular newspaper and it is difficult for them to switch allegiance to another.
Coca-Cola
Berkshire Hathaway owned 6.8% of Coca Cola which is one of the best brand names in the world. It has a dominance in the world's soft drinks market and large economies of scale.
Gillette
Originally bought in 1988 Gillette has an excellent brand name, dominant market share and great franchise.
"Books About Warren E Buffett"
Surprisingly, we cannot find a single book written by Warren E Buffett. There are plenty of books about the man, but seemingly none by his own hand.
Maybe he spends all his time poring over Financial Statements looking for nuggets of gold.
No matter. What books are avilalbe are exceptional (well, most of them are). The books listed below are our pick of the crop.
BuffettologyBuffettology by Mary Buffett and David Clark
I confess. I am now a true Buffettologist. I was before I read this book. The book merely confrimed it.
Buffettology is a proven method of how to invest successfully in stocks. Stocks that will continue to grow and grow.
Buffett himself recommends that only concentrate on a handful of shares, and throughout a lifetime, only 20-30. On the face of it, that should make the task a whole lot easier.
However, what that means is that you need to spend more time on those handful of shares to get to know them inside out. And back to front.
Warren E Buffett has made it his business to get to know everything about a company. Which would also explain why he does not invest in too many technology companies - he doesn't understand them.
Read this book, and its sequel, and work your way through the associated workbook and you will know infinitely more than most investors. And that includes so-called investment advisors.
Grab your copy by clicking on the link just below here:
The Buffettology WorkbookThe Buffettology Workbook by Mary Buffett and David Clark
Reading books, however good they are, is one thing. But there is no substitute for taking action.
If you have read Mary Buffett and David Clark's book- "Buffettology" - then the natural follow-on action for you is to work your way through their Workbook.
Warren E Buffett has made a fortune "doing his own thing" and now here is an opportunity for you to replicate his actions.
The methods used are not "Get Rich Quick" but who would you rather follow - Mr. Buffett or some tipster in some newspaper column?
Get your copy by clicking the link below here:
The New BuffettologyThe New Buffettology by Mary Buffett and David Clark
The original Buffettology was written in 1997 and this sequel arrives four years later having seen the end of a massive Bull market and what was dubbed: the Dot Com crash.
Investors wonder what will become of their savings.
It appears as though they learned little from the original book. The principle of Value Investing that Warren E Buffett learned from Benjamin Graham still holds,ad always will.
Discover, and understand, why Warren E Buffett does not "play" the Stock Market. Get this, and you can invest in the same way.
Get this great resource, and complete your collection of Buffettology books, by clicking the link below:
The Tao of Warren BuffettThe Tao of Warren Buffett by Mary Buffett and David Clark
I don't normally rave about any one particular resource because I find most of the books on my bookshelf infomrtive and/or entertaining.
But this book is both informative and entertaining. And very, very readable. I don't normally read a book in one sitting, but this is one of those rare times when I did just that.
Warren E. Buffett didn't write too many books himself, this one was co-written by his ex-daughter-in-law and noted journalist DAvid Clark.
Warren E Buffett's quotations are legendary and you will find his best ones here in this publication together with wise explanations. All 125 of them.
Click the link below to get your copy:
Warren Buffett and the Interpretation of Financial StatementsWarren Buffett and the Interpretation of Financial Statements by Mary Buffett and David Clark
This book is loosely based on Benjamin Graham's work of a similar name and is ideally suited for the private investor. It provides insights into how Warren E Buffett pulls apart a company's accounts looking for those Economic Moats.
Who would have thought that a resource about company accounts would be readable? But Mary Buffett and David Clark have successfully done just that.
If you want to understand how Warren Buffett values a company, and you definitely should, then this resource should be very near the top of your shopping list.
Click below to get your copy:
Warren Buffett's Management SecretsWarren Buffett's Management Secrets by Mary Buffett and David Clark
This book makes a good sequel to the authors' Buffettology series of books (see below).
The authors have captured Warren E Buffett's decision-making process and strategies for maintaining focus.
Warren E Buffett has undoubted leadership qualities that others want to model. Qualities that have made him the second richest man in the world.
It highlights that success in life and success in business are very closely linked. The book is choc full of quotes and anecdotes that go along with the dialogue.
Get your copy right here:
Warren Buffett's Ground RulesWarren Buffett's Ground Rules by Jeremy Miller
Before Warren E Buffett formed Berkshire Hathaway he spent fourteen years managing the Buffett Partnership Limited. During that period, and having beat the Dow Jones by over 50% in 1968, he wrote 33 letters to his partners detailing his philosophies.
He called these his "Ground Rules."
This book is about how Warren E Buffett used Einstein's 8th. Wonder of the World to ake fortunes, for him, and his partners. The rest, as they say, is history.
Click the link below to get a copy for yourself:
The Warren Buffett WayThe Warren Buffett Way by Robert G. Hagstrom
In this book the author wonders why, with so much information about the techniques of Warren E Buffett available, do so many investors fail to emulate him.
Robert Hagstrom attempts to point out reasons why Warren Buffett is super-rich and everyone who attempts to copy him do not come close.
In the introduction Howard Marks cites several reasons why Buffett is "different." A couple of these reasons are that Buffett is unemotional, contrarian, and extremely patient.
The book details 9 case studies of Buffett's prior investments. Another chapter details 12 immutable tenets, and another chapter defines the man himself. A whole chapter is dedicated to how he was educated ranging from his early association with Benjamin Graham and Philip Fisher to his partnership with Charlie Munger.
Click below to obtain your copy:
The SnowballThe Snowball by Alice Schroeder
Warren E Buffett is not a writer, at least not about himself. But he gave permission to Alice Schroeder to interview him, his family members, and his business associates.
The result is this tome. All 800+ pages of it.
For those that want to get inside the mind of this investing genius, it is the definitive guide.
If you feel that a book of this size is too much for you, then take a look at the summary below - you'll get the gist but not all the detail.
Click the link just below and order your coopy:
The Snowball SummaryThe Snowball Summary by Business News Publishing
If you are not keen on reading 800+ pages of the orignal book then perhaps the summary could be right for you.
The book re-counts the story of one of the richest men in the world. The book is based on interviews with the sage himself, and also family members and business associates.
An inexpensive look at the sheltered life of the man known as the "Sage of Omaha."
Save yourself a lot of heavy reading and just get the salient points by clicking the link below:
"Warren E Buffett's Three Favourite Books"
Warren E Buffett put his faith in three favourite books. Three books that he used to go from nothing to over $40 Billion and on to over $90 Billion.
Below are the three books that Buffett so covets, plus a book by Preston Pysh giving a highly readable synopsis of all three books:
The Wealth of NationsThe Wealth of Nations by Adam Smith
Warren E Buffett has three favourite books. This is one of those three.
This book was first published in March 1776 during the Scottish Enlightenment and the beginning of the American Revolution.
The book was a best seller even when it was first published.
It not only influenced economists of the time but also governments and organisations.
The book is a must read for anyone who wants a better understanding of the principles on which all modern capitalist economies have been founded and the creation of wealth that stems from those principles.
Adam Smith mixed a lot of common sense with history, philosophy, psychology, and much more.
Smith's tome was recognised as one of the first to describe what builds a nation's wealth and touched on topics such as divison of labour, productivity, and free markets.
Order your copy by clicking the link below:
Security AnalysisSecurity Analysis by Benjamin Graham and David L. Dodd
This is the second book (of three) that Warren E Buffett recommends. The first being 'The Wealth of Nations' and the third 'The Intelligent Investor' by Benjamin Graham.
First published in 1934, Security Analysis has sold over a million copies. The latest edition (based on the 1940 version) has 200 extra pages written by some of Wall Street's leading investors.
In this volume, the principles of Benjamin Graham's value investing techniques are explained asbeig relevant for today's markets.
The Foreword to the book is by Warren E Buffett who only repeats the relevancy of value investing in the markets of tody.
Get your copy right now by clicking the link below:
The Intelligent InvestorThe Intelligent Investor by Benjamin Graham
This is the third book (of three) that Warren E Buffett recommends.
Benjamin Graham was, arguably, regarded as the greatest investment advisor of the 20th. century. His philosophy of "value Investing" taught investors, such as Warren Buffett, the virtue of long-term investing.
The Intelligent Investor is regarded as the stock market bible.
It is essential reading, even if you do not agree with some of Graham's philosophies.
The fact that it is one of Warren E Buffett's top three recommendations is a good enough testimonial to its usefullness.
Order now by clicking the link below:
Warren Buffett's Three Favorite BooksWarren Buffett's Three Favorite Books by Preston Pysh
Contrary to what a lot of people think, this book is not a collection of Warren E Buffett's three favourite books, that would be a monster of a resource with nearly 2,000 pages.
This book is a mere 200 pages and highlights the useful information that is to be found in the three books that he recommends.
What is really useful is that Warren E Buffett starts the book with simple explaations of investment terms and that approach is continued throughout the book.
And, as a BIG bonus, at the end of each chapter, a video lesson is referred to. These are not physical videos but reference to a webpage where you can access the videos online.
This is an excellent book that teaches you how to accumulate wealth over a long period. Something that Warren Buffett himself is rather good at.
The tone of the book throughout is top quality written by an extremely competetent author - Preston Pysh.
This book is a MUST for your library, get it here right now:
In this book, Preston does a great job of bringing out salient points from Warren E Buffett's three favourite books. He takes what he describes as three very complex books and makes them understandable.
He particularly picks out what he calls 'Four Golden Rules'. These are:
- An investment must be managed by vigilant leaders
- An investment must have long term prospects
- An investment must be stable and understandable
- An ivestment must be undervlued
Conclusion
Warren E Buffett has gone on record as saying that throughout a lifetime, a person need only become acquainted with bout 20 company shares.
We can well understand that - the secret of course is - which 20 shares?
Follow much of what this great man preaches and you will not go far wrong. Spend time on doing your own research.
To sum up Buffett’s philosophy, it would be to look for:
1. Stock that is out of favour for some reason
2. Stock that has excellent business franchises
3. Stock with sound balance sheets
4. Stock with low P/Es
We happen to believe that Value Investing, if you want to really succeed at Stock Market Investing, is well worth spending the time to know, and know it well.
There are a lot of investors and authors who have mastered the topic but Warren E Buffett has that little bit extra. Perhaps it's his attention to detail.
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